Ohio

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/.

What Is Long-Term Care Insurance and Is It Right for Me?

We often find there is confusion regarding long-term-care insurance. Who should purchase it? When it should be purchased? Here is our four-point mantra on long-term-care insurance:

  1. Age 50 to 65 is the ideal time frame to consider long-term-care insurance; the earlier the better.
  2. Invest time to learn about long-term-care insurance, understand it, and decide if it is right for you.
  3. Apply to see if you qualify medically. If you don’t, your decision is made for you!
  4. Buy it or don’t buy it, but make an informed decision that you won’t look back on and question or regret.

But what is long-term-care insurance? It is not just nursing home insurance. You qualify for benefits if you cannot perform a number of “activities of daily living” such as getting out of bed, dressing yourself, feeding yourself, using the bathroom and bathing yourself.

Long-term-care insurance can therefore provide benefits at any age, whether a stroke, traffic accident or other event puts you in a situation where you cannot perform some of the activities of daily living.

Long-term-care insurance can cover services at home, in an assisted living center or a nursing home.

Here’s a real-life example: My step-father is in an assisted living center because we do not want him living at home alone―he needs help taking his medications on a regular schedule, and we want him to have some supervision, social opportunities and good meals. But he can perform most of the activities of daily living, so he would not qualify for benefits if he had a long-term-care insurance policy.

Consider your personal circumstances when thinking about purchasing long-term-care insurance: 

  • Are you married? If so, what is the age difference between you and your spouse? If you are both close in age, what would happen if you both needed care? If there is an age spread, could caring for the older spouse leave the younger spouse with fewer assets for their life?
  • How many children do you have, where do they live and how able would they be to help care for you? Would you want to move in with them?
  • Do you own a home that could be sold to pay for your long-term care?
  • Is the idea of needing care in the future and paying for it something that you worry about?
  • What is your family health history? Did both your mother and father die before age 75 or did they live past 90? What about your other relatives?
  • How is your current health? Are you an obese smoker with multiple health issues? Ironically, the healthier you are, the more likely you are to need long-term care insurance!
  • Are you comfortable relying on government plans or would you rather have individual coverage that may afford you more choices and flexibility?
  • Would you prefer to self-insure and rely on your savings and investments?
  • How important is it to you to leave an inheritance for spouse or children?

Remember, no one wants to live in a nursing home. No one wants to be infirmed or unable to take care of herself. No one wants their house to burn down, to be in a traffic accident, to get sick or to die prematurely, but that is why we buy home and auto insurance and health insurance and life insurance. The same principle applies to long-term care.

Your financial peace of mind will be well served by learning about long-term-care insurance and deciding if it is right for you.

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/.