Financial Planning and Advice Blog for Syracuse

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How to Dig Yourself Out of Debt and Save at the Same Time

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By admin August 25, 2014

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Paying down debt can be a daunting task. But with a little self-discipline and some faith in yourself, your financial picture can change for the better in about six months. Your key to success will be to establish a debt reduction plan and stick to it. That way, you may be able to bring debt under control and even eliminate it.

There are three potential keys to a successful debt reduction plan. First, you need to track your monthly income and expenses. Once you have a record of your spending, compare your monthly outlay with your monthly income. If you have a surplus, this is the amount you can apply each month to paying down debt and building savings. If you have a shortfall, you’ll need to cut expenses.

Second, you’ll need to establish good saving habits. Each month, use your income to first pay expenses. Dedicate whatever is left to savings or reducing your debt. And third, reduce debt by controlling expenditures. Certainly, paying off credit card debt and installment loans is easier once you stop using your cards.

The bottom line is that you may not be able to solve your debt problem overnight, but you can potentially solve it over time. Not only will a combined debt reduction and saving strategy begin to lighten the load now, it may help you feel better about your future.

Wherever you might be financially, getting ahead can feel like it's beyond reach. Current bills can seem to gobble up almost everything. Unexpected ones seem to crop up whenever you have a little extra cash.

Chances are, you find it difficult to do anything because you don't know where to start. Relax. A lot of people are in your situation. What you need to do is face up to the matters at hand and set up a plan of action. The time to do that is right now. With a little self-discipline and some faith in yourself, your financial picture can potentially change for the better in about six months.

Paying Debt and Saving What should you do first? Reduce your debt or start saving? The following three-part strategy may help you control your cash flow, pay off your debt, and encourage saving so you can handle the unexpected expenses that may have gotten you into debt in the first place. In time, you'll be ready to invest. But first you have to know what you owe and what you're spending.

Tracking Spending The steps outlined in the box below will help you determine how much cash you have to pay off your debt.

Next, you'll want to keep track of your typical expenses for one month or so to find out where your money is going. Also figure your unexpected expenses for a year's time -- auto and home repairs, gifts, vacations, etc. -- and divide that number by 12. You may want to use one of the personal finance software programs available to track your spending. Once you have a record of your spending, compare your monthly outlay with your monthly income. If you have a surplus, this is the amount you can apply each month to paying down debt and building savings. If you have a shortfall, you'll need to cut expenses.

How Much Do You Have to Pay Off Your Debt? Step #1: Create a personal balance sheet and list your debts in order of interest rate, from highest to lowest.

Step #2: Add up your liquid assets, including savings and investment accounts, if any.

Step #3: List any major purchases needed in the next year. Subtract this amount from your liquid assets. What remains is the amount you may have to pay your debts.

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Planning for the Future — What Motivates You?

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By admin July 31, 2014

The truth is there is ample motivation to make the most of retirement planning opportunities.
Reality Check 

 It used to be that Americans could count on a pension plus Social Security to get them through their Golden Years. But traditional pensions only account for an estimated 18% of the total aggregate income of today's retirees, and Social Security accounts for only about 38%.1 Alas, the responsibility for the bulk of your nest egg now rests with you.

As you begin thinking about a comfortable retirement, consider that by most estimates you'll need at least 60% to 80% of your final working year's income to maintain your lifestyle after retiring. And don't forget that your annual income will need to increase each year -- even during retirement -- in order to keep up with inflation. At an average annual inflation rate of more than 3%, your cost of living would double every 24 years.

You'll also have to consider the likelihood of increased medical costs and health insurance premiums as you grow older. The average cost of a year's stay in a semi-private room in a nursing home, for instance, is now over $80,000 a year and could rise more than $130,000 per year by 2030, assuming an annual inflation rate of 3%.2

Getting a Leg Up 

 If this dose of reality makes you glum, cheer up -- you have some allies. Investment vehicles, such as your employer-sponsored retirement plan and individual retirement accounts (IRAs), allow you to put off paying taxes on your earnings until you begin taking withdrawals, typically during retirement when you may be in a lower tax bracket.

Additionally, time can be an ally -- or an enemy. Delaying the process of investing can significantly reduce your results. Consider this example: Jane begins investing $100 a month in her employer-sponsored retirement plan when she's 25. Mark begins investing the same amount when he's 35. Assuming an 8% annual rate of return compounded monthly, when Mark retires at 65, he'll have $150,030. Jane will have $351,428.3

While this is only a hypothetical scenario and there are no guarantees any investment will provide the same results, you can see the remarkable difference starting early may make. But no matter what your age, contributing the maximum amount to your employer-sponsored retirement plan and IRA each year could help you achieve the comfortable retirement that each of us desires.

Source: Social Security Administration, Fast Facts & Figures About Social Security, 2012.

Source: MetLife, Market Survey of Long-Term Care Costs, 2012.

Example is hypothetical and for illustrative purposes only. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing and the example does not represent the return of any actual investment. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

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