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money habits

4 Money habits that help your family become wealthier

Financially speaking, what do some households do right? Why do some households tread water financially while others make progress? Does it come down to money habits?

money habits

Sometimes the difference starts there. A household that prioritizes paying itself first may end up in much better financial shape in the long run than other households.

Some families see themselves as savers, others as spenders. The spenders may enjoy affluence now, but they also may be setting themselves up for financial struggles down the road. The savers better position themselves for financial emergencies and the creation of wealth.

How does a family build up its savings? Well, money not spent can be money saved. That should be obvious, but some households take a long time to grasp this truth. In the psychology of spenders, money unspent is money unappreciated. Less spending means less fun.

Being a saver does not mean being a miser, however. It simply means dedicating a percentage of household income to future goals and needs rather than current wants.

You could argue that it is harder than ever for households to save consistently today; yet, it happens. As of May, U.S. households were saving 5.3% of their disposal personal income, up from 4.8% a year earlier.1

Keeping these money habits can help

  1. Budgeting is a great habit. What percentage of U.S. households maintain a budget? Pollsters really ought to ask that question more often. In 2013, Gallup posed that question to Americans and found that the answer was 32%. Only 39% of households earning more than $75,000 a year bothered to budget. (Another interesting factoid from that survey: just 30% of Americans had a long-run financial plan.)2 money habits family

 So often, budgeting begins in response to a financial crisis. Ideally, budgeting is proactive, not reactive. Instead of being about damage control, it can be about monthly progress.

 Budgeting also includes planning for major purchases. A household that creates a plan to buy a big-ticket item may approach that purchase with less ambiguity – and less potential for a financial surprise.

 2. Keeping consumer debt low is a good habit. A household that uses credit cards “like cash” may find itself living “on margin” – that is, living on the edge of financial instability. When people habitually use other people’s money to buy things, they run into three problems. One, they start carrying a great deal of revolving consumer debt, which may take years to eliminate. Two, they set themselves up to live paycheck to paycheck. Three, they hurt their potential to build equity. No one chooses to be poor, but living this way is as close to a “choice” as a household can make.

You might interested: Consumer debt, the small business trap

 3. Investing for retirement is a good habit. Speaking of equity, automatically contributing to employer-sponsored retirement accounts, IRAs, and other options that allow you a chance to grow your savings through equity investing are great habits to develop.

Smart households invest with diversification. They recognize that directing most of their invested assets into one or two investment classes heightens their exposure to risk. They invest in such a way that their portfolio includes both conservative and opportunistic investment vehicles.

Taxes and fees can eat into investment returns over time, so watchful families study what they can do to reduce those negatives and effectively improve portfolio yields.

 

You might interested: Understanding how your 401(k) plan protects your children

4. Long-term planning is a good habit. Many people invest with the goal of making money, but they never define what the money they make will be used to accomplish. Wise households consult with financial professionals to set long-range objectives – they want to accumulate X amount of dollars for retirement, for eldercare, for college educations. The very presence of such long-term goals reinforces their long-term commitment to saving and investing.

Every household would do well to adopt these money habits. They are vital for families that want more control over their money. When money issues threaten to control a family, a change in financial behavior is due.

 

Aquiles Larrea Jr. AIF® may be reached at 212-390-8918 Option 1 or Aq@larreawealth.com.

www.larreawealth.com

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – ycharts.com/indicators/personal_saving_rate [6/29/16]

2 – gallup.com/poll/162872/one-three-americans-prepare-detailed-household-budget.aspx [6/3/13]

 

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Financial Planning Services offered through Larrea Wealth Management. Cambridge and Larrea Wealth Management are not affiliated. The information in this email is confidential and is intended solely for the addressee. If you are not the intended addressee and have received this email in error, please reply to the sender to inform them of this fact. We cannot accept trade orders through email. Important letters, email, or fax messages should be confirmed by calling (212) 390-8918. This email service may not be monitored every day, or after normal business hours. This message distributed via use of the MarketingPro system.

 

 

tax season file jointly

Tax season should you file jointly or separately from your spouse

Yes, this is this time of year, tax season. For many married couples, filing jointly is a good idea, but there times when you might decide to file separately from your spouse.

Ninety-five percent of married couples file joint federal tax returns

tax season file jointly

Do you have trust issues with your spouse?

Filing jointly can be convenient. Frequently, there’s a financial advantage, but that does not mean it should be done without consideration.1

Years ago, there was less incentive to file jointly. That was because the “marriage penalty” for doing so was effectively greater. There is no written “marriage penalty” in the Internal Revenue Code, but, in the past, income tax brackets were structured a bit differently and spouses having similar annual incomes sometimes paid more taxes by filing jointly than single taxpayers did.

There are many good reasons to file jointly

Nearly all of them involve saving money. Joint filing may give you an effective tax break right off the bat. Currently, married taxpayers who file separately face the 28%, 33%, 35%, and 39.6% income tax brackets at lower income thresholds than other unmarried taxpayers.2

Joint filers can claim significant tax credits that marrieds filing separately cannot

If you want to claim the American Opportunity Tax Credit, the Lifetime Learning Credit, the Elderly or Disabled Credit, or the Earned Income Tax Credit (EITC), you have to file jointly. Joint filing also gives you the potential to claim the full Child Tax Credit, rather than a reduced one.3

Deductions, too, decrease when you file separately as a married couple

Standard deductions fall significantly. Phase-out ranges affect itemized deductions, and some itemized deductions are unavailable for married couples who do not file jointly. Couples who file separate 1040s can only deduct 50% of the capital gains losses joint filers can. In addition, if one spouse elects to itemize deductions, so must the other (there must be a separate Schedule A for each spouse). The spouse with fewer deductions has no ability to use the standard deduction to lower his or her taxable income.2,3

Joint filing even helps you with regard to the Alternative Minimum Tax

When you file separately as a married couple, your AMT exemption falls by 50%. So you may be more susceptible to the AMT if you file separately. If the AMT affects you, you will find many federal tax deductions reduced or unavailable to you.3

Do you live in a community property state?

If you do, you may know that state tax law defines what is considered separately held or jointly held property. If you want to itemize deductions in a community property state, the paperwork can be onerous.3

More of your Social Security benefits may be taxed if you file separately

Social Security gives you a “base exemption,” an income threshold above which Social Security benefits may be taxable. The base exemption for married couples filing jointly is $32,000, meaning that if 50% of the Social Security benefits you receive in a tax year plus your other income in a tax year exceeds $32,000, taxes may apply. The base exemption for married couples filing separately who live together at any time during the tax year is $0. It improves to $25,000 for married couples filing separately who live apart for an entire year.4

You might be interested:   4 Steps to deal with sudden retirement when forced to retire early Early retirement forced to retire

 

 

So why would you not file jointly when married?

In certain circumstances, filing separately may be wiser.

Maybe you do not trust your spouse financially

If your spouse is a tax cheat or interprets federal tax law very loosely, filing jointly could prove hazardous in the case of an audit or other troubles. Both spouses must sign a joint return, meaning that both spouses are legally responsible for all taxes, penalties, and fines linked to that return. Yes, an innocent spouse may be offered tax protection by the IRS, but that innocence must be proven.2,3

Maybe you or your spouse have large out-of-pocket medical expenses

If so, and if the spouse contending with such bills earns much less than the other, there may be merit in filing separately. By doing so, the spouse with far less income might have an opportunity to meet the 10% AGI threshold needed to itemize medical expenses. (The 7.5% AGI threshold for itemizing these costs is still in place for taxpayers age 65 and older.)2

Maybe you are separating or divorcing. If that is the case, then it may seem only natural to begin filing separately while still married. Doing so now may lessen the chance of the two of you wading through tax issues in the aftermath of a split.

If you are unsure about whether to file jointly or singly, you can ask a tax professional for his or her opinion. Or, that professional can look at last year’s return and run the numbers for you. Most couples find that filing jointly works out best, but there are exceptions.

 

Aquiles Larrea Jr., AIF® may be reached at 212-390-8918 or aq@larreawealth.com.

www.larreawealth.com

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Early retirement forced to retire

4 Steps to deal with sudden retirement when forced to retire early

 Welcome to our new wealth coach and contributor Aquiles Larrea Jr.! Aquiles specializes in coaching entrepreneurs and business owners as well as working Latinas and Latinos who’d like to plan their present and enjoy their future.

Early retirement forced to retire

 

What if you are laid off or forced into early retirement before 65, or even before 60? If that happens to you, what do you do in response to the next phase of your life starting sooner than you planned? Here are some steps you might want to consider if this sudden situation happens to you.

  1. Gauge where you stand financially

It could be that the full-time job you just left will be your last. It could be that you have been thinking seriously about retirement. Depending on your outlook, you may see your glass as half-empty or half-full – but no matter your outlook, you need to assess your financial position.

With no income from work, your household will be more reliant on your spouse’s income or savings (assuming you are married at the time). So how big is your emergency fund? Is your cash position strong enough so that you can lean on it for a while until you decide how much you want or need to keep working?

Do you want (or need) another full-time job? Do you see yourself transitioning into part-time work? Or are you looking forward to retirement? Regardless of your employment prospects, you will have to calculate the amount of income you receive (or can potentially receive) from other sources – the pension or termination payout you were (hopefully) given, your investments, and other sources of passive income.

If that income doesn’t appear to be enough, should you apply for collecting Social Security as soon as you can? Many financial professionals will tell you no, and here is why: for each year you delay filing for Social Security benefits, your benefits grow by about 8% (from age 62 to age 70). If you were born in 1954 and you file for Social Security benefits at 62 in 2016, you will reduce your monthly Social Security benefit by 25 percent as a consequence.1,2

On the other hand, some people really need the money and/or are in poor health, so they would rather have the income sooner than later. Your projected lifetime Social Security benefit remains the same regardless of the date you first file for benefits, so even healthy retirees sometimes sign up as early as they can. In fact, in a June survey of more than 600 retirees taken by the Nationwide Retirement Institute, 76% of Americans who had been retired less than 10 years and 68% of Americans who had been retired 10 years or longer said that looking back, they felt they applied for Social Security at the right time.1

Nevertheless, a time like this is a great time to examine Social Security claiming strategies with help from a financial professional –especially if you are married or have been married. The wrong move could leave a great deal of money on the table.

  1. Can you take advantage of any benefits as you leave work?

Talk to the HR officer. If you have not been informed of your eligibility for severance pay or an early retirement package, ask about it. Depending on the circumstances of your exit, you may also qualify for Social Security disability benefits or unemployment benefits.

It will not be cheap to secure health insurance if you need it. If you are lucky, you worked for a big company, giving you COBRA eligibility. Maybe you are even luckier – perhaps your employer offered you the option of retiree health benefits when you were hired. (Hopefully, that offer still stands.) 

Early retirement planning

  1. See what you can do to reduce spending and taxes

Leaving work early might mean that your retirement is longer than anticipated. This calls for a reassessment of your retirement income strategy and your probable retirement expenses, including your day-to-day spending habits.

What fixed expenses are non-negotiable? What can you trim? If you are married, you and your spouse should be on the same page regarding how much you spend and what you spend money on. Perhaps gifts to children or grandchildren should be ceased. Maybe you could sell the house and move someplace cheaper. Maybe just one car is enough. You could eat out less. Spending less on mere wants is appropriate in your situation.

Every tax dollar you can save is a dollar back in your wallet. So pay attention to investment location and the impact of taxes on your portfolio, as you may be deriving income from investment accounts.

  1. Stay positive

You may not have left work on your own terms, but you have an opportunity in your hands –the chance to change, and perhaps even reconceive the way you live and work from this moment forward. If you have significant retirement savings, you may even be surprised at the potential your future holds.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – cnbc.com/2015/09/23/when-you-should-file-for-social-security-benefits.html [9/23/15]

2 – ssa.gov/retire2/retirechart.htm [10/22/15]

 

 

Aquiles Larrea profile

Aquiles Larrea Jr. wealth management coach and contributor

Aquiles Larrea profileWelcome to our new coach and contributor Aquiles Larrea Jr. AIF®, who operates as the personal CFO for successful Latino and Latina executives and entrepreneurs allowing them to pursue their passion and purpose-filled life on their own terms.

Having witnessed his mother’s true-life challenges after she was laid off from a downsizing in the garment industry, Aquiles decided to go into wealth management to help others make smart financial decisions.

For the last 20 years, he has enjoyed helping clients transform their professional and personal lives through his unique wealth management systems and processes.

In 2002, Aquiles started his own independent firm, Larrea Wealth Management with the belief that providing private clients with a simple, elegant experience and a highly skilled team of experts could help them and their loved ones achieve new levels of accomplishment.

Aquiles put himself through college and earned a BS from St. John’s University. He also has a huge passion for Karate. He holds a Third-Degree black-belt in Shotokan Karate and was a member of the US World Cup Karate Team.

Aquiles lives in Manhattan with his wife, Rosabelle, and their two kids, Aquiles Jr. and Alexandria.

Aquiles Larrea Jr. AIF® may be reached at 212-390-8918 or Aq@larreawealth.com.