Financial Security

Financial Planning Must Be Inspired by the Heart

With February comes the celebration of St. Valentine's Day, which leads us to highlight a financial planning belief that isn't commonly considered: Successful financial planning must be inspired by the heart. Financial planning takes time and effort and requires the sacrifice of today's pleasures for tomorrow's. Why would we do this? We do it because of our heartfelt desire for financial peace of mind for ourselves and because of our love for those most near and dear to us. Have you ever thought of financial planning this way?

What Does Your Heart Want?

There are many things we "should" do or "want" to do but, in reality, we only get done what we truly commit our hearts to accomplish. Think of the priority you assign to:

  • Your relationship with your spouse or significant other
  • Your relationship with your family
  • Your relationship with your friends
  • Your mental well-being
  • Your physical well-being
  • Your spiritual well-being
  • Your career or avocation
  • Your financial well-being

It's OK to Ask for Help

Some people can accomplish all they want on their own. Most cannot, due to limitations in expertise or time. Most people need some help from other people.

For example, some people enhance their physical well-being with the benefit of a coach or trainer or by being on a team for support. Since personal financial planning is confidential by nature, it is hard to achieve in a group setting. You can do financial planning on your own, but most people don't have the time or expertise. There are also behavioral finance obstacles that are best managed with help from another person's perspective. In other words, you may need another person's insight before you can see how you need to change your behavior.

A CERTIFIED FINANCIAL PLANNERTM professional is best qualified to serve your comprehensive personal financial planning needs.

Put your heart into it today. Your financial peace of mind will be greatly improved.

"Successful financial planning must be inspired by the heart."
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About Bruce J. Berno, CFP®
Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com.

High-Income Individuals Must Save Beyond Contribution Caps

Do you let the government set your goals?

It seems that when it comes to retirement savings, many people do.

Many individuals save 3% of their income for retirement because that's what the government recommends to employers as a "safe harbor" contribution. Yet it's important to know that the contribution level considered "safe" for the employer is not necessarily safe for the employee.

Other people save 6% of their income for retirement because that's what their employer will match. This percentage, however, more likely reflects what's required of the employer to remain competitive and attract qualified employees rather than reflecting the actual needs of their employees. So what does 3% or 6% have to do with your retirement security?

Evaluating Your Yearly Retirement Savings

The amount you should contribute toward your retirement every year is influenced by many factors:

  • Age when you start saving for retirement
  • Amount of debt you have
  • Stability and predictability of your income
  • Future growth in income
  • Current marginal income tax bracket
  • Standard of living, both now and in retirement
  • Total income level (which can be capped)

Limits on Defined Contribution Plans

Congress sets total dollar limits on the amount you can save in tax-deferred qualified retirement plans. For defined contribution plans, in general, these limits in 2013 are:

  • $17,500
  • $5,500 extra "catch-up" contribution if you are age 50 or older
  • $51,000 defined contribution limit for employee and employer total

Here's the kicker: The maximum compensation for defined contributions plans, in general, is $255,000 in 2013. Therefore, if your income is over $255,000, the contribution limits have even less merit as a guideline for adequate retirement savings.

One lesson rings clear: If your income is over $255,000, additional savings and investments beyond the contribution limit of a traditional profit-sharing 401(k) plan may be needed to provide you with a retirement that is in line with your accustomed manner of living.

The time to plan for achieving a comfortable retirement is now.

"A contribution level considered 'safe' for the employer is not necessarily the same for the employee."
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About Bruce J. Berno, CFP®
Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com.

Personal vs. Web-Based Financial Advice

Technology is a wonderful thing. It has dramatically improved our access to information. But is it a double-edged sword? Is information the same as advice? Can the web be a substitute for, or a supplement to, personal advice?

Ask yourself the following:

  • Would you see a doctor for medical advice or do a web search?
  • Would you consult an architect to design your house or pick a blueprint from a website?
  • Would you consult an accountant for a tax question or rely on the IRS website?

While you could rely on the web for any of the above, should you?

We live in a complicated world, but we are fortunate to have experienced, knowledgeable professionals in many specialties. The web can supplement, but not replace, personalized professional financial advice.

At Berno Financial Management, our goal is to give you the advice that you need, tailored to your specific situation, or to refer you to a specialist when needed and then coordinate implementation of that advice.

Personal, professional advice should always put your interests first. Can you trust the web for that?

About Bruce J. Berno, CFP®
Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com.

All That Twitters Is Not Gold

The most common question we have heard from our clients lately is, "Should we buy gold?" There is a long list of reasons why the answer is "No!"

  1. Gold investors made absolutely no money for 25 years from 1980 to 2005, according to Ibbotson Associates.
  2. The price of gold actually declined about 50% from 1980 to 2000. Even the most disciplined of investors would have given up during that time, since traditional stocks and bonds were performing well above average during that same period.
  3. Gold, like all commodities, does not pay any interest or dividends.
  4. Only about 11% of gold has an industrial use. It is not sold and consumed like oil or natural gas.
  5. The actual replacement cost of gold is about half of the current value. According to Dan Denbow, co-manager of the USAA Precious Metals and Minerals Fund, it costs about $600 to produce an ounce of gold, but that rises to about $1,000 per ounce when all of the costs of mining are factored in.
  6. As of this writing, gold recently spiked above $1,900 an ounce.
  7. Gold was up about 16% for the month through August 22, 2011, therefore heading for its best monthly performance since September 1999.
  8. Gold has increased in value in value for 11 years, the longest winning streak since at least 1920.
  9. Exchange Traded Funds (ETFs) have made it very easy for individual investors to buy gold. But if selling is triggered, heaven-forbid panic selling, then the price swing could be swift and sharp.

In our opinion, buying gold today is like buying tech stocks in the late 1990s. It may continue to go higher in the short-term, but the long-term trend is screaming "buy high," to be followed, of course, by "sell low!" Let's not do that!

About Bruce J. Berno, CFP®
Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com/.

Where Does Your Money Go?

Are you saving more money than you want to or planned? Probably not. Does it seem that even when your income goes up you can’t save more money? Where does your money go? How much money are you saving? If you have a hard time answering these questions―and most people do―there are some easy solutions.

First, try a manual or “back of the envelope” approach. Start by identifying your annual income from your W-2 tax wage statement or year-end payroll stub. Then identify how much you contributed to investment accounts like your 401(k), IRA or 529 college savings plans. Next, calculate how much cash you accumulated or depleted by comparing your bank account balances from the beginning of the year to your balances at the end of the year. If your bank account balances were higher at the end of the year than at the beginning, you accumulated cash. If they were lower, you depleted some cash.

To calculate the percentage of your income that you saved, divide the amount you contributed to investment accounts plus any cash that you accumulated minus any cash that you depleted by your annual income total. For example, if your annual income was $100,000 and you contributed $15,000 to your 401(k) and accumulated $5,000 in your bank accounts, you invested or saved $20,000 or 20% of your income. That is very good and you may be able to stop here, unless you want to learn more about where you are spending your money so that you can try to save even more.

If your income was $50,000 and you contributed $1,500 to your 401(k) and $500 to a 529 college savings plan and your bank balances remained about the same, then you saved 4% of your income. Obviously, the higher your income, the greater percentage you should be able to save. However, it doesn’t always work out that way, as people tend to ratchet up their lifestyle spending as their income increases. As a general rule, you should try to save 10% to 25% of your income. Saving 5% is better than nothing, but it’s probably not enough to accumulate a retirement nest egg in the long run.

What technological resources are available to help you boost your savings? You have a wide range of options to choose from. Your bank website may have a resource to help classify and summarize expenses. Your credit card company may provide an annual statement that shows you how much you spent in certain categories. Check out the “restaurant” or “entertainment” categories and you may be shocked how the discretionary expenses add up.

Two popular software packages that can help you track your spending and saving are Quicken and Mint.com. Quicken is a PC-based software and Mint.com is web-based. They are both owned by the same parent company, Intuit.

Mint.com is free and automatically collects your transactions from your bank and credit card accounts. It assigns an expense category based on the merchant code that is tracked when you swipe your credit card or debit card. For example, if you swipe your card at Kroger’s it will be classified as groceries and if you fill up your tank at Speedway it will show as gasoline. You can manually edit any entries in Mint.com and you do have to manually categorize any checks your write and any cash transactions.

Quicken is similar to Mint.com, but you have to manually download your transactions. Credit card transactions are automatically categorized, just as they are with Mint.com. Quicken has a much wider range of reporting capabilities and more flexibility in choosing historic time periods for reporting. Quicken also has an “Easy Answer” function to answer the questions “How much did I pay to…”  or “How much did I spend on…” for a wide range of time periods that you can select. Quicken also offers bill pay and check writing capability to further simplify your cash management. Different versions of Quicken are available that cost between $60 and $90 before rebates and discounts.

Whether you use manual or software methods to track your income, expenses and savings, the process is enlightening and well worth your effort!

 

About Bruce J. Berno, CFP®

Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com/.

Your Path to Financial Peace of Mind

What does financial peace of mind mean to you? For some people, it may simply mean being able to pay all their bills every month. For others, it may mean having “x” dollars in savings and investments.What would have to happen for you to experience financial peace of mind? Everyone has a “to-do” list. Maybe you’ve been meaning to review your 401(k) plan, consolidate your investments or have a Last Will and Testament written. Maybe you have questions about using a Health Savings Account or funding a Roth IRA for a grandchild. If you have questions, you need answers. Where do you get them?

The easiest way to achieve financial peace of mind is to understand what you can control and what you cannot control.

You cannot control:
  • The stock market
  • Interest rates
  • Healthcare reform policies
  • Real estate prices
  • The economy

You can control:

  • How much you spend and save
  • Strategies to minimize income taxes
  • Being properly insured
  • Diversifying your investments and minimizing investment costs
  • Having an estate plan for incapacity or death

Recognize that wishing for higher income or more assets will not provide you with financial peace of mind, nor will waiting to earn a higher income or accumulate more assets. The best you can do today is focus on being financially secure with the income and assets that you have. A recent survey by Merrill Lynch revealed that investors with a minimum of $1 million of investable assets believed they needed $7 million, on average, to be “financially secure.” Do you want to be the hamster racing on the wheel?

Financial peace of mind cannot be achieved alone. You must include the significant people in your life, whether that be a spouse and children, parents or grandchildren, siblings or other relatives, or significant others. Communication is critical and takes time and energy. Financial peace of mind is a great personal value to instill in your children.
Financial peace of mind comes from having goals and reasonable expectations. Have you thought about your goals and formalized them in any way? As the old saying goes, “If you don’t know where you are going, you’ll never know when you get there.” If your expectations aren’t reasonable and realistic, you will never achieve peace of mind.
So what has to happen for you to achieve financial peace of mind? The first step is to clarify your top three money concerns. In other words, what keeps you up at night? Then establish how you are going to address these concerns along with a time frame and deadline for each issue.
You may wish to break the issues that bother you most into categories, such as:
  • Income and expenses (paying the bills and saving and investing)
  • Insurance coverage
  • Income tax strategies
  • Education funding
  • Retirement planning
  • Charitable gift planning
  • Estate planning

Can you do it alone? While you can take control of your finances on your own, most people find they don’t have the time or knowledge and experience to manage their personal finances effectively. If you fall into this category, it may make sense for you to seek professional advice. The Choosing the Right Financial Advisor worksheet on our website can help you find the appropriate advisor to help you take the steps you need to reach financial peace of mind.

About Bruce J. Berno, CFP®
Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com/.