May 2020 Living Debt Free and Wealthy Newsletter

You're Missing Out
When we are helping people with their finances, one important topic that needs to be considered no matter what financial situation they are in is, ‘opportunity cost’. In everything we do we use it in our decision making whether we realize it or not. This economics term plays a meaningful impact in everything we do. It affects us all, no matter how young or old we are, and no matter how big or small our goals are. So what is it?

Opportunity cost is all about acknowledging what you are missing out on by choosing to do one thing. It is all about realizing the consequences of your actions (whether good or bad). A simple example of this is when you were younger you stayed home and studied for your exam rather than going outside and playing with your friends. The opportunity cost here is the enjoyment you would have had playing with your friends. Understanding opportunity cost is all about weighing the options of a decision and the outcomes that come from it.

I bring this up because opportunity cost is extremely important when making financial decisions. This is because financial decisions have a lasting impact that can easily escalate and snowball into financial security when done right or financial traps that can be hard to escape from if done wrong.

One example of this is credit card debt. Too many people see credit card debt as another small bill each month. They only see its actual cost and not the opportunity cost. For example, let’s say you have $6,000 in debt and you are paying 20% interest on that. The actual cost of your debt is $1,200 each year (plus principle payments). However, by having to pay this each month, you are not able to use it for your other goals like retirement. If you didn’t have that debt and put that $1,200 away for your future even if you could only get 4% each yr. In 30 years you would have had almost $70,000. So by spending that $6,000 now you are actually costing yourself $70,000. This is just one example of how opportunity cost plays into planning for your financial success. There are countless other situations to think about.

In the end, opportunity cost is all about using the resources that you have to their full potential so you can accomplish your goals. By utilizing it properly it can mean the difference between being financially secure instead of being financially frustrated. Unfortunately, in life, you don’t know what you don’t know, so it’s hard to calculate all of the opportunity costs you are choosing between each day. That’s why I highly recommend everyone meet with an expert who can make sure you are in the best possible position. As always, if you ever need help or want a second opinion, I am here for you.  
"Waste no more time arguing about what a good man should be. Be one"   

-Marcus Aurelius


Interesting Facts:

-Photographers make you say "cheese" as it turns the corners of your mouth up and shows your teeth.

-About 77% of the Earth's population lives in the Northeastern Quadrasphere.

-Bedloe's Island was the name of what would become Liberty Island (Statue of Liberty).

-Recycling originally dates all the way back to Ancient Rome and Ancient Egypt.

-Recycling boosts the economy by lowering the cost of production

Did You Know:

-Congress designated May as National Military Appreciation Month in 1999 to ensure the nation was given the opportunity to publicly demonstrate their appreciation for the sacrifices and successes made by our service members - past and present.

Each year the president makes a proclamation, reminding Americans of the important role the U.S. Armed Forces have played in the history and development of our country.

May was selected because it has the most days set aside for celebrating and commemorating our military's achievements. These days include Loyalty Day, which was established in 1921, Victory in Europe (VE) Day commemorating the end of WWII in Europe on May 8, 1945, Armed Forces Day created in 1949, Military Spouse Appreciation Day established in 1984, and of course the best known of the May holidays, Memorial Day
Are You Ready To Roll
Here’s The Situation… For 10 or more years you’ve been stuffing money into a qualified retirement plan, (401k, 403b, Etc.) and now you’re ready to switch jobs, ready to retire, or maybe you’re already retired… What do you do with the money that’s in your current plan?

Well you have three basic options:

1. You Can Leave the Money Where It Is – The concerns with this option: You are required to move the money when you leave; you may be giving up some control over how your money is being invested; or if you need money in the future, there may be problems gaining quick access to your money.

2. You Can Cash It In – If you cash it in, you‘ll have to pay taxes on the entire amount, and if you’re under age 59 ½ there is a 10% early withdrawal penalty.

3. You Can Roll Over The Money Into An IRA This is probably the smartest move for most people…If you roll this money into an IRA you can defer paying taxes on the money, and avoid the tax penalties if you are under age 59 ½.

An IRA is not really an investment, but rather a type of account set up by the IRS tax code. Your IRA can be funded with various investments inside the plan. When you roll your money into an IRA, you’ll need to find the right investments to reach your retirement goals and needs.

What are some of the common IRA Vehicles?

Mutual Funds – You can use a mutual fund as the investment inside your IRA. However, you are investing in the market, and have the risk that if the market goes down, you could lose money.

Bank Products – CD’s and Money Market Funds– While these investments offer you safety and liquidity, there is also the risk that you will have less buying power in the future. This is because you’ll generally receive a low rate of return on your money, and worse, you could lose spending power due to inflation. Example: A money market account earning 2%. Now subtract inflation @ 4% and your 2% return is - 2.0%. (2% - 4% (inflation) = -2.0%)

Annuities– There are 3 basic types of growth annuities

– Fixed, Indexed and Variable.

Fixed Annuity– A Fixed Interest Rate Annuity, pays you a guaranteed fixed interest for a specific period of time. There is NO risk of loss, and historically they have outperformed CDs and Money Market Accounts. However, it may not provide as much of a hedge against inflation. (4.5% - 4% (inflation) = 0.5%)

Indexed Annuity– These annuities have the ability to get stock market type returns, without the downside risk. (No Loss of Money!) Because they have the potential for higher returns, with safety and guarantees, they can create a better hedge against inflation, so your savings will not lose its spending power!

Variable Annuities– Variable annuities have sub accounts that are much like Mutual Funds. There is a risk of losing some of your money. However, with some of the new riders, for a fee, you can minimize those potential losses. Annuities can offer you a safer and more secure retirement option - with rates of return that are better than most bank CDs, Savings Accounts or Money Market Funds. And, they can provide a hedge against inflation, while minimizing the risks to your investments. The principle drawback is there may be penalties for early withdrawals, and you could lose money.

So, it is important to find the one that best suits your needs. For help or more information, call my office today!  
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