How Much Debt Is Too Much?

How Much Debt Is Too Much?

No one plans to take on too much debt. Unfortunately, it can be easy to gradually get in over your head. One month, you fund a beach vacation on your credit card. A few months later, you purchase a laptop. Then, your car transmission goes, and before you know it, you’re in deep. But knowing how much is “too much” for your financial situation may help you avoid digging a hole that might take you years to climb out of.


How debt happens. Sometimes debt arises unexpectedly due to emergency spending, a job loss, medical expenses or unanticipated home or car repairs. But excessive debt can also result from impulse purchases or a desire to keep up with the Joneses. It’s nearly impossible to set limits on the former type of debt, but you can control the latter. Also, note that we’re mostly referring to credit card debt as opposed to mortgages, car payments or student loans.


Debt’s damage. It costs money to assume and maintain debt. You’ll likely spend a pretty penny to finance your credit card balances through the interest you pay your lender. And when you make only the monthly minimum payments, those charges, along with an occasional late fee, can add up fast. And the damage isn’t necessarily limited to financial impacts. Debt can cause stress, exacerbate marital problems and damage your credit. Ultimately, debt can even derail your retirement plans. When you take on a lot of debt, you’re likely contributing less to your retirement plan, and the money you don’t invest doesn’t have the opportunity to grow over time.


Setting limits. Every situation is different, and there are no hard-and-fast rules. But consider the 28/36 rule as a good place to start. This is a guideline many lenders use when evaluating mortgage applications. It stipulates that no more than 28% of gross monthly income should be spent on total housing expenses, and no more than 36% on all debt, including credit cards.


Monitoring debt: Once you have a sense of how much debt is too much, the challenge is trying not to cross the line. To do that, you need to monitor your debt situation on a regular basis — because it’s hard to control what you don’t track. Fortunately, numerous online and mobile tools are available to help you do just that. Some examples include Mint, Credit Report Card and Tally. These apps can help you consolidate and organize all of your debt tracking in one place. You can also use a simple spreadsheet to list all your debts according to lender, total balance and interest rate.


If you’re concerned about the impact your debt may have on your retirement readiness, talk to your WellCents financial professional to review your financial situation, including your current debt. Together, you can come up with a plan to dig out of debt once and for all.



Summer Fun on a Budget

Summer Fun on a Budget

Planning for the future is important, but so is enjoying the present. Luckily, there are many fun summer activities that don’t have to break the bank. Here are some tips to have a blast on a budget as the thermometer heats up.


Dining. Whether you enjoy freshly caught fish at an Italian trattoria or boardwalk funnel cake, waterfront restaurants are inherently appealing. But sometimes all you really need is a great view. Save money on your next trip to the beach or lake by packing a picnic meal. Bringing your own food adds a simple charm to your day, and you’ll often find that purchasing tasty treats from the grocery store saves money and leaves you with great leftovers for your next summer adventure.


Travel. Road trips are synonymous with summer travel value for good reason. Airline or cruise travel often leaves you with additional costs beyond the ticket price, such as rental cars or Wi-Fi. In contrast, a road trip lets you better control your budget by bringing more snacks, minimizing surcharges, and picking cheaper lodging through Airbnb or a discount hotel chain. If possible, plan your summer trips well away from major holidays or conventions to avoid price spikes.


Entertainment. You don’t have to leave town to see something new. Check out your city’s social media pages or good old fashioned bulletin boards for upcoming events. Even if crowded fireworks celebrations aren’t your thing, you’ll often find art shows and antique festivals that bring interesting wares — and unique food — to a cultural district near you. In addition, many libraries and parks host free movie screenings that let you experience a familiar classic at a pleasant venue.


Nature. Many people choose the place they live just for easy access to a beach or an unspoiled forest. But city folk need not despair. Use Google Maps to search for city or national parks in your area. Some may be close enough to justify a day trip. Others may be just a turn away from the main road but conceal the bustle in ways that feel like you’ve entered another world.


Activities. Learning about your parks will also show you great places to go for tennis, basketball, baseball and other sports. Certain parks may specialize in specific activities, while others go all-in on a massive multi-sports complex. Flow down the river in a kayak at a state or national park or take your kids to a public pool with slides and fountains that feel like a mini water park! There are also your local YMCAs, athletic clubs, and rec centers for air-conditioned fun, which could include slower-paced games like billiards and shuffleboard for family and friends of all ages. Checking social media may help you find amateur leagues or informal groups that connect you to other enthusiasts.


Staycation. Don’t assume you know your area inside and out. Even small towns have museums and cultural centers you may be unaware of — or offer new exhibits that reveal unknown parts of its history. Unorthodox attractions like ghost tours or escape rooms can be a fun diversion for date nights. If you enjoy camping, pack up some gear for an overnight trip or set up a tent in the backyard.


Don’t head into Labor Day with a huge credit card bill over your head. Keeping your summer activities budget-friendly will help rein in expenses so you can keep the fun going all year long.



Putting off 401(k) Enrollment Could Cost You More Than You Think

Putting off 401(k) Enrollment Could Cost You More Than You Think

You just landed a new job, and there are so many things to do. You have to set up your new workspace (even if it’s at home), become acquainted with your boss and coworkers and get up to speed on your new responsibilities. And there’s the company-sponsored 401(k) you should sign up for.

It could be tempting to put off investment- and retirement-planning decisions until you settle in. But that’s an idea that could cost you more than you might expect, especially if you have a longer time horizon to retirement.

According to The Motley Fool, a 25-year-old employee making about $47,000 who saves 15% of their income and realizes a 7% annual rate of return would have almost $100,000 more at retirement than another worker with all the same parameters — except that they waited until age 26 to begin their contributions.


So, move signing up for your 401(k) to the top of your to-do list. If the options are a little overwhelming, sit down with a financial advisor who can help you determine your personal risk tolerance and recommend investments accordingly.


Another option to consider if you’re unsure about making investment decisions is electing to contribute to a target date fund (TDF), if your plan offers one. These funds create a mix of investments according to an estimated retirement date.


The fund automatically adjusts the mix and risk of investments to become more conservative as the target date approaches. A TDF handles much of the decision making for you. However, it’s still important to monitor the fund’s performance and periodically check in with your financial advisor to ensure you remain on track to meet your retirement goals.


You generally want to contribute as much as you can to your 401(k) plan. But at minimum, try to contribute at least enough to earn the maximum company match.


Companies that offer a what’s called a 401(k) “match” will match your retirement contributions either dollar for dollar, up to a certain amount — or according to a percentage or formula. You always want to aim for contributing at least enough to receive the maximum possible employer match or you’re leaving free money on the table.


What you may intend to be a small delay in contributing to your 401(k) can lead to months or years as life gets busy. If this should happen, you can easily miss upswings in the market and opportunities for growth to compound over time.


Choose to make retirement planning a priority and put yourself first. Your employer-provided financial advisor can be a tremendous resource whether it’s the first time you enroll in a 401(k) plan or your third or fourth time around. And if this isn’t your first experience with a 401(k), be sure to discuss the options for any funds remaining in 401(k) accounts from your previous employers as well.


Don’t delay this important decision set up an appointment with your financial advisor today.




Fast Track Your Retirement with These 6 Tips

Fast Track Your Retirement with These 6 Tips

If you hope to retire early, there’s a lot to think about. For example, if you stop working before you’re eligible for Social Security, you need to plan how you’ll draw from retirement accounts — assuming you can access those funds without penalty. On top of that, if you’re not Medicare eligible, you’ll need to consider healthcare costs. Orchestrating your early exit from the workforce can be empowering, but it also requires planning and preparation. Here are a few ideas that can help you retire early.


Be specific in your early retirement plan. The earlier you start, the more successful you’re likely to be. Begin your planning with well-defined goals in mind. Figure out your desired age for retirement and work out how much money you’ll need to achieve the lifestyle you want. In many cases, it’s about starting with your end point and working backward. A WellCents financial professional can help you review your goals and set a retirement timeline that’s realistic. With specific and measurable goals, it’s possible to retire sooner as long as you stay on track.


Downsize ahead of retirement. The single biggest expense most people have is housing according to data from the Bureau of Labor Statistics. Downsizing ahead of retirement can reduce your housing expenses, free up money for other costs and make your goals more attainable. Plus, if you own your home, selling and downsizing can provide you with additional capital to fund your retirement.


Cut back on large costs. In addition to reducing housing costs, look at other big-ticket items you spend money on. Transportation and food are significant costs for many households. Look for ways to reduce what you spend on these expenses, especially eating out, as they can compromise your ability to live comfortably in early retirement.


Make catch-up contributions. If you’re at least age 50, the IRS lets you make additional contributions to your tax-advantaged retirement accounts. The more funds you can set aside now, the earlier you can retire. Additionally, check if you might be eligible for a Health Savings Account. This is additional tax-advantaged money that you can use for healthcare costs before you’re able to enroll in Medicare.


Pick up a side hustle. If you’re looking for a little extra cash to set aside for retirement or to make catch-up contributions, a side hustle can help a lot. Whether it’s Ubering on the weekends or freelancing on Fiverr, you can generate extra funds to help you retire early or provide you with enough income so that you don’t need to work full time.


Plan to live in a less-expensive area after retirement. Geoarbitrage can be a great way to reduce living expenses and retire sooner. In some cases, retiring outside the United States is one way to reduce costs to the point where early retirement becomes possible. Just do your homework about healthcare, taxes and other important financial aspects of being an expat wherever you plan to reside.


Call in the Pros

Early retirement can become a reality if you plan ahead and take steps toward reducing your cost of living. Contact your WellCents financial professional to discuss your timeline and goals for retirement. As you approach early retirement, more frequent check-ins can help ensure that you remain on track.




Money and Happiness

Money and Happiness

This thought has crossed the minds of many: “If only I could hit the lottery, then all my problems would be solved.” But the relationship between money and happiness isn’t as straightforward as you might think — at least according to those who study the issue closely.

What the Data Shows

Money is not a panacea for guaranteeing happiness. Researchers surveyed more than 3000 Swedish lottery winners five to 22 years after winning a prize of at least $100,000. Ultimately, they found that the winners’ happiness actually didn’t change much after hitting the jackpot. They weren’t significantly happier — or unhappier.

Another study of 1.7 million people across 164 countries, however, pointed to an income “sweet spot” an earnings range between $60,000 and $75,000 that correlates with improved levels of happiness. Other data points to $75,000 being an optimal income level for happiness.


The Why Behind the Data

Why doesn’t more money translate to greater degrees of happiness? One theory is that we’re all susceptible to a phenomenon called hedonic adaptation, otherwise known as the hedonic treadmill. This refers to our tendency to return to a happiness setpoint following both positive and negative events over time. In other words, we eventually adapt to our current circumstances — for better or worse.


Yet others suggest that the extent to which money means greater levels of happiness depends a great deal on how a person spends it. For example, money put toward purchasing experiences may be more beneficial for happiness than funds used to acquire possessions. Additionally, using money to foster meaningful connections with others or for altruistic purposes may also be a more effective way to promote happiness.

A Complex Issue

We can debate the extent to which money can “buy” happiness. But for those who struggle to meet basic needs, having sufficient funds to stay safe, sheltered and fed can provide a necessary sense of security. It’s also important to note that the study investigating the “ideal income” finds that the levels vary considerably depending by location. The cost-of-living ranges tremendously across the U.S., so the relationship between money and happiness can change significantly according to situation and context.


Financial wellness can be a significant part of overall wellness, but it takes its place among other areas of tremendous importance, including physical and mental health, personal relationships and sense of purpose. At the end of the day, the most meaningful question for each person may not be whether money can buy happiness in general — but rather how to maximize one’s own personal happiness using all available tools and resources, money included.


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