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June 21st, 2018 by

four financial numbers

Daily life is full of numbers, and some matter more than others. Here are four financial numbers that could help you understand and potentially improve your financial situation.

1. Retirement Plan Contribution Rate

What percentage of your salary are you contributing to a retirement plan? Making automatic contributions through an employer-sponsored plan is a convenient way to save for retirement, but this out-of-sight, out-of-mind approach may result in a disparity between what you need to save and what you are actually saving. There is no magic number, but one common guideline is to save 10% to 15% of your salary. If you start late, you may need to save even more.

If that seems like too much, you should at least contribute enough to receive the full company match (if any) that your employer offers. Some plans let you sign up for automatic increases each year, which is a simple way to bump up the percentage you’re saving over time.

2. Credit Score

This is the second of the four financial numbers you should know. When you apply for credit, such as a mortgage, a car loan, or a credit card, your credit score will likely factor into the approval decision and affect the terms and the interest rate you’ll pay.

The most common credit score is a FICO® Score, a three-digit number that ranges from 300 to 850. At one time, you had to pay to check your score, but many credit-card companies now offer this as a free service to customers. You should also regularly check your credit report, which contains the information used to calculate your score. You’re entitled to one free copy every 12 months from each of the three major credit-reporting agencies. To request a free report, visit annualcreditreport.com.

3. Debt-to-Income Ratio

Your debt-to-income ratio (DTI) is another number that lenders may use when deciding whether to offer you credit. A DTI that is too high might mean that you are overextended. Your DTI is calculated by adding up your major monthly expenses and dividing that figure by your gross monthly income. The result is expressed as a percentage. If your monthly expenses total $2,000 and your gross monthly income is $6,000, your DTI is 33.3%.h

Lenders decide what DTIs are acceptable, based on the type of credit. For example, a ratio of 43% or less is standard for many types of mortgages, but the percentage might be more or less depending on the specific situation.1

Once you know your DTI, you can take steps to reduce it if necessary. You may be able to pay off a low-balance loan to remove it from the calculation and/or avoid taking on new debt that might negatively affect your DTI. Check with your lender if you have questions about acceptable DTIs.

4. Net Worth

Your net worth provides a snapshot of where you stand financially. To calculate your net worth, add up your assets (what you own) and subtract your liabilities (what you owe). Ideally, your net worth will grow over time as you save more and pay down debt, at least until retirement.

If your net worth is stagnant or even declining, then it might be time to make some adjustments to target your financial goals, such as trimming expenses or rethinking your investment strategy.
Sources:
1) Consumer Financial Protection Bureau, 2017

Knowing your four financial numbers is crucial to your retirement plan.

Have you got multiple 403(b) accounts from different employers? We can consolidate them & look at your overall retirement plan. So, contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  1-833-313-7233.

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June 13th, 2018 by

business owner retirement planning

Investing in your own business makes sense. Many businesses achieve significant growth each year. However, when you consider that many small businesses fold every year, it becomes clear that banking your retirement solely on the success of your business might not be the best idea. There is no guarantee that your business will continue to grow or even maintain its current value. If your business is worth less than you were counting on at the time you planned to retire, you could be forced to continue working or sell it for less than what you were expecting.

A business owner often assumes that their businesses will be their main source of retirement funds, but that strategy could be riskier than you think. For business owner retirement planning, it’s generally not wise to put all your eggs in one basket. Broadly diversifying your assets may help protect against risk.

Business Owner Retirement Planning Starts Early

Diversification involves dividing your assets among many types of investments. Putting all your money into a single investment is risky. You could lose everything if the investment performs poorly, even if that investment is your own business. Of course, diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against the risk of investment loss.

Consider what would happen if you were to rely solely on the sale of your business to fund your retirement. What if the U.S. economy falls into a recession about the time you plan to retire? If a recession occurred when you planned to retire, it could affect the sale of your business or the income it generates for you.

Likewise, there is no assurance that a larger competitor won’t overtake your market, or that demand for your business’s goods and services won’t weaken because of new technology, rising energy prices, consumer trends, or other variables over which you have no control.

As a business owner, your business is almost certain to provide some of the money you need to retire. By building a portfolio outside of your business & considering the need for life insurance, you are helping to insulate your retirement from the risks and market conditions that can affect your business.

You may be good at business, but I’m a retirement expert.

As a business owner, don’t neglect your retirement planning. Let me show you how to get the most from what you have & create a dream retirement. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD.
Contact me  1-833-313-7233.

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June 5th, 2018 by

403(b) plan

A 403(b) plan is a special tax-deferred retirement savings plan that is often referred to as a tax-sheltered annuity, a tax-deferred annuity, or a 403(b) annuity. It is similar to a 401(k), but only the employees of public school systems and 501(c)(3) organizations are eligible to participate in 403(b) plans.

Employees can fund their accounts with pre-tax contributions, and employers can also make contributions to employee accounts. Employer contributions can be the same amount each month or discretionary. Eligible employees may elect to defer up to 100% of their salaries, as long as the amount does not exceed $18,500 (in 2018, up from $18,000 in 2017). A special “catch-up” contribution provision enables those who are 50 and older to save an additional $6,000. Total combined employer and employee contributions cannot exceed $55,000 in 2018 (up from $54,000 in 2017).

Staying in control of your 403(b) plan

Employees have the option of choosing the types of products utilized in their funds. A 403(b) can be an annuity contract, a custodial account, or a retirement income account. It is a good idea to do a little research before selecting how you would like to use your funds. Your employer can provide you with a list of the financial instruments that are available.

Distributions from 403(b) plans are taxed as ordinary income. Withdrawals made before age 59½ may be subject to a 10% federal income tax penalty unless a qualifying event occurs, such as death or disability.

Generally, once you reach age 70½, you must begin taking annual required minimum distributions. You can receive regular periodic distributions on a schedule, or you can collect your entire nest egg as a lump sum.

Participating in a 403(b) plan may be a good way to save for retirement. Contact your employer to find out what type of plan is available and how you can take advantage of this retirement funding vehicle. And, if you’re planning to retire soon, here are some tips you should be thinking about.

Are you taking full advantage of your 403(b) plan?

Have you got multiple 403(b) accounts from different employers? We can consolidate them & look at your overall retirement plan. So, contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD.
Contact me  1-833-313-7233.

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