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Finance Talk

It is January so I know there are a lot of goals that we have set to accomplish for the year! One of the most asked questions in the GroupMe is about budgeting and saving. My response has always been the best way to save money is not to spend money. If it is not a necessity then your are not saving. However, I wanted to get a professional to explore it more in detail. Lindsay C. Smith is very knowledgeable about all things finance and budgeting! She has been with New York Life for six years. Ms. Smith graduated with a Bachelor’s in Business Administration and a minor in Advertising. Lindsay is a powerful force in the insurance industry. She is passionate about educating and bringing awareness to individuals who are seeking financial structure. Lindsay has been helping professionals and families protect their retirement income and plan for their short and longterm financial wellness. As an expert she develops strategies to help clients reach their goals. Her process includes reviewing their current financial plan, needs, assets and then works together with client to achieve their ultimate goal. Lindsay Smith is one of New York Life’s top agents with a proven track record of achievements and awards. Lindsay is a Licensed Agent/ Registered Representative New York Life Insurance Company. Follow her on Instagram @LindsaySmithTheAgent or Facebook: @LindsaySmithTheAgent.

1. Finance is already a popular topic for year 2018. What general advice would you offer to help someone to prepare to have a better financial future for this year and moving forward?

I would say to have a better or new and improved financial future you want to start within and work on changing your mindset when it comes to money and managing your money. I recommend talking with a financial planner so you can discuss your goals. Speaking with a financial planner can help you understand options available to you based on your personal situation. There is no one right plan for everyone. Therefore when speaking with friends and family about finances, comparing what you have in place is not effective. Individuals have their own goals, financial makeup and concerns. One of the biggest problems I notice in my experience, when clients are trying to set financial goals to plan and prepare to grow their finances is they want to change the outcome but do not want to change their mindset. You have to move in a different way then you have in the past if you want to see a change in the outcome. Therefore, to reach your financial goals you have to first change mindset and habits. You must plan and structure your budget before you can see success in your financial future.

Many of us are familiar with the expression, “failing to plan is planning to fail.” As an Agent with New York Life, I can assure you that—when it comes to financial goals and objectives—this old adage still rings true.

In fact, it may be more relevant than ever.

It isn’t always easy for some to make financial headway. With pensions in decline and interest rates only just starting to inch up near historic lows, it usually takes persistence and sound planning in order to get ahead.

Not sure how to begin? That’s okay—it’s easy to become overwhelmed if you think about all your needs at once. Instead, try taking it one step at a time, starting with the basics.

2. Budgeting is typically one of the most common problems people have, what advice would you give to someone who struggles in this area?

In my experience, I have recommended a 3 step plan for my clients to follow to help them transition into budgeting.

First is to prepare yourself mentally to be disciplined enough to follow what you plan. To understand that sacrifice maybe part of your plan to get you to your overall goal.

Second is to write down on paper all your monthly expenses including money you are investing, saving and special bills that come up for certain months. Understand why I say to write this down every month because although you have some fixed bills for every month there are many bills and expenses that come up for different months and you want to plan and prepare for those in advance. You want to allocate every dollar of your checks you will receive for the month before you receive it. This way you give every dollar a place and you know how much you can spend in each category in advance. This will help you to control your spending habits because you have a guide to follow when you get paid. Checking off when you have completed paying something on the list will have the brain recognize the progress. This gives you the motivation to continue following your plan. I have attached a general worksheet that I have used that gives percentages for different categories to help you figure out if you are living out of your means. This worksheet is not set in stone and percentages maybe changed based on categories that maybe relevant in your life. It is just a guide that can help you start a plan that has worked for my clients and myself.

When you allocate your dollars you will include leisure money, savings and money you will put towards investing so you can start to or continue to generate your wealth.

For example if you know you have a trip coming up in 6 months you will allocate some spending money for your trip each month so when the trip comes up you do not have to take money from everything else you have budgeted for to fit the trip in your monthly budget. This is why I suggest that we plan for emergencies, vacations and shopping. Do not just impulsively shop. Absolutely not!! You allocate money in your budget monthly for leisure spending this money is your choice to shop, do things you enjoy, go out to eat etc. So if you want to buy something and it is going to take your entire leisure budget for the month then you have to make the sacrifice for the month that you will not go out to eat or whatever else that would require leisure money that you have spent. So be realistic with your choices.

To sum it up, it takes discipline and it is not easy to create a budget and stick to it. The more money you make if you keep your expenses low will allow you to have more leisure money. You do not want to make more money to keep increasing your bills at the same rate. The idea is to have low expenses and a higher income. You do not want to confuse your savings and your emergency money with your leisure money. When your leisure money is up you do not dig into another category to make the ends meet. If you can stick to your budget you will see the difference in the growth of your savings, investments, emergency money and the reduction in your debt.


Create multiple bank accounts for different purposes. Example Savings, Bills account to pay your bills, Spending account to use for leisure and necessities for the month, emergency fund account for unexpected emergencies.

3. What method do you suggest to reduce or eliminate debt?

Most people ask me this question and what I always say in my opinion is to eliminate debt means to pay down on your current debt but not create new debt. My favorite method is one that I read in Dave Ramsey’s book “The Total Money Makeover Workbook” He has a process to eliminate debt called the snowball effect. The way it works is to write down all of your debt in the order of highest at the top and lowest at the bottom. The idea is to have a budget monthly of what you are spending to pay these bills and towards working to pay your debt down. You then pay the minimum amount on all the larger debts and the smallest debt on the bottom use the remaining amount of money to pay this bill. This method will knock the smallest debt off one by one and leave you with less and less bills you have to put your money towards, meaning paying less interest and more towards the actual debt. This will help you eliminate debt faster than paying all your debts a little over the minimums but paying interest on multiple accounts, which is money that does not go towards getting your debt down. Now once you get all your credit cards and school loans down the idea is to not run the credit cards back up. You do not need store cards. You can have one major credit card for when your travel maybe two and pay them as you use them. Therefore only spend money you have available in your bank account. Depending on the amount of credit card and other debts you have and the budget you have to pay towards these debts will determine the time frame this will take. Go at a pace that works for you and allows you to still save some money. It is ok to save money while you are working on eliminating your debt.

Some points are to change your lifestyle to fit your budget

Prepare a realistic budget- don’t forget to include little things that are necessities like, groceries, gas, hair and nail maintence etc.

As you take small steps to reach your goals you can adjust along the way to get you closer faster. You want to train yourself overtime to get it right.

You can use envelopes to hold your monthly leisure money and monthly necessity money for hair nails, groceries etc. This tends to make it very clear when the budget is running out and to make adjustments on how you spend.

4. What is an emergency fund? Is this different than my savings account.

An emergency fund is there for your emergencies that come up. Example car trouble, lost of a job, things you may need to fix in home or just an unexpected bill from an unexpected event that occurs. You want to always save monthly for this too so when the time comes it does not throw off your current monthly budget to handle the emergency. You should try and save 3-6 months of your bills in this account to plan if you ever loose your job. This fund is separate from your savings account. Your savings account is to save for goals you have like buying a home, a new car or if you are short to pay bills one month. Your savings is where you would save for that planned vacation or a bill you know will be upcoming in the future months.

Depending on the type of job you have, you may want to save 8-12months of your salary. All of these suggestions and time frames change depending on your current lifestyle.

5. How do I build wealth with what I have?

There is a myth that you have to be rich or well off to build wealth. This is not true. You can build with what assets you have and if you do not have any assets you can start to build some. You can invest your money in ways that make you most comfortable but that create you to gain interest on your money. The bank currently pays a very low interest rate on your savings accounts so to invest in the market can give you a better return. I must point out that investing in the market has many risks and you should consult with a financial advisor to have a better understanding. There are many apps out there now that help you invest when you are a new investor with little knowledge on investments. There are many types of investments, to name a few there are mutual funds, Stocks, etf’s, bonds etc. You can choose what works for you by talking to an advisor. Personally I find the App Stash very easy for new investors. It also only requires you to start with $5. This is good for someone with a small budget that wants to get in the market or who does not have much knowledge about investing in the stock market. You must understand that investing in the market always has risk and nothing is guaranteed.

6. At what age should I start to plan for retirement? What are some ways I can do this?

Now is the time! The earliest you can start to plan for retirement you should. The longer time frame you have to grow and invest your money, the easier it will be to reach your goal. The younger you are even if you cannot contribute a large amount is better than just starting 10 years later with a larger contribution. Every amount counts as it grows and gains interest each year.

There are plenty of ways to set aside money for retirement: 401(k)s, 403(b) IRAs, and fixed deferred annuities* Annuities, Mutual funds, 403(b) etc just to name a few. But they all have one thing in common—the sooner you start, the better off you’ll be in the long run. Try to increase your contributions over time—perhaps 1% with each raise—or, if you are age 50 or older, look into some of the ‘catch-up’ provisions that may allow you to contribute even more.

The type you contribute to depends on what plans your job offers and what you start on your own. Speaking to a financial planner can help you figure out what is best for your personal situation. The purpose to plan for retirement is so when you are ready to retire from your career you will have built a larger enough retirement fund where you can stop working and not have to work another job if you do not want to. The plan is to be able to maintain or live the lifestyle you would like in retirement. Many people are forced to work because of not properly planning. Planning will allow you to have options in retirement. I recommend that you sit with a financial planner to help you put a plan in place and help you execute to reach your goals.

7. What is an Annuity?

According to their definition of an annuity, which in my opinion is a clear way to summarize that, it can create a life long income for you in retirement. There are many types of annuities including Variable and Fixed. By consulting with a financial planner who is a registered rep they can help you decide which annuities best fit your financial goals. Individuals who do not have a pension at their job can use an Annuity to create their own pension.

An annuity is a contractual financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase.

Annuities were designed to be a reliable means of securing a steady cash flow for an individual during their retirement years and to alleviate fears of longevity risk, or outliving one's assets.

Annuities can also be created to turn a substantial lump sum into a steady cash flow, such as for winners of large cash settlements from a lawsuit or from winning the lottery.

Defined benefit pensions and Social Security are two examples of lifetime guaranteed annuities that pay retirees a steady cash flow until they pass.

You can Read more about annuities and the types in detail with this link: Annuity

8. What is an IRA? What is the difference between a Roth IRA and a Traditional IRA?

An IRA is an Individual retirement accounts (IRAs) allow income earners—and in certain cases, their unemployed spouses—to save for retirement on a tax-deferred basis.

Traditional IRA

The money contributed to a Traditional IRA is pre-tax. You can trade all you want without any near-term tax consequences, but earnings distributed will be treated as ordinary income when you withdraw your money.

If you withdraw your money early from a Traditional IRA, you likely will be hit with a 10% tax penalty. The only way to avoid this penalty is if you’re using the money for a first-time home purchase, as a qualified education expense, due to death or disability, for unreimbursed medical expenses, or for health insurance if you’re unemployed.

If you want to avoid that penalty, then you need to wait until you’re 59½ years old. You can withdraw without penalty until you’re 70½ years old. At that time, you’re required to start taking withdrawals, which is referred to as the required minimum distribution, or RMD. Regardless of when you withdraw, any gains will be treated as ordinary income. This will be based on the year you withdraw and the current income tax rate.

A potential advantage to a Traditional IRA is that contributions may be deductible, depending on tax-filing, active-participant status, and income amount.

Traditional IRAs and Roth IRAs often are mentioned in the same breath because of their similarities and the advantages they offer. But choosing one over the other without doing further research could end up being a costly decision. Both Traditional and Roth IRAs offer advantages, but those advantages differ and how you choose to invest will depend a lot on your personal financial situation and long-term goals. If you’re a bit more aggressive and you want to trade in your Traditional and Roth IRA account(s), there are some other facts you need to know.

Roth IRA

With a Roth IRA, you’re investing with after-tax dollars. Therefore, there will be no federal income tax on withdrawals. The same trading rules as above apply. Generally, you can stick to stocks, bonds and ETFs without borrowing.

Like a Traditional IRA, if you withdraw early, you likely will be hit with a 10% tax penalty. In order to avoid this, your money must have been invested in the Roth IRA for a minimum of five years and you must meet one of the following requirements: 59½ years of age, death or disability, or qualified first-time home purchase. Roth IRA contributions are never deductible, but the tax-free withdrawals are a big advantage.

For both Traditional IRAs and Roth IRAs, the maximum annual investment allowed is $5,500 for 2017 if you’re younger than 50. If you’re 50 or older, the maximum annual investment allowed is $6,500.

The Bottom Line

Overall, investing in a Roth IRA is likely to have more long-term advantages. That said this doesn’t apply to every investor. Your personal financial situation and long-term investment strategy and goals should play the biggest role in your decision. Of course, it’s possible to split your money between a Traditional IRA and a Roth IRA, which is a form of diversification. Please consult your financial advisor prior to making any investment decisions.

Some Key Points

Another option is an individual retirement annuity, generally subject to the 
same requirements but following rules applying specifically to annuity contracts. 

Contributions may not exceed 100% of earned income. Example: A 21-year- old with $3,500 total earnings in 2017 may only contribute up to that amount, not $5,500. 

An IRA owner may contribute to an IRA for a nonworking or part-time working spouse. 

Combined yearly IRA contributions for both spouses can’t exceed their combined earnings for the year. 

Roth IRA contributions may be limited based on Modified Adjusted Gross Income (AGI). 

A traditional IRA requires owners to begin taking minimum distributions after age 701⁄2. This doesn’t apply to lifetime Roth IRA distributions. 

Possible exceptions to the 10% penalty include distributions (1) made when the owner dies or becomes disabled, (2) used to pay for qualified higher education expenses, (3) used to pay for qualifying first-time homebuyer expenses up to a $10,000 lifetime maximum, (4) set up as substantially equal periodic payments within the terms of the law, or (5) rolled over within 60 days. 

Traditional IRA distributions are taxed as ordinary income in the year it is made. 

IRA owners (including SEP, SIMPLE and Roth IRAs) can make only one “60 day” rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs owned. Trustee-to-trustee transfers between IRAs and conversions of traditional to Roth IRAs are not limited. 

To sum it up, IRAs offer effective, tax-advantaged ways to save for retirement. Choosing between a traditional IRA and a Roth IRA in specific situations involves such considerations as the individual’s age, income and participation in other qualified arrangements.

9. If I own my own business how can I save for retirement?

There are many plans available to business owners who do not have the option of the employer-sponsored plans from their employer. Talking with a financial planner or a Life Insurance agent that is a registered representative can help you. There are many IRAs that benefit business owners like SEP’s, Simple IRAs etc. Also there are options to create defined benefit plans, Annuities etc. What is best for your business will be decided once you and a financial planner have discussed your goals and business layout. There are many factors involved to make a decision that best suits you and your business.

10. If I am new to investing what are some beginner options available to me?

In my opinion when you are new to investing finding a financial advisor to help you understand some basics is helpful. Also finding apps that allow you to invest with very little money and knowledge can get you started. One of my favorite apps is Stash. It is very helpful and informative. Also TD Ameritrade is a platform that the customer service is very helpful and they have educational videos to teach you about investing and understanding how to read the information on the stocks. Many Life Insurance companies, banks and investment companies offer an array of investing options. After talking with your financial planner you can determine what will be best.

11. What is Life insurance and what are the benefits of having it? At what age should I get a Life Insurance policy?

In my opinion life insurance is something everyone should have in their portfolio. We insure our phones, homes, car etc. Why wouldn’t we want to insure our own life? Do we understand how important our human capital is? If we are not alive all of these other things we are insuring cannot be paid. Typically when determining the amount of insurance someone should acquire I multiply 20 times their income. This a starting point to know if you are insured appropriately. After I determine this I discuss what are some important life concerns you have. Examples like sending your children to college or owning a home. These will take in to affect other things to cover in your insurance calculations.

Life insurance is ….

There are many types and variations of these types. In general the most common ones people hear the most are Whole Life, Universal Life and Term. They all have different benefits and reasons why one works better for you than the other. Most important to speak with a Life Insurance agent to explain to you the differences of these and to figure out which type or types are best for your current situation.

12. What are some good financial reads to keep me educated on finance?

In my opinion some good financial reads that I like are Money magazine, Wall street journal, For websites I love and and for books my favorite is Dave Ramsey’s “The Total money makeover Workbook” and Suze Orman “The Money Class: How to Stand in Your Truth and Create the Future You Deserve”. There are many other great financial reads available to you, but these are my favorite that I read.

Wow so much good information now we have all been empowered to reach our financial goals for 2018 and beyond. Start small and take it one step at a time.

#finance #money #saving #budgeting #moneymanagement #insurance #savings #wealth #emergencyfund #debt

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