Number one rule of investing, you must understand your investments. So, this week describe in some detail your investment holdings in clear and concise terms to a family member or good friend. If you can’t explain your investment holdings, you have problems. Remember MoneyYOYO – You’re on your own! You are the CFO of your life and you need to be accountable for your investment decisions.

How do you get started? First, make a list of all the investments you own today. Look at your savings, your retirement funds, and real estate you own or anything else that is part of your investment portfolio.

What assets do you own – cash, stocks, bonds, REITs, mutual funds, ETFs, index funds, target dated funds, etc.? Do you understand what are the underlying investments in your mutual funds, ETFs, REITs or target dated funds?

What is the asset allocation of your investment portfolio or your overall mix of investments in your portfolio?

If you don’t understand those investments then you need to do some research. There is plenty of information out there. There are general financial sites like Yahoo Finance and Google Finance. Your mutual company websites such as Fidelity and Vanguard will provide you with additional information. The brokerage firms such as Schwab and etrade, or other sources such as Motley Fool can be helpful in your research. Be knowledgeable about your investments.

What asset classes do you own such as cash or short- term investments, bonds or fixed income investments, stocks or equities, real estate and other investment classes such as commodities? Calculate the percentage of each of these asset classes in your portfolio.

Determine if each investment is conservative, moderate or aggressive in risk level. Also, determine what is the cost of each investment? What fees do you pay for each investment? Then determine the return of these investments after these costs for a 1, 3 and 5-year timeframe. This is a lot of work, but a necessary step if you are to become an informed investor.

Step one is now completed in starting the process of creating an investment strategy. Now you know a lot more about the  investments you own and what they are.

Next we need to figure out what type of investment strategy you wish to pursue.

Kowalczyk comment: If you enjoy this blog, please Like It and send it along to your friends. You can also follow this blog via Twitter @moneyyoyoblog

 

 

 

 

 

 

 

 

 

 

 

 

Many millennials believe that Social Security will not be around when they are ready to retire, but you are paying FICA or SECA taxes to support this program, so you should be knowledgeable about the current program.  (FICA – Federal Insurance Contributions Act tax) (SECA – Self Employed Contributions Act tax)

Social Security was set up in the 1930s during the depression. There are three programs. Most people know about the retirement program. There are two other programs. One is for disabled workers and another for survivors of workers who die before retirement.   80% of the benefits from Social Security go to people over 62 years old. The other 20% of funds go to the other two programs. Over 4 million children receive benefits from Social Security.

Social Security is 84% funded by payroll taxes paid by you and your employer. 13% of the funds supporting Social Security are sourced from the interest earned on special issue Treasury Bonds in the trust account. 3% of the funds come from taxes paid on benefits received.

The average benefit paid to retirees is $15,144 annually or $1,262 monthly. Currently, the highest benefit payment is $30,396 annually and $2,533 monthly. This tells you that some of you will need additional retirement funds if Social Security is still around in its present form when you retire.

You must work 40 quarters before you are covered by Social Security. Many women in the past did not qualify for this benefit, because they did not work long enough to gain eligibility.

You should pay attention to those bulletins you get from the Social Security Administration. Do they have a record of all your work? It is easier to correct an error when it occurs rather than correcting it in 40 years.

Will Social Security be around when you retire? Who knows, but the program will definitely not be in its current form. The retirement age will continue to lengthen out as we all live longer.   How it is funded and how benefits are paid out will probably change to strengthen the program.

Kowalczyk recommendation: Read this article about the current status of Social Security –   http://www.fool.com/retirement/general/2014/05/24/dispelling-the-greatest-social-security-myth-of-al.aspx#

Kowalczyk further information: www.ssa.gov is the official website of Social Security. This website from AARP gives you a glossary of terms used at Social Security – www.aarp.org

Kowalczyk comment: If you enjoy this blog, please pass the website along to your friends and family.

In the past when you worked for one or two companies most of your life, your employer provided a pension plan.  This plan is called a defined benefit plan. When you retired, your employer would pay you a monthly pension payment, a benefit you had earned by long service.

Today people work for multiple companies over their career.  So, it was advantageous to create pension plans that were more portable and could be rolled over to your new employer.  This type of pension plan is called a defined contribution plan.

The bad news is that you are YOYO – you’re on your own.  You must take the initiative to contribute to an employer sponsored plan.

Employer sponsored plans, 401k, 403b and 457 are named for the section of the Federal tax code.  401k is the plan for the corporate world.  403b is the plan for non- profits, primarily hospitals and educators.   457 is the plan for local and state government workers.

You cannot withdraw money from these accounts unless your situation is judged a severe hardship, but you can borrow your funds.

In reality, it is not always easy to roll over your funds to your new employer’s sponsored plan and many people end up with plans at several companies.  Do you have multiple 401k/403b/457 plans from different employers?  You may want to roll those previous plans into a traditional IRA to better track these investments.

There are two general types of IRAs, a traditional IRA and a Roth IRA.  You contribute pre-tax dollars into a traditional IRA, which means when you retire withdrawals will be taxed.  You contribute after-tax dollars into a Roth IRA, so when you retire withdrawals will not be taxed.   Both IRAs allow you to withdraw money for any reason, but there is a stiff penalty for withdrawals from a traditional IRA.  More information available at this website and others: RothIRA.com

There are also plans for small business and sole proprietorships called SEPs.

Remember MoneyYOYO – you alone have to make this happen.

Kowalczyk reminder:  You need to abide by contribution rules and other rules.  Consult  IRS Retirement Plans

Kowalczyk suggestion:  Parents and grandparents can contribute to your IRA.

Kowalczyk suggestion: A nonworking spouse can open a Roth IRA

 

You have barely started working, so why would you start worrying about retirement? The expected retirement age for Millennials is 73 years old. You have lots of time or do you?

A recent Fidelity study stated that if a 25 year old begins saving $160 per month for retirement it would generate $1,000 in monthly retirement income.

If you wait until you are 35 years old, you will need to save $270 per month to generate the same income. And if you wait until you are 45, you will have to save $500 per month. It pays to start early in retirement savings.

You pay FICA taxes to fund Social Security every paycheck, so that will be your retirement income. Today, Social Security does provide the bulk of retirement income for retirees and the average benefit is around $15,000 a year. Is that enough income for your retirement? What will Social Security look like when you turn 73? Who knows at this point?

Today 73% of baby boomers expect to work beyond retirement according to a 2013 Gallup Poll. 41% want to take on a second career or prefer to work. The other 32% are working beyond retirement by necessity. They did not save enough money.

A Rule of Thumb is that you should save 10 to 15% of your income for savings each year.

How much are you contributing to your Employer Sponsored Savings Plan? Does your employer match some percentage of your contributions? Do you contribute enough to capture the entire employee match? This is free money, so take it.

Does your employer have a defined benefit retirement plan? This is an old style pension plan where your employer makes the contributions.

If your employer does not have a retirement plan or if you are self-employed, are you making retirement contributions to a traditional IRA or a Roth IRA?

So, how are you doing on retirement savings? My next few postings will get into more detail on retirement savings plans.

Kowalczyk recommendation: Download “If You Can: How Millennials Can get Rich Slowly” by William J Bernstein on Amazon for 99 cents.

Kowalczyk request: If you like this blog pass it along to your friends.  Like it on facebook.com/moneyyoyoblog and follow my Twitter account @moneyyoyoblog

 

 

 

 

 

 

You should have received your 1^st quarter report on your retirement or investment account. Do you read the entire report or just look at the new balance and file it away?

These reports are an opportunity to improve your financial literacy and understand your investment portfolio. Here are 4 easy steps:

1. Make sure deposits you made into this account are correct for the first quarter.

2. If you are lucky enough to have an employer who matches some percentage of your deposits in your retirement account, next step is to determine that correct matching funds have been deposited. Don’t become alarmed if there is no matching this quarter. Many employers only deposit matching funds once a year.

3. Has your account balance increased or decreased? Investment markets go up and down, so don’t get hung up on quarterly changes in your account.  You should be aware of short-term changes in your account, but focus your efforts on long-term investment results.

4. Why has your account gone up or down? You need to compare your results against a market benchmark. Does your investment result follow the benchmark results?

Some quarterly investment reports give you a benchmark to compare your investment choices. Some do not, so it is up to you to find out if you have chosen well and if those choices are doing well against their benchmark.

An easy way to do this is to track a few investment benchmarks. If your investments are invested in equities, track the S&P 500, the DJIA, Nasdaq, Russell 2000 and FTSE.

If you are invested in fixed income investments, track the 5, 10 and 30 year Treasuries.

Tracking a few indexes on Yahoo Finance, Motley Fool, or other websites or apps like CNBC and Bloomberg will give you some basic knowledge about what is happening in the markets.

If you want to get more specific to match up your funds against their appropriate benchmark, you can usually acquire that info from the fund’s investment company website. Or Russell has indexes for all sorts of benchmarks.

Stay informed about the financial markets. Those markets impact many aspects of our lives.

Kowalczyk comments: Good Financial Cents, Get Rich Slowly are websites you might find helpful.

Kowalczyk request: If you like this blog, please like it on Facebook. Please send it out to any of your friends who may need some help with their financial literacy.

Does someone depend on your income for his or her living expenses?  If yes, you need to know something about life insurance.

Term insurance is the most common way to protect your family members from loss of income if you die.  Yes, I know we are all going to live forever, but term insurance is an inexpensive way to protect your loved ones if you don’t life forever.

Term insurance pays out a lump sum if you die during the term on the policy.  It has no investment component.  A rule of thumb is your policy coverage should equal ten times your annual gross income.  Lifehappens.org and aarp.org offer calculators to determine the amount of insurance coverage you need.

Term insurance is often offered as part of your employee benefit package.  You can usually buy additional coverage through this group policy.

If you don’t have this employee benefit, there are many online insurance company sites to help you buy this coverage.  Or you can contact an insurance agent who can help you buy this coverage.

What if you are injured and you cannot go back to work and you have no income?  Many employers will pay your salary for a short-term disability, but you may be out of luck if you have an injury that takes you out of the job for a long time or forever.  You may need disability insurance that replaces some percentage of your income if you become unable to work for a long period of time.  You can work with an insurance agent to see if you need this coverage.

Whole life insurance is another category of insurance.  There is no term on this policy.   Universal life offers coverage for your entire life plus the ability to build cash value on a tax-deferred basis.  Variable universal life has an equity investment component that builds cash value.  You can borrow against that cash value at stated interest rates.  If you think you need this type of coverage, you should talk to an insurance agent.

Make sure you reassess your life insurance when your life situation changes.  Did you get married?  Have you had another child?  Are you helping to take care of a parent or sibling?  Has your income significantly increased?  All of these events may impact the type of life insurance you hold and the coverage.

Kowalczyk comment:  If you are enjoying this blog, please like it on the fan page – moneyyoyoblog. Or follow the blog on twitter @moneyyoyoblog.  If you want to recommend a topic please send me a comment.

Kowalczyk question:  Did your parents or grandparents buy you a life insurance policy when you were born?  If yes, you should determine if you should continue to hold this policy or not now that you are an adult.

 

 

 

 

 

 

According to 2012 census data 26.5% of the uninsured in the U.S. are Americans of the ages 18-34.  Young Americans are the largest group of uninsured.

You have heard the reasons:  I’m healthy, so I don’t need health insurance.  I can’t afford it.  I can always go to the emergency room.  You can be healthy, but a fall down the steps that results in a broken bone or an emergency appendicitis can seriously impact your financial position if you have no health insurance.

Is one of your employee benefits health insurance?  You are a lucky person.  It is a very valuable benefit.  If you monetize the cost of that coverage versus what you pay you can easily see the value.

If nothing else you should have a catastrophe policy, that has a big deductible, but you are covered for major medical events.

The Affordable Care Act (ACA) or Obamacare changes the landscape. If you are 26 years old or less, you can be covered on your parent’s policy.  If you are on your own you can go to healthcare.gov, the ACA exchange to look for insurance.  The deadline for open enrollment this year is Monday, March 31 so you cannot procrastinate any longer.

Some states have their own exchanges instead of using the federal exchange. There are four levels of health care plans – bronze, silver, gold and platinum. There are also subsidies available to help you afford coverage.  In 2014 individuals with income from $11,490 to $ 45,960 are eligible. Families with two members with income beginning at $15,510 to $62,040  can receive a subsidy. Families of 8 with income of $39,630 to $158,520 can receive a subsidy. Kaiser Family Foundation has a calculator that can determine the subsidy you can obtain buying health care.

There is a lot of controversy involving the Affordable Care Act, but it gives Americans the ability to make life and career choices without regard to health coverage.  It also allows many people with pre-existing conditions the ability to get insurance. With the subsidies, more people may be able to afford health insurance.

Medical care in this country is costly.  If you do need medical attention you need to be diligent about the quality and cost of the care.  Here are a few hints on how to save some money.

1. Ask doctor for lowest price for a procedure
2. Pay cash
3. For simple medical questions, call your doctor or ask a pharmacist
4. Ask questions about medication – Is there a generic? Does your doctor have free samples?
5. Shop around for prescriptions – sometimes your insurance requires you to use one provider
6. Check bills for errors
7. Take a look at healthcare.gov
8. Don’t skimp on insurance if you are health
9. If you don’t have insurance for prescriptions, Walgreen’s and others have discount cards you can buy

Your health is important.  Regular check ups can keep you healthy.  If you don’t have insurance it is unlikely that you will get those checkups. Remember open enrollment ends Monday for this year.

Youtube.com video:  Take a look at Between Two Ferns with Zach Galifianaki with President Obama YouTube video.

Kowalczyk comment: medibid.com is a site where you can bid for medical services.  Make sure you research the provider’s credentials.

Kowalczyk request:  If you are enjoying this blog, please like it, offer comments, ask questions or recommend a topic. Please pass it along to your friends and family who may need some help on financial literacy.

Kowalczyk location – Harbor Springs, MI.  They have had almost 180 inches of snow this year. This is our sidewalk to the front door.  

 

 

 

 

 

Few people like to talk about insurance, but it is a necessity of life and you need a good understanding of the types of insurance and the coverages you require.   I am going to focus on property casualty, life and health insurance.

Let’s start with property casualty insurance.  Consumers are most familiar with auto insurance.  If you own a car, you need car insurance.  Rates will depend on your driving record, where you live, type of car and the type of coverages you want.

Another determining factor is the amount of your deductible in the policy. How much will you pay out of pocket before the insurance kicks in?  Often, rates will be lower if you include a higher deductible than the standard policy. If you have adequate savings, you can afford to pay out the higher deductible.

How do you shop for auto insurance?  Online tools make it much easier to shop around for the best product and price. You can use NetQuote.com, Insure.com, and InsWeb.com that represent multiple insurance companies.  Some companies like Progressive, Geico and others offer insurance online. Or you can work directly with an agent that represents one or a number of insurance companies.

Now we move on to another familiar type of insurance. If you own your home, you need homeowner’s insurance and if you rent you need rental insurance. Rates will be determined by the scope of your coverage, your deductible, where you live, type of dwelling and size of your home.

If you have a home based business, you need to find out if your homeowner or rental policy protects you on business pursuits in your home. Are you covered for theft of business equipment or if someone falls on your sidewalk delivering a business package? If you are not covered, you can buy a rider to your existing policy or buy an in home business policy.

Now let’s talk about an unfamiliar type of insurance – an umbrella policy. If you have significant assets including your home equity or significant future income you may need this coverage. You may also need this coverage if you own high-risk vehicles, a pool, a trampoline, etc.

An umbrella policy gives you a layer of additional coverage above the limits on your home and auto policies.  If you get sued, the courts could come after your personal assets and your future income. The umbrella policy gives you another layer of protection. This insurance is usually reasonably priced. You should consult with an insurance agent to see if you need this additional insurance coverage.

Kowalczyk comment: Insurance Information Institute, a non-profit clearinghouse, is a great resource for all types of insurance.

Giving back is an important part of our culture and including charitable donations in your budget is one way to accomplish some good.

If you are short on funds, you can donate your time and expertise to your favorite causes.  Every organization needs money, but they also need volunteers helping with the actual mission or helping to run the organization.

How do you decide how much to give in a year?  Did you specify a dollar amount that is an appropriate amount for your budget?  Or did you start with a percentage of your take home income that you would like to give each year?

Is your charitable giving hit or miss? You can dilute your giving efforts without a charitable gifting plan. Where do you want your limited dollars to go?

Do you have several causes that are your priorities?  If yes, then target your dollars to those organizations.  Whether it is the environment, your religion, education, the arts, supporting the troops, health issues or a food bank or whatever.  Take some time and decide what you really care about.

How can you stretch your giving dollars?  Often charitable organizations have a matching program set up during key fund raising times.  Those programs give you an opportunity to magnify your gift.

Also, does your employer match some level of charitable giving?  If so, you want to make contributions early in the year.  Many times the matching funds of your employer are limited and funds can run out before the year ends.

If you have a real interest in an organization, you can improve your financial literacy by getting involved on the board or a committee.  Each of these organizations has to raise money, decide how to spend the money, decide how to invest the money for future years and carry out their mission.  You may have skills or expertise that is badly needed in the organization.

Before you get involved in a charitable organization, please vet it.  Does a large percentage of the budget go toward its mission?  Is the organization committed to transparency and accountability?  Is the charity making an impact?  These websites can help you do this:   Charity Navigator  GuideStar  The BBB Wise Giving Alliance

Giving back is a great feeling and everyone should try to find organizations that have a mission that matches your interests.

Kowalczyk Comment: DonorsChoose is an organization that helps you find ways to help teachers and schools.

Kowalczyk Location:  I’m back in Chicago or Chiberia as it is more commonly known this winter.  Now we are starting the big thaw.

 

Please like the MoneyYOYO fan page if you are enjoying this blog.  I welcome comments.

 

 

In France, Sweden and Spain the government collects tax data from employers and then sends out a pre-filed form to the taxpayer to sign and return.  If the U.S. had a similar program it could work for about 40% of Americans whose tax filings are straightforward.

But in the USA you are in charge of your tax filing.  Remember MoneyYOYO – you are on your own.

Have you gathered all the necessary paperwork to complete your tax filing?  Keep those mailings with the important words on it – “this is important tax information”.  At a minimum you will need your W-2 that states your taxable wages and taxes withheld.

IRS.gov provides information about the federal tax filing and you can print off the necessary forms you will need.

If you decide to use a tax preparation software package, the software will tell you what information you need to complete your taxes.

In 1969 the federal tax code was 16,500 pages.  In 2013 the federal tax code had 73,954 pages.  Very little is straightforward about the U.S. tax code.  Tax reform is desperately needed, but it is doubtful it will happen any day soon.

90% of Americans use a CPA or tax preparation software packages such as TurboTax and others – TaxACT, H&R Block to file their returns.  If your taxes are straightforward a tax preparation software package will work for you.  Or if you are up to the challenge you can file your taxes yourself.  If your finances are complicated you may need the help of a CPA.

There are also state and local taxes to pay.  All 50 states have very different state tax codes.  Consult your state’s website to gain more information on filing state tax filings.