Annuities As a Potential Part of a Retirement Plan

-March 2016 -
by Kirk A. Hoffman

A three legged stool analogy is often used for planning and saving for retirement.  The three legs represent personal savings, employer provided benefits, and government benefits.  For public school employees, 403(b) plans are used for individual savings.  School districts pay into 403(b) plans and/or the state pension program to provide an employer benefit.  Social Security provides the government benefit.

One of many tools available for the personal savings portion of a goal focused financial plan is an annuity.  Annuities have two phases, the accumulation phase and the pay-out phase.  Annuities can be part of a 403(b) plan to accept and accumulate contributions.  The accumulation phase is pretty straight forward.  Contributions go in on a tax deferred basis and taxes on earnings are deferred.  More questions arise once a plan participant reaches retirement and the pay-out phase begins.

There are several options available at the pay-out phase:

Interest/earnings only.

Under this option, the participant withdraws only the interest and earnings on the account.  The principal balance is not accessed.  This can be done on a monthly, quarterly, semi-annual, or annual basis.  Taxation on the principal is deferred until death.  (Required minimum distributions at age 70 ½ may require some principal distribution).

Systematic withdrawal based on a percentage or dollar amount.

Under this option, the participant establishes a regular withdrawal percentage or dollar amount.  The plan participant could outlive the withdrawals depending on the withdrawal rate and earnings.

Guaranteed life income.

The real power of an annuity is that it can provide guaranteed life income.  Under this option, the annuity is set up to pay out, like the participant’s pension and social security, monthly income for life.  Just like with the pension, there are various guarantees that can be selected:

            Life only – payments cease at death

            Life with a period certain (5, 10, 20 years) – payments for the longer of life or the

            guaranteed number of years.

            Joint and Survivor – based on two lives, payments cease at the second death

            Joint and Survivor with period certain (5, 10, 20 years) – payments for the longer of

            life of the two individuals or the guaranteed number of years.

The monthly payout is affected by the selected guarantees.  The more guarantees, the lower the monthly payment.

There is no better tool to create another guaranteed income stream to go along with a pension and Social Security than an annuity.  It works well if you are in good health and you have a history of longevity.  You cannot outlive the income.  It removes you from the markets so you are not subject to volatility which provides peace of mind for risk adverse individuals.

Every investment tool has positives and negatives.  Some negatives of annuitizing are that you give up access to the principal and potential higher earnings that could be realized from other investments.  These are significant factors to consider.

A professional advisor can assist in determining if creating another guaranteed income stream with an annuity is a good fit for your particular situation and if it will contribute to accomplishing the goals defined in you financial plan. 

Worse Than Taxes

Protecting Yourself from Tax Scams
Tax season is perhaps the most widely hated time of the year. It’s annoying and, for many, expensive. But despite its unpopularity, some people are determined to make it even worse: tax scammers.

Wherever there is money, there is someone willing to steal it. Tax season provides thieves with several opportunities to fleece people who are just trying to do their civic duty. Fortunately, being able to recognize the signs of a swindle can offer a lot of protection. Here are some of the common tax scams thieves like to use:

Stolen Refund
The Scam: A thief steals taxpayers’ information, files their tax returns before them and pockets the refunds. When the victims go to file their taxes, the IRS informs them that their taxes have already been filed, causing complications and delays on their real returns.

Defense: This scam is difficult to block because taxpayers don’t know it’s happening until it’s too late (though the IRS has greatly increased its efforts to detect and stop fake returns). Personal information stolen digitally is the thieves’ greatest asset. Be sure to protect your computer from viruses and delete any unwanted emails that request personal information or ask you to update your IRS e-file account.

Opportunistic Preparers
The Scam: A dishonest tax service skims refund money or personal information after preparing clients’ taxes. Refund skimming has become particularly easy to disguise because many tax preparers allow you to pay service fees directly from your refund. While convenient, this process can obscure refund values and make it easier for preparers to charge undisclosed fees. Aggressive scammers will actually falsify your tax information to secure a bigger refund while putting you at risk of tax fraud.

Defense: If you have someone else prepare your taxes, make sure they are trustworthy and reputable. Although many quality services allow you to pay with your refund, it is best to pay fees upfront when using a new tax service. This will reveal the true cost of filing and whether the service is offering competitive rates. Always copy and review your tax return before it’s submitted; you are legally responsible for your return, even if you did not prepare it.

Tax Extortion
The Scam: Rather than intercepting tax returns, some ambitious scammers actually impersonate IRS agents and try to collect additional taxes. After calling an individual and identifying themselves with fake names and fake government ID numbers, the scammers demand extra taxes be paid immediately to a specific bank account or P.O. box. These scams often target recent immigrants who are unfamiliar with U.S. tax procedure.

Defense: If you receive an unexpected call from the IRS, hang up. The IRS never calls anyone without first mailing a letter to resolve the issue. Also, the IRS does not demand immediate payment or require payment in a certain form (many scams use wire-transfers or prepaid debit cards). Scammers may also reveal themselves by using threats, hostile language and follow-up calls from someone claiming to be the police—things the real IRS never does.

For additional information on tax scams, review the IRS consumer alerts webpage at: https://www.irs.gov/uac/Tax-Scams-Consumer-Alerts.

What to Do If Your Tax Refund is Stolen
Despite the best efforts of both taxpayers and the IRS, some tax scams are successful. If you believe you’ve been scammed, it’s important to act quickly to minimize the damage. Although some scams might only delay your return, others could indicate serious identity theft. It may not always be possible to get back money lost in a scam, but protecting your financial accounts can keep things from getting much worse.

If you suspect your identity has been stolen, follow the government’s official instructions found here: https://www.usa.gov/identity-theft.

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser. 

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014 Advicent Solutions. All rights reserved.

Much Ado About Nothing

Ever since the U.S. Federal Reserve (“the Fed”) ended its latest quantitative easing program in late 2014, people from all over the world have debated when it should try to increase interest rates. It seems like every financial news outlet and economist has spent the past year discussing when a rate hike could happen and the potential impact of getting it wrong. Various forecasts and models been used to “prove” each argued outcome of a hike—everything from rapid U.S. growth to global financial disaster. The market became so obsessed that the mere suggestion of an earlier-than-expected September hike caused market volatility to jump in August and helped pushed the S&P 500 down 10 percent in a week.

The arguments and analysis continued until December 16, when the Fed finally raised short-term interest rates for the first time in almost a decade. The world held its breath and financial markets prepared for anything.

But, the day passed and nothing bad happened—almost nothing happened at all. The rate was raised and people carried on. Despite months of frenzied coverage and concern, everything was calm and average. 

Why did nothing happen?
The most important thing to understand about the December rate hike is that “nothing” was the Fed’s goal. Although it was the first increase in nine years, the Fed made worked hard to make it as comfortable as possible and gave people the opportunity to prepare. In fact, the Fed had so clearly signaled the hike was coming, it would have caused problems if it left the rate unchanged.

In addition to the heavy signaling and preparation time, the hike was designed to be very small. The target rate was moved from a range of 0–.25 percent up to a range of .25–.50 percent. By using these ranges, the Fed gave rates the opportunity to move closer the new target before the actual hike took place. This allowed the real rate to change even more gradually than the official quarter-percent move.

The other important thing to recognize is that economies have momentum. It can take years to alter their courses or change how they grow. The Fed’s short-term interest rate holds a lot of power, but it’s only designed to work as an economic nudge. To influence the economy, the 
Fed must continuously use its short-term rate changes to reflect a consistent, long-term goal for the United States.

Staying on the same page
The Fed wasn’t the only party hoping for “nothing” from the rate hike. Banks and investors were doing everything they could to ensure a smooth transition. Changes to interest rates, even ones meant to promote economic growth, can be disastrous for those caught trading in affected markets. 

Wall Street has been watching the Fed particularly closely over the past several months. Every document produced by Fed leaders was examined for details, while every economic indicator was analyzed for its impact on future interest rates. As the data came in, institutions and investors changed their market exposure for a post-hike market and, in doing so, created a market was already adapted for the new rate.

Ultimately, the December rate hike didn’t cause any major disruptions to the market because both sides were careful. The Fed opted for a small, obvious rate hike, and the markets listened to its signals and prepared accordingly. After years of struggle to move the economy forward, no one wanted to derail the country’s progress or lose money in a needlessly chaotic market.

No one knows what the future will bring for the economy and what will happen as the Fed continues to slowly normalize interest rates, but December was an important first step. The hike proved that as long as both the Fed and markets communicate and work together, they can accomplish “nothing”—which can be a very valuable thing.


Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser. 

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014 Advicent Solutions. All rights reserved.

“Phishing” Fraud: How to Avoid Getting Fried by Phoney Phishermen

“Phishing” involves the use of fraudulent emails and copy-cat websites to trick you into revealing valuable personal information — such as account numbers for banking, securities, mortgage, or credit accounts, your social security numbers, and the login IDs and passwords you use when accessing online financial services providers. The fraudsters who collect this information then use it to steal your money or your identity or both. 

When fraudsters go on “phishing” expeditions, they lure their targets into a false sense of security by hijacking the familiar, trusted logos of established, legitimate companies. A typical phishing scam starts with a fraudster sending out millions of emails that appear to come from a high-profile financial services provider or a respected Internet auction house. 

The email will usually ask you to provide valuable information about yourself or to “verify” information that you previously provided when you established your online account. To maximize the chances that a recipient will respond, the fraudster might employ any or all of the following tactics:

How to Protect Yourself from Phishing

The best way you can protect yourself from phony phishers is to understand what legitimate financial service providers and respectable online auction houses will and will not do. Most importantly, legitimate entities will not ask you to provide or verify sensitive information through a non-secure means, such as email. 

Follow these five simple steps to protect yourself from phishers:

What to Do if You Run into Trouble

Always act quickly when you come face to face with a potential fraud, especially if you’ve lost money or believe your identity has been stolen.

  • Names of Real Companies — Rather than create from scratch a phony company, the fraudster might use a legitimate company’s name and incorporate the look and feel of its website (including the color scheme and graphics) into the phishy email.
  • “From” an Actual Employee — The “from” line or the text of the message (or both) might contain the names of real people who actually work for the company. That way, if you contacted the company to confirm whether “Jane Doe” truly is “VP of Client Services,” you’d get a positive response and feel assured.
  • URLs that “Look Right” — The email might include a convenient link to a seemingly legitimate website where you can enter the information the fraudster wants to steal. But in reality the website will be a quickly cobbled copy-cat — a “spoofed” website that looks for all the world like the real thing. In some cases, the link might lead to select pages of a legitimate website — such as the real company’s actual privacy policy or legal disclaimer.
  • Urgent Messages — Many fraudsters use fear to trigger a response, and phishers are no different. In common phishing scams, the emails warn that failure to respond will result in your no longer having access to your account. Other emails might claim that the company has detected suspicious activity in your account or that it is implementing new privacy software or identity theft solutions.
  • Pick Up the Phone to Verify — Do not respond to any emails that request personal or financial information, especially ones that use pressure tactics or prey on fear. If you have reason to believe that a financial institution actually does need personal information from you, pick up the phone and call the company yourself — using the number in your rolodex, not the one the email provides!
  • Do Your Own Typing — Rather than merely clicking on the link provided in the email, type the URL into your web browser yourself (or use a bookmark you previously created). Even though a URL in an email may look like the real deal, fraudsters can mask the true destination.
  • Beef Up Your Security — Personal firewalls and security software packages (with anti-virus, anti-spam, and spyware detection features) are a must-have for those who engage in online financial transactions. Make sure your computer has the latest security patches, and make sure that you conduct your financial transactions only on a secure web page using encryption. You can tell if a page is secure in a couple of ways. Look for a closed padlock in the status bar, and see that the URL starts with “https” instead of just “http.”
  • Read Your Statements — Don’t toss aside your monthly account statements! Read them thoroughly as soon as they arrive to make sure that all transactions shown are ones that you actually made, and check to see whether all of the transactions that you thought you made appear as well. Be sure that the company has current contact information for you, including your mailing address and email address.
  • Spot the Sharks — Visit the website of the Anti-Phishing Working Group atwww.antiphishing.org for a list of current phishing attacks and the latest news in the fight to prevent phishing. There you’ll find more information about phishing and links to helpful resources.
  • Phishy Emails — If a phishing scam rolls into your email box, be sure to tell the company right away. You can also report the scam to the FBI’s Internet Fraud Complaint Center at www.ic3.gov. If the email purports to come from the Securities and Exchange Commission, alert the SEC by submitting a tip online at https://denebleo.sec.gov/TCRExternal/disclaimer.xhtml.
  • Identity Theft — If you think that your personal information has been stolen, visit the Federal Trade Commission's feature on Identity Theft at www.consumer.ftc.gov/features/feature-0014-identity-theft for information on how to control the damage.
  • Securities Scams — Before you do business with any investment-related firm or individual, do your own independent research to check out their background and confirm whether they are legitimate. For step-by-step tips and links to helpful websites, please read Check Out Brokers and Advisers and SIPC Exposes Phony “Look-Alike” Web Site. Report investment-related scams to the SEC using our online Complaint Center.

    Article from U.S. Securities and Exchange Commission

A Woman Worth Becoming

By Caitlin Koppelman
-October 2015-

As a woman who is young in my career, I often wonder about things like: How do I become truly successful? What traits do successful business women possess? What sets a woman apart from the crowd as a leader and influencer both in business and in her personal life? I suspect that many women share these questions, regardless of their career stage or their position with their current company.  

The book of Proverbs provides a wealth of wisdom that I find applicable in all areas of my life. I recently rediscovered how affectively this book provides answers to some of these questions. Regardless of a person’s spiritual beliefs, the characteristics that the woman in one particular proverb possesses are to be admired. Here are just a few of my favorites:

  • She works with eager hands
  • She is an entrepreneur
  • She is a vigorous worker
  • She is well equipped for the work given to her
  • Her trading in the marketplace is profitable
  • She puts in extra time to accomplish the goal
  • She is generous
  • She dresses well
  • Her business supplies materials to other businesses
  • She is strong & noble
  • She has no fear of the future
  • Her children and her husband call her blessed
  • She is worthy of the reward she has earned
  • Her works bring her and her family praise and respect

What an incredible list! As I read through this portion of the book, I can even see the path to becoming this astonishing woman: she applies herself to gain wisdom and understanding, she postures herself in humility, she honors the gifts and talents she’s been given, and reveres the Source of those things. 

Towards the end of this proverb, we’re even shown some details about traits we as women can be persuaded to use as leverage to gain success. The author says that, “Charm can mislead and beauty fades”. It’s true that a woman needs to take care of her physical appearance and that charisma has a place in the business world, but the results of a career built on those things alone won’t last.

The path to success in the business world is littered with distractions, snares, and pitfalls. When I find gems, like those in the book of Proverbs, I hear this clarion call to us as women in the marketplace: It is possible to be women of integrity and lasting character, who are effective leaders in the business world!

Saving Money On Home Ownership

-November 2015-

Last month, we looked at ways tenants could save money and combat rising rent prices. But if you’re one of the millions of Americans that owns a home, saving money on rent may feel like an irrelevant skill. Fortunately, there are plenty of ways for you to save on homeownership.

Saving During the Buy
Right House, Right Neighborhood – Any realtor will tell you that location plays a huge role in determining home value. However, a good location can have costs beyond the home price. Property taxes can vary wildly between suburbs. Saving hundreds or thousands a year could be as easy as looking just a few blocks from your target neighborhood.

Keep an Eye out for Easy Fixes – An overgrown yard, dirty basement or tacky wall colors can drive down the cost of a house even though yardwork, cleaning and restyling were things you were likely to do anyway. If you’re willing to do a bit of work, you can get a good house below its asking price while picky buyers are looking elsewhere. 

Check Your Taxes – Buying a new home can come with new tax opportunities—especially if it’s your first home or you plan to make major improvements. When tax season comes around, be sure you’re getting your maximum benefits, even if it means seeking professional tax advice.

Saving While Owning
Get it Green – If you haven’t considered energy efficient appliances, improved windows or better insulation, you need to review your utilities budget and find out how much you could save each year. If saving energy isn’t enough, you could make your own by buying or leasing solar panels. Green homes save money and have higher property values.

Refinancing – An obvious option to most homeowners, refinancing a mortgage provides a way to save on interest or restructure repayments. Refinancing isn’t always a good option, though; a refinanced mortgage needs to provide savings large enough to offset the costs it incurs.

Early Repayment – In most cases, mortgages allow you to repay the principal early without penalty. If you have extra money from a bonus or tax refund, consider putting it towards paying off your mortgage. For a mortgage charging 4.5 percent interest, every $1,000 paid early will save you $550 in interest over the next 10 years.

Light Right – Old incandescent and halogen bulbs use up lots of energy, most of which becomes heat. Using energy efficient LED lightbulbs and/or installing skylights (window or tube) will reduce the electricity needed to light a room while also cutting down on your air conditioning costs.

Saving When Selling
Only Stage the Key Rooms – Improvements can greatly improve resale value, but there is no need to spend big on every room. The kitchen, main living room and largest bedroom are the areas that tend to convince people of a home’s value. Focus your upgrades on those spaces; not every room of a house needs to dazzle prospective buyers. 

Be Patient – If you are certain of your home’s value, don’t feel pressured by a realtor to offer a discount. Realtors are there to help you, but they also work on a commission system that rewards high turnover. Dropping $10,000 from a list price barely affects their cut and allows them to move on to selling a different house. Be sure that any discounts are justified by market demands. 

Get Friends to Help Move – Hiring a moving service can be much faster and more convenient than moving yourself, but it will cost you thousands. For the price of providing lunch, you may be able to convince friends and family to help you load or unload a moving truck you rented yourself.

The Cost of Biases

-November 2015-

Behavioral finance—the interaction between human psychology and money—has become a major component of current economic theory. Experts on behavioral finance love to study how greed and fear cause massive swings in the markets.

But behavioral finance doesn’t just exist in academic theory and panicked stock crashes—it’s part of everyday life. The human brain isn’t a calculator and struggles to separate money from emotion. Every time we open our wallets, our financial biases and blind spots threaten to disrupt good decision-making.

Fortunately, biases become much easier fight once we learn to recognize them. Here are a few of the most common financial biases people face:

Bandwagon Effect

One of the strongest biases, the bandwagon effect is the tendency for people to change their opinion or behavior to match that of those around them. Bandwagons often create social pressures and can push people to spend far too much “keeping up with the Joneses.” Always evaluate your financial decisions on what works best for you, not what works best for others.

Familiarity Bias

Familiarity bias is when people show an irrational preference for something that they’ve used in the past. One common effect of this is default brand loyalty, which can hurt the efficiency of a budget or draw you into extra spending.  How many times have you bought a familiar product brand even when there is evidence another option might be better or cheaper? Give something new a try.

Ego Depletion

This bias is a kind of mental lapse. Self-discipline is difficult, and our brains can only do so much of it before taking a break. If we push ourselves too much, we often react strongly in the opposite direction. Ego depletion is what leads to shopping binges after you cut too much discretionary spending from your budget. Remember: rewarding yourself for progress is an investment in your goals.

Recent/Available Information Bias

When it comes to information, people are quick to embrace the new and forget the old. Information biases are responsible for many fads and false fears. For example, if you have two coworkers who were robbed in the past year, you may want to buy an expensive security system. Even if the thieves were caught and local crime rates are extremely low, your judgement is disproportionally affected by the information that is most recent and most available to you.

Survivorship Bias

This bias is the tendency to misinterpret a situation by focusing on the quality examples. It can be paraphrased as, “you only hear about the ones that make it big.” This bias is most dangerous to entrepreneurs or investors because it causes them to underestimate difficulties overestimate success. People should be brutally honest with themselves and consider the possibility of failure before investing their life savings in a business.

Zero-risk Bias

Humans love certainty; it eliminates risks and makes planning for the future much easier. We love it so much we’re often willing to pay more for extra peace of mind, even if it doesn’t make complete sense. For instance, people happily pay a lot of money for the reliability of a new car and then also buy the dealership’s short-term warranty to protect it against a breakdown. We know a new car is highly unlikely to have problems for a few years, but we still feel the need for added certainty.

Fighting for Financial Independence

-September 2015-
In America, the idea of “independence” is almost sacred. Every July 4th, we celebrate the start of the United States’ long road towards independence and control of its own interests.

When people make plans for the future, many put “financial independence” as their ultimate goal. But much like national independence, financial independence— living without the need to work for someone else—takes years of struggle against huge challenges.

Here are some of the essential concepts to help you win your war for financial independence. Each one battletested and proven effective by that other great struggle for independence: the American Revolution.

Coordinate your attack – Winning a war takes success on all fronts. If you neglect a certain area of your finances, all your progress could be completely undermined. For instance, going to great lengths to secure higher income for yourself becomes pointless if it forces your expenses to grow even faster. Even though you are worth more, your net worth will decrease and it will take more time to reach your goal. Every part of your financial plan needs to work together to secure victory in the shortest amount of time. (Siege of Yorktown, 1781)

Seize opportunities to advance – Sometimes a great financial opportunity appears, but we are too nervous to take advantage of the situation. Although caution is useful, having the courage to commit to a solid investment can pay huge dividends in the future. Watch for financial opportunities, judge them rationally and make a bold move if everything looks good. (Battle of Saratoga, 1777)

You can lose a battle and still win the war – Both financial plans and military strategies must survive
setbacks and short-term problems on their way to a longterm goal. If generals completely changed their campaigns every time something went wrong, no army would ever accomplish its objectives. Don’t let temporary market downturns or sudden expenses cause you to panic or abandon your goals. Expect difficulties and learn to push through, even when things are disrupted. (Battle of Bunker Hill, 1775)

Keep your morale up – Staying disciplined with saving, planning and investing is difficult in even the best of times. But if your attitude turns negative, you’ll never be able to reach the level of independence you desire. When things get tough, try to focus on the future and how great things will be when you reach your goals. Don’t forget to regularly reward your efforts; it’s better to occasionally deviate from your plans than to get worn out and give up entirely. (Winter at Valley Forge, 1777-8)

Drill your actions – As with all things, practice makes permanent. Habits take time to develop, so keep trying to put your financial plans into practice. If you continually allow or encourage yourself to break your rules, you’ll be creating bad habits that could end up being costly. Training is about getting so comfortable with an action that you can perform it in the middle of chaos. (Baron von Steuben, 1730-1794)

Get creative – The most impressive victories are the ones that an enemy never saw coming. Traditional tactics can work well in most situations, but taking time to find an original approach to your goals can get you to financial independence faster and more efficiently than anyone expected. (Battle of Cowpens, 1781)

The fight for financial freedom takes hard work, discipline and sacrifice. It’s a war unlike anything else, but its values are nothing new. By understanding the challenge and adapting the lessons of the past, we can learn how to keep winning independence for the future.

When it comes to economic growth, no country can compare to China. The country’s expansion over the past quarter-century has been staggering, posting annual GDP growth rates between 7.4 and 14.3 percent. What makes the growth rate even more impressive is the scale on which it’s happening: China is the world’s most populous country, home to approximately 1.3 billion people.

Although it is mostly communist, China has tried to introduce more free-market principles into its economy. It has encouraged—and limited—its citizens to make domestic investments. The government knows that if it can attract foreign investment while keeping Chinese capital within the country, it could perpetuate economic growth. The only question is how difficult it will be for citizens to integrate financial markets into their lives.


Lifetime Debt

-September 2015-

Debt is not a bad thing. Credit is not a bad thing. Mortgages are not bad things. Student loans are not bad things.

But they sure can cost you a lot of money, both now and in the future.

Paying to Pay
Debt, in whichever form, means paying extra for immediate access to money. Debt is said to be “efficient” if the benefit the money provides is greater than the extra cost of borrowing it.

In the United States, we love debt. At the end of 2014, America’s total household indebtedness was $11.83 trillion. Major sections of consumer debt include:

• $8.68 trillion in housing loans
• $1.16 trillion in student debt
• $950 billion in auto loans
• $700 billion in credit card debt

(Figures taken from the Federal Reserve Bank of New York’s “Household Debt and Credit Report” Q4-2014)

While using debt is routine for most people who need to buy homes and cars, go to college and cover major expenses, it is still extremely important to consider its cost. The website www.credit.com estimates that the average American surrenders $279,000 in debt interest over the course of his or her lifetime (not including student loan interest). What’s more, household debt is trending up; it has risen 43 percent since 2004. Student loans have grown particularly fast, climbing over 300 percent over that same time.

This is cause for concern among some economists and financial news pundits. The fear is that loans (particularly student loans) are siphoning off wealth people traditionally would have saved. Though broad loan usage helps stimulate the economy, high debt among individuals could stunt their financial growth.

A major part of the problem is that debt is self-sustaining. It not only grows on its own, but also puts people in a position to need more debt. A single event (e.g. medical cost) can trigger interest payments that ruin a family’s cash flow and send them into a debt spiral.

To the Limit
But does debt need to cost us anything? Many people successfully avoid, or even invert, debt costs by being careful. The classic example of this is using a credit card to accumulate rewards while religiously paying off the monthly balance. Unfortunately, this may still lead to losses; your spending habits are much harder to outwit than a credit card company.

As it turns out, debt causes us to spend more money—even if interest is avoided. Debt psychologically enables extra spending, giving us immediate gratification while delaying the pain of cost. The result is a mental lapse in valuation that makes us comfortable with paying higher prices or buying on impulse.

This distortion of debt value is particularly bad when buying high-priced items. We may labor over spending an extra $20 at a grocery store, but when buying a car or house, our reasoning is skewed by big numbers and long timeframes. Hundreds or thousands of dollars seem trivial when we already have to take out a huge loan with decades on the term.

What Can You Do?
Although it comes at a price, debt is still an important tool that can give people amazing opportunities. The good news is that you can do several things to reduce the cost of debt in your life:

• Improve your credit score – The difference between a “Fair” and a “Good” credit score can easily translate into tens of thousands of dollars in interest payments over your life.

• Pay with cash when possible – This might seem like an unrealistic or outdated idea, but it limits your ability to buy impulsively and reduces bloated credit spending.

• Fight for each dollar – Remember that $100 saved when buying a car is worth the same as $100 saved while shopping. Don’t let a loan inflate your target price for a big purchase.

• Consolidate – If you have numerous debts, consolidate them under a single bank loan. Interest rates are very low right now and a consolidation can save you thousands.

Keep Reaching for Your Financial Goals

-September 2015-
Few things are able to motivate us like self-improvement. But despite our initial enthusiasm, our personal goals can seem like impossible challenges after just a few days.

Financial goals are particularly difficult to accomplish. Spending money is an unavoidable part of modern life and financial goals can easily get lost in other money issues. What’s worse, the feedback from financial goals is blunt and immediate. As soon as we get started, our finances begin evaluating our success with clear positives and negatives. Financial goals also remember our mistakes. A one-time slip-up, like a significant purchase, can disrupt and damage a goal for months or even years.

The success of a goal often comes down to the strategies and tools used to support them. However, valuable techniques are often abandoned as soon as a little bit of progress is made. Can anyone expect to reach their goal if they don’t sustain their plans for meeting it?

Do you have a goal you’ve given up on? Give it another try. It’s never too late to renew your efforts. Use some of these steps to help make your goal a reality:

Be reasonable – It’s always important to be realistic; but for financial goals, it is essential. If you make your goals too extreme, you set yourself up for frustration and disappointment. It’s better to have an easy goal you can reach than an impossible goal that makes you quit. Once you have a little success, you can raise your expectations.

Set solid milestones and celebrate them – Milestones are a great way to track progress and boost your morale, but you need to make them an important part of your life. If you’ve made it halfway to your goal, celebrate in some way and give yourself a taste of what success will feel like. Stay positive; milestones are meant to show you how far you’ve come, not how far you still have to go.

Find some accountability – Talk with an advisor about your goals and having them check up on your progress can massively boost your discipline. Even if your advisor only asks for occasional updates, being accountable for your actions can provide a lot of encouragement to stick to your plan.

Automate what you can – Constantly trying to make the right choices can wear down your motivation.
Automating your target savings or debt payments can help you avoid the potential mistakes and will allow you to save your energy for other challenges.

Limit the number of goals – Reaching goals can be difficult, so don’t try to accomplish several of them simultaneously. Only start one or two financial goals at a time and don’t create new ones until your current efforts have become second nature.

Bend so that you don’t snap – Interruptions are inevitable. Much like setting a realistic goal, it’s important to have realistic expectations for your progress. If there is an unavoidable problem, adjust your goal accordingly and keep trying. Don’t give up on a goal just because of an unplanned setback.

Reaching goals is a skill that takes practice and experience. In accomplishing one goal, you learn which strategies work best with your personality. Even when you fail, you’ve learned more about what it takes to reach success. The important thing is being willing to try again.

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Name: GuideStream Financial, Inc.
Phone: 800-325-8975
Fax: 517-750-2752
Address: 8050 Spring Arbor Rd., PO Box 580, Spring Arbor, Michigan 49283