Financial Freedom for Older Adults

Financial Freedom wooden sign with a beach on backgroundThe word “financial” is not often followed by the word “freedom,” and yet financial freedom has never been more possible. With the advent of online money-making platforms, the constant influx of new products that yield substantial returns, and the continuous stream of budgeting ideology that floods the marketplace, we should be one of the most financially sustainable generations in history. The missing key for unlocking this possibility is very easily just an understanding that we aren’t supposed to be led by our money- we are supposed to be in charge of it.

So what can you do differently to make sure that you have the say over what happens with your money and that your future is financially secure? There is always something you can do to improve in every area of life, especially in money management.

If retirement is on the horizon, make sure you have all of your real estate ducks in a row. Do your best to have your mortgage paid off before you retire to avoid having a payment to contend with when you’re no longer working. If you have successfully decluttered as your children have grown and as your interests have changed, it may become clear that your house no longer fits your needs. If it’s time to downsize, you open up more opportunity to save: by selling your home and moving into a smaller house, you can pad your savings with extra money to help with assisted living or medical costs down the road. Or you could add some real estate to your investment portfolio. Maybe it’s time to get the vacation home you’ve been eyeing — you can always offset payments by renting it out when you aren’t using it.

Next, consider your budget. Unfortunately, only a third of the American population admits to keeping some type of budget for their income. For those keeping score at home, that means two thirds of Americans don’t layout or maintain a plan for their finances. The point is simply that if you aren’t sure where your money belongs on daily basis, it will be harder to plan for the future.

Have you ever taken a road trip to a new vacation spot without a map or a GPS? Having a plan makes all the difference in whether you successfully arrive to your destination. A budget is a plan of action, meant to navigate you through your future. You can start the easy way, by separating your finances into three categories: money for charities, money to save, and money to spend. Once you have determined the percentage of your income that belongs in those major categories, you can break it down further and be as detailed as necessary. There are several ideas behind budgeting worth considering, and you can use the one that best fits your lifestyle.

Before you know it, budgeting will become second nature and you won’t have to question where your money has gone. By the end of the year, you will likely be surprised at how much you were able to save based on your projected plan. Your budget will also help smooth out the tax filing process, because you will be fully prepared with the financial details that you are asked to include in the paperwork.

If you are over 50 years of age, you won’t have to use that hard-earned, well-saved money on hiring someone to help. The AARP organization has a program that provides a volunteer to assist you with your taxes, and for those over 60 years of age, the IRS provides a similar service through TCE volunteers. All you have to do to take advantage of either opportunity is to contact a location closest to you to set-up an appointment.

After you have used all of the applicable senior  tax deductions and benefits, you can use your substantial refund to build an emergency fund, invest in a small side business, or increase your savings account. You could make an extra payment on your home or use the money to upgrade a few things around your house. Then, sit back and enjoy the fruits of your labor, delightfully knowing that you have handled your money the smart way.

A healthy handle on your bank account is just a financial blueprint away. Making savvy real estate decisions, budgeting, understanding what tax benefits are available to you, and carefully managing your tax refund are all easy stepping stones toward financial freedom. Don’t be overwhelmed by the future, but be excited about the possibilities.

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Debt and Holiday Spending

Happy HolidaysAre you ready for the holiday rush and buying spree? Traditionally, the holidays bring us a time of sharing and giving. But the cost of giving has increased over the years and you need to be aware of the burden it could put on your financial situation. With the change in most individual’s financial situation over the past year, this is a good time to reevaluate your holiday gift giving.

Most families spend around $500 on holiday gifts. If you put all those gifts on your credit card, the end result may surprise you. Do you have any idea how long you will be paying off those holiday gifts if you can only make the minimum payment each month? Let’s do some math:

$500 of holiday gifts: Let’s say you charge $500 on your credit card and only make the minimum monthly payment of $20. Some credit cards now are around the 19.99% interest rate for long period payoffs, you will be paying on those holiday gifts for 3 years! And to top it off, you will be paying the credit card company an additional $153 in interest (see Bank Rate website – www.bankrate.com/calculators/credit-cards/credit-card-payoff-calculator.aspx ).

What if your gifts top the $1000 mark: Now you have an after-the-holidays credit card bill starting at $1000, with the same $20 of minimum monthly payment and 19.99% interest rate. Are you sitting down? It will take you 9 years to pay off those gifts you purchased! The credit card company will be happy because you will pay them $1,167 in interest. Yes, that is correct you will be giving $1000 worth of holiday gifts to your friends and family, plus over time more than a $1000 gift to your credit card company.

Not to be a Scrooge, but there is a downside to credit card use if you can not pay it off in a month or two. Another option is the cash envelope and gift list method. Make a list of people you will be buying for, a dollar amount for each person and some great gift ideas you know they will love. Now hit the mall with list and cash envelope in hand. Your goal is not to purchase more than you have in your envelope.

A last tip to remember: the holidays are not always about the purchased gifts. Think back on all the unwanted, unneeded or forgotten gifts you have received over the years. If you were able to have something different from the giver, what would it have been?  What were the best holiday gifts you have received? Was it the homemade cookies, the framed children’s art work or just being able to spend time with your family and friends? The holidays are truly about sharing and giving; think about using your heart and mind instead of your credit card. Have a Happy and Financially Safe holiday!

Kimberly J. Howard, CFP®, CRPC® is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Newton, MA and Denver, CO (781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at kim@kjhfinancialservices.com. Follow us on Twitter @KimHowardCFP.