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Planning Matters Radio / Peter Richon
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March 30, 2021 2:46 pm


Planning Matters Radio / Peter Richon

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March 30, 2021 2:46 pm

On this episode Master Registered Financial Consultant, MRFC® and Dave Ramsey SmartVestor® Pro Peter Richon discusses budgeting and creating a spending plan for your working career and for retirement, and the important differences between the two.

Finishing Well
Hans Scheil
Finishing Well
Hans Scheil
Finishing Well
Hans Scheil
Rob West and Steve Moore
Rob West and Steve Moore

You to plan planning matters radio program is planning on founder Sean we are service financial investment and retirement banning firm and we always look forward to assisting you in your financial matters. Any questions you have with money anyway. We can't give us a call if you would like to get a plan put together or just have a quick question on your mind. 919-300-5886 919-300-5886 and for listeners. The program do always offer the opportunity to get a plan in your hands if you like an optimized retirement plan look into all aspects of planning your investments, your income, your taxes, your healthcare, your legacy we offer to put that together for you.

No cost no obligation that is the value added opportunity that you have just for being a listener to the program today so if you like a plan for your financial future. A snapshot of where you are recommendations on how to achieve your goals. 919-300-5886 with me today excited to have Crystal Holland. She is member of the team here at Rochon planning that handles the life insurance side of things, helping people to cover the unfortunate worst-case scenario that can occur with the loss of income. The loss of a family member and the loss of financial stability that can result in that so Crystal first off, welcoming the program. I think you very much. Good to have you here. Good to see you today. Now I want to talk a little bit about debt, about credit, about budget about income and why all of these things do play into a well-rounded financial plan okay now I'm sure that in your life, you've got income on one side you got expenses on the other end somehow each month.

You gotta make the meet in the middle and match them up right yeah and that's that's most people scenario. Now we we work for our income during the course of our lifetime we set our alarms. We show up to work we put in our sweat equity.

We trade our time for money in making that trade. It would seem like that the money is the more important out of the two were trading our time for but in reality, time is much more important to us much more valuable than money. So what were trying to do is trade just enough of our time at a fair rate of compensation to be able to do the things that we want to do with our time as a financial advisor. I tell my clients all the time that the quality of life.

The time is much more important than the money but it's our paycheck that provides that ability right and unfortunately sometimes. That paycheck stops when and in it can be for many reasons. You know, a job may tell us we no longer need your services. We may have a slip, trip, accident, injury, sickness, we may pass away, and that income can stop and we got we prepared for that. So I got a list of 12 questions to know if you're ready to retire and the number one question is how much income would you be able to generate if your paycheck stopped today and I think that one is important for anybody whether they're 65 years old, or their 25 years old very trade be able to have some kind of answer to.

And as I talked about on the program before I'm a Dave Ramsey Smart investor Pro Dave Ramsey's a re-well-known financial guru you've you've heard of days. I know Dave Ramsey and his baby steps to financial success.

They begin pretty basic. They begin with, having $1000 in the bank that your baby emergency fund and the next step is something that were going to be talking about today debt baby step two is clearing out your debt. That's not our friend that works against us. And I get a lot of questions from people. Hey, should I really attack my debt or should I simultaneously be saving for my retirement and there's a couple different sides to that question. You know if there's a match on your 401(k) could be really tempting to say well maybe I'll put a little less emphasis on the debt in a little bit more of my contributions will go to my 401(k) so I can capture that free money that's there. Well, the reason why Dave says to attack the debt first and he will tell you to.

If you have had trouble with it. If you had trouble managing debt.

He'll tell you to put your retirement savings on pause is because when you invest money in the market in your 401(k), there's no guarantee that at the end of the year you get a return on that investment right if I put $1000 away into an investment account today and I look at it a month later, there's no guarantee that there's $1000 there the end of the month right I would say pay your debt off because in that gives you more money right to be able to put towards an investment. Where is he your work 401(k) and IRA.

You need to clear debt. We could build a a fantastic castle to the sky but if there are tunnels and holes underneath of the foundation were not built on solid ground.

We don't have a firm foundation to build upon debt is not even termites. It's it's literally it's tunnels underneath its instability and most debt has an interest rate that's tied to it right you have borrowed money and if you don't pay that money back. You owe some additional interest on that money.

So if you look at the two on a balance your investment does not have a guaranteed rate of return versus a credit card, you are paying interest and and in most cases, you know your credit card specifically that interest rate is double digits there pretty high interest on credit cards 12, 13, 20, 25% interest. In some cases based on your credit score and rating, and so on one hand, if you don't pay off $1000 debt you know on and on the other side there is a guaranteed rate of return that's working against you in the form of that interest rate plus just like you said, if we attack the debt if we cleared out will have more money free each month to put toward our retirement savings so we can catch back up later, but number one top concern is let's clear out that debt so Dave talks about the baby step two is the debt snowball you line up all of your debts smallest to largest.

And you attack the smallest one first. Here's another area where people seem to have a question about the system and and difference of opinions on how to do it.

Absolutely I get it. Let's attack the one with the highest interest rate because that makes the biggest difference. Here's the thing you're looking at money only from a mathematical perspective and wow money is a lot of math addition and subtraction and finding that bottom line. There is also a mental and emotional aspect to your money and if you get that sense of accomplishment and momentum that you've done something that you've knocked out a debt then you will have more enthusiasm about attacking the well and if you had five credit cards and you only had X dollars per month to put towards him. So you're paying the minimum for each 50 bucks 50 bucks 50 bucks get that cheapest one paid off because that gives you $50 to put towards the second. Now you got more momentous your building strength and speed as you guess how I would absolutely and again so it works twofold. Now you've got additional discretionary dollars sure you knocked out just the smallest one, so it may not be a whole lot but you're making that much more progress. He got the first one paid off. He felt a sense of accomplishment. Now you get the second one paid off even faster. That's going to give you a sense of accomplishment and that you are moving forward and so a lot of times I help people lay out this plan for it for how to tackle that and theoretically the plan you, you will be making this much payment this much progress each month and it will take you two years to get this debt paid off this what after they get the first one knocked out another charge in another enthusiasts and they're making that much quicker progress on things that are there. Certainly in the mindset that they're not going to rack up anymore debt. And that's the beginning after step two goes back to funding the emergency account thousand dollars.

It was not meant to make you feel comfortable. It was not even right. Full emergency account. Now we go back and fully fund that emergency account.

3 to 6 months worth of living expenses right okay now. The purpose of that is to be safe to be liquid. It is called an emergency account. The purpose is actually to prevent emergencies. If you can stroke a check for a problem and it solved. It's not an emergency is an inconvenience.

Most people have $40 that they could maybe handle and much above that they're going into debt to handle that problem and I will say I'm I'm 46 and I was raised old school and my grandmother has always said you need six months of bills put in the bank and eat of course in my 20s early 30s and Mike has six months worth the money to just sit in the bank. You know that now I get it because life happens. You know now why do you think there's an upper limit on even Dave who is all about staying out of debt. Don't don't put yourself in a situation where you can go into debt. He puts an upper limit on how much should be in that emergency account.

My grandmother could've done Dave Ramsey before Dave Ranger and I would probably have a ton of money right now the president of the making books, but yet Shelley said six months the woman who is 90 and has no credit because she is always pay for everything with cash.

She had geez you have the ability to do that and Dave's not a fan of having credit available days in that same boat. If Dave needed a hotel room for the night. You could probably just pay for the hotel or cash right right for the average person, they do need something to put down as collateral. You know we whether it's a debit card with the visa backing to rent a car to get a hotel room for the evening. There is some need there to have some collateral form of payment. Whether it's a debit card or credit card companies have gotten bad for that to where lies that you have to have a credit card or you can, it would seem that way vehicle or you know online network.

Yet note and in many cases, now you can handle some of that with a debit card. I love putting you in debt. Yeah, absolutely. But you the I saw a crazy statistic that some act. I don't know the exact number but was something like $40 billion were earned by the banks in 2019 in overdraft and maintenance fees to access your money in the bank and because were not very good at understanding how much we have, they are because of the electronic ease of access that we have because were not holding that cash in our hands and saying this is all I've got and I got to spend less than this because we can access that money without actually having it there they charge is what is that those are.

I hate those days my son actually died and just got his first card and this past on his bank accounts. I can see what he spends his money on, and I had to have a talk with him. He used an ATM debt charged $3.50 dollars and yeah it was only $2.50 but even for me, but definitely him being a high school kid working part, you just wasted $2.50 pull out 60 bucks you know that's where banks make a lot of their money and that's why we gotta have better understanding of it and better control over it and again is why there is the upper limit there on that emergency account because we don't want to let the bank make money on money on us on our backs on our behalf, and the purpose for emergency account is to be liquid and to be accessible to be safe and to be there when we need to get our hands on right if we need it. However, what does the bank pay us for interest.

Next to absolutely nothing right. 1% is a high interest rate. In this environment. So if we leave too much money sitting there for two long period of time.

We end up losing money safely right.

We are leaving excess capital earning less than inflation.

Rather, let's say that forget the emergency account.

I I personally had a need to feel comfortable and I didn't feel comfortable unless I had $100,000 sitting in a bank account somewhere.

Well, let's flash forward a year and that hundred thousand dollars has earned 1% interest and I am being generous because today when I seeing 1% in checking and savings accounts at Spitz .01 may be .5. But let's say it's 1% okay so I've earned $1000 on that hundred thousand sat there, but historic inflation is 3%.

And guess what this year this past year it's been way more than that, and the government may say differently, but I shop you know I buy things everyday gases up a dollar a gallon at least since last year the price of a sheet of plywood down at Lowe's is three times what it was a year ago, groceries in the store have gone up going out to eat there. Adding automatic gratuity on top of inflated prices everywhere you go things are costing more so that hundred thousand dollars that I kept there in the bank. Let's just give it to the benefit of the doubt and say it. Inflation is only 3%. That ended up costing me $2000 to keep it fit. I did earn $1000 in interest.

I lost 3% in purchasing power now.

I earned 1% in interest back. Sorry essentially I should have just written a check for keeping my hundred thousand dollars sitting there safe and accessible. I should've written a check for $2000 right. That was the true cost of it. So that's why we don't want to keep excess money over and above that six months worth of expenses. That's kind of the high end if you are a single income earner household if you got dependent children. If you got expenses and debts you need to cover probably closer to the six months if you're a dual income household. You got to people earning an income. The chances of one of you know or both of you losing your jobs at the same time, probably a little less then maybe closer to three months, but that's within range.

That's reasonable and that's to your comfort level, whether it's three months or six months but at the end of the day we earn that paycheck would bring that money home. We need to have intentions with it. We need to have a spending plan so I hope people to create an craft that spending plan. The first step in. It is what I call the look back. Budget and this is where we begin to get a feel for how much does life cost right and let's pull out your last 6 to 12 months worth of bank statements. We don't need to comb through every dollar that you spend in and where you spent it, but that does show you how much you blow right yeah I'll say how much life cost and most people do deal with a lot of people that do have credit cards as they why spend money on my credit card to yeah but did you pay the credit card bill out of the bank account right so most of the actual payments. Your mortgage payment, the health insurance payments. If you make of the auto insurance.

The car bill credit card bills. The utilities and then stopping to go out to eat and all the rest. Usually you're paying all that out of one central bank incorrect. Let's look back at the last 6 to 12 months. Look on the front cover.

There's four numbers there's beginning balance credits so much when in debits. That's how much came out, and ending balance.

The debits is what were paying attention to write what was that over the past 6 to 12 months. Was it $3500 a month. Was it $7000 a month how much the ebb and flow like was there one month. It was 10,000 another month that was 4000 what's the range there in and why. What was it you were buying all the Christmas gifts in November are you paying off the Christmas gifts in January. How are you managing paying attention to how you manage your money were getting a handle. Now we've got a baseline of an emergency account. We've attacked the debts and were getting a true feel for how much is coming in and going out and so now were creating a foundation for financial stability. Now we can begin to make progress in building wealth were not just managing income and expenses were not just managing debt were not treading water. Just trying to keep our head above it took to do to make minimum payments.

Once we've got those steps handle. We can begin to make progress and build wealth. Why do we want to build wealth because you want to retire or you want to have an excess retirement income on top of Social Security that you might have.

And you might not have when you retire you retire in any doubt, it all depends on what the person well Steve, what are your future goals. Do you want your dealer retire and just sit in the house and pay your monthly bills, but when I retire I want my house paid off.

I want you know I don't want a car payment. I want my money to be mine and I want to travel. You know your dreams yeah yes your bucket list got things to do and places to go with it cost me 60,000 now need that.

Plus right when I retire right and I don't have a clue that 46 what Social Security can be if it's even there. You know right now the retirement age 67.

There'll be some changes in Social Security and and how much a few want to put in a fairly net you a couple years was life expectancy down there while they darted shot to right and forward Armitage used to be 65 your rationale is 67 and was life expectancy of the government only when you get all he wants to give you about five years of freedom you back to let you but wanted to retire at an earlier age. You need to do that is something that is a goal you I will working to 67. I'll be too old to do anything yet. I will retire $62 check to you at 46 I need to be thinking. What do I want to work up until today about ready to kick the bucket yet most of us want a few years of freedom yeah and we work a long time to get to the point of financial success where we can feel confident walking away from that paycheck right, right. Remember the beginning we said we trade time for money and so by making that trade consciously doing that every day for a lifetime. You would think that the money is the more important thing, but it is not, and that's the reason why we say we save because the money is not the most important part. We save because we would like to enjoy some of our time at some point in the future and that pile of money that sitting there replaces our paycheck. It replaces our sweat equity in our work ethic is something I've always been told when you let the interest you pay on his credit cards or when you let someone borrow money you think about when you go to work if you made let's say 10 bucks an hour.

That was your $10 sweat for ever. How many hours you are pit and towards that interest or that you let some I borrow now you gotta think of it like that and if were making progress and beginning to build and accumulate that wealth how much does it take in order to replace that paycheck right. That's the big question that people try to figure out as they are saying. What I would like to retire in the future. At some point in time. Well, what does it take to do that. Why want to million dollars okay does that truly replace the paycheck that your use to well I want to do it at age 65 is that arbitrary age mean that your financially prepared for retirement that the answer to both of those is no know it. The lump sum that you build and accumulate whatever that number is no more a specific age that you pick out at at a point in the future. Neither one of those indicates that you are financially prepared to walk away from the paycheck and remain stable and confident the way that you do that is through planning and having a spending plan on having an income plan and looking at what your expenses are and how that lump sum that you've saved up equates to reproducing equates to replacing it. And so that's where we go through that planning process that optimize retirement plan. It is a process of comparing your expenses to your sources of income figuring out what the difference is the income gap and then projecting that out and saying well. In order to fill this income gap hears how much we need in that retirement account to be able to generate that income and oh by the way most retirement accounts these days are tax-deferred.

Another part of the optimize retirement plan is figuring out how to pay as little in taxes on that on that account as possible.

So how do we account for taxation.

How do we control taxation how we minimize what Uncle Sam's share is and how we maximize what we actually get to keep and then we generate that income so that we can make it through retirement now there's a lot of risks there know if we got that lump sum of money. How do we know that half of it's not going to disappear on us if we got invested in the market want to grow so we didn't keep it in the bank but the alternative is we we put it in the market where it fluctuates and manages it seem like the market fluctuates a whole lot more today and in recent history than it did maybe 10, 15 years ago. That's where you need a good financial investor that actually keeping an eye on your money and letting you know.

Okay, we had you aggressive organic about more moderate.

That's true.

However, any professional in the financial field worth their salt is going to tell you that they cannot accurately time the market 100% of the time in the market is unpredictable and past performance never guarantees future results in any investment always incurs the risk of loss.

Those are the standard disclaimers before you get into the market and so we need to control what we can we can't control the market, we can control how much risk we are exposing our money to how much of the market we have in our portfolio) and so as a 25-year-old maybe I was comfortable taking a large amount of risk maybe 80% of my portfolio was in equities as a 65-year-old I am planning on not working anymore not working for another 40 year career.

I'm trying to walk away from that paycheck. At that point in time my portfolio needs to have undergone fundamental changes and adjustments where I'm not taking on 80% of the risk of the market took probably where I'm taken on maybe just 20% and I have worked for a career.

So maybe I've built up a substantial amount to replace that paycheck. I don't need to take more risk than is necessary, than is appropriate to achieve my goals if I can replace that income gap. If I can create the income to fill my lifestyle and to do so. I only need a 4 to 6% rate of return. Why am I going to invest as though I need a 15 to 20% rate of return and take the risk of losing half that money if I lose half that money than I do need a 20% rate of return and one of the chances of actually getting that consistently year after year.

Wall Street doesn't talk to us about this. No Wall Street talks to you about the investment allocation. A diversified portfolio will be the solve all the stocks go up and bonds go down, or vice versa.

But everything a balance out and whoop project out this nice 8 to 10% rate of return that happens consistently every year in the future and you're able to generate all the income you need and then you die and pass on $3 million right is what all the financial plans look like that's not reality when I'm planning I I feel like I'm Murphy's brother Murphy's Law what can go wrong will and will probably happen at the worst possible times. That's the job of a true planner rise to have that conversation before those bad things happen and say here are all of the bad possibilities hears what can go wrong with your plan and the future make those bad things happen on paper and in the planning process so that if they happen in real life we been prepared for.

We gone through that spending plan gone through the expenses we know we can cover them were building the wealth and then Christie. What happens is we pass away right eventually, the chances of making out of life alive 0% so we cover the worst possible outcomes of the life insurance need is a big part of planning and a lot of people feel like that need goes away on the day that they were tired and I'm here to tell you people pass away even after retirement was the most valuable type of life insurance. It's a trick question. It is the type that you have horse on the day that you die right true that now is the most you important valuable type of life insurance. Very true.

But when you've got investments on the stock market and like IRAs and does her long-term investments.

Hopefully, at 25 some ice and get your Roth IRA. The say you day were getting good advice they did yet say you didn't say have a regular IRA, you need to know and hopefully your financial advisor can say hey you have your 45.

Now you have an IRA taxes are going up. Better to for us to convert it relevant whatever now than to wait unit years from now and what you're talking about is the different statuses for money for your savings right there's three different basic buckets or categories that you can put it right and be taxable. It can be tax-deferred, which means you're paying that bill later or can be tax-free in the Roth and certain types of life insurance can even help you build some tax-free income.

Then when that income is created.

Everything creates different qualities for that income Social Security is taxed differently than pensions their tax differently than withdrawals from your IRAs and 401(k)s, stocks, bonds, mutual funds, when they create dividends or yield that's a different type of income. Certain bonds produce a different type of income savings bonds municipal bonds are to be tax-free income.

There, the bottom line is for most people this is confusing to bring all of this together and to say where am I in my financial life and my progress in and how do I get to that next step in that next goal for us. We've done this a number of times we've been through it we've seen a lot of different people, situations, and we do have a formula for a system for success that we follow. We put that together for savers and investors in anyone planning for their future and and serious about it, free of charge, no cost, no obligation for that optimize retirement plan and again this is going to address where you are currently give you a snapshot and then we will itemize and illustrate and detail plan for investments a plan for income a plan for taxes of plan for healthcare a plan for legacy. So if you would like to get an optimized retirement plan, pick up the phone.

Give us a call. Happy to talk to you forgot specific questions that you'd like to get answers to work or at least a qualified experienced professional perspective, would love to help you out with that and give you that direction.

919-300-5886 919-300-5886. You can go online rich on you can get in touch with us there as well.

You can request a copy of my book.

Understanding your investment options will get that to you digitally or or physical copy. If you go online rich on is my last name was Sean, but it looks like Rich on and request a copy there.

Look forward hear from you soon thanks return into planning matters radio talking again next planning matters radio the content of this radio show is provided for informational is not a solicitation or recommendation of any investment strategy you were encouraged to think investment tax or legal advice from an independent professional advisor. Any investment and/or investment strategies mentioned involve risk and possible loss of principal by three services offered through virtual capital management, a registered investment advisor. Fiduciary duty extends only to investment advisory advice does not extend to other activities such as insurance or broker-dealer services advisory clients are charged a quarterly fever as a product of a commission which may result in a conflict of interest regarding

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