Category: Personal Finance

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The Path to Financial Security

This article first appeared on the AFCPE.org blog in December 2013.

white tigerThe need for personal security seems to be hard-wired into humans, reinforced by eons of experience since early man first ventured from the trees to seek an existence in a hostile world. Modern man no longer worries about saber-toothed tigers or the availability of sufficient prey; the object of today’s fears are rooted in future employment status, global economic events, and government actions that can complicate or devastate comfort and security.

Ancient man prepared for the future by learning to preserve food, rationing supplies for use at a later date. Civilized man prepares for the unknown by storing up modern-day units of exchange in the form of currencies, savings accounts, stocks, and bonds. While our ancestors’ savings were subject to the perils of spoilage, physical theft, and pests, our own savings are subject to their modern day equivalents – chance, taxes, and inflation.

As it was then, so it is now – the path to financial security isn’t always easy or clear. That said, with guidance on what to save, how much to save, and when to save it, you’ll have the tools to start developing a stockpile of financial security for the future.

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Understanding Compound Interest Using Nature’s Examples

compounding miceHumanity’s first experience with compounding – the accumulation of vast numbers through the systematic addition of small sums over a period of time – came from nature, not mathematics.

Thousands of years ago in the Fertile Crescent of the Middle East, ancient humans abandoned their nomadic ways, formed the world’s first communities, and began to till the ground, raising wheat, barley, and other grains. Growing seasons concluded with reaping and storing grain, which was used during months when agriculture was not possible and other food sources were scarce.

But because the large amounts of grain were stored in roofed buildings (silos), they provided an irresistible food source to Mus musculus – the common house mouse – which would feast protected from their natural enemies by the shelter of the silos. As a result, mice became extremely prolific, eventually leading to the spread of mice around the world as they followed migrating agriculturalists. In fact, a single pair of mice can produce 70 offspring during their two-year life, with an average litter of seven pups, five times a year.

The addition of 70 mice over a two-year span would be bothersome, but not catastrophic. A single mouse eats about one gram of food per day; 70 mice would eat about 70 grams, or less than a single bushel of wheat each year. However, when considering the effect of “compounding”, the mice pose a serious threat.

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4 Strategies to Maximize Retirement Income

This article first appeared in Forbes.com on November 28, 2013.

Retirement Fund 3More than seven out of 10 Americans worry about outliving their income during retirement, according to a recent survey by Prudential PUK +1.57% Retirement. Decades of pension plan conversions to profit-sharing plans, combined with a stock market decline of more than 50% in 2008 and falling real estate values have devastated savings and retirement accounts nationwide. As a result, a combination of post-retirement work, Social Security benefits, and prudent portfolio management is going to be necessary for most baby boomers to retire during the next two decades. Implementing the following steps can help you maximize your post-retirement income so that you remain financially independent during your golden years.

1. Continue to Work

According to a recent Gallup Poll, almost three-quarters of U.S. workers intend to work past retirement age, 40% by choice and 35% due to necessity. Delaying retirement as long as possible makes economic and psychological sense due to the following reasons:

  • Increased Financial Security During Retirement. The last years of work are typically the highest income-earning years of employment. At the same time, most of life’s major expenses – buying a house, educating children, acquiring significant assets – are over, so that a greater proportion of income can be devoted to savings.
  • Improved Mental and Physical Health. According to Carol Dufouil, at a recent presentation at the Alzheimer’s Association International Conference, the risk of getting dementia drops by 3.2% for every year worked past retirement age. Study after study indicates that people who continue to work live longer and are in better health than those who retire at age 65 or earlier, and the benefits are present for those who worked full-time or part-time.

Unless your job is too physically demanding or stressful, seek to extend your employment, either full-time or part-time, as long as possible.

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5 Financial Tips for Recent College Graduates

This article first appeared on the Beyond.com website on July 30, 2013.

girl with cashCollege graduation is one of the more memorable moments of a person’s life. Parents beam with pride, thrilled with the knowledge they can at last begin to save for retirement. Many graduates, those who have accomplished good grades and academic honors, see their futures as best expressed by Buzz Lightyear in the movie “Toy Story”: “To infinity and beyond!” Others console themselves with the words of our 43rd president, George W. Bush, in his 2001 commencement address at the Yale University: “And to the ‘C’ students, I say you too may one day be President of the United States.”

While graduation marks the end of one period of your life, it is also the beginning of a much longer period of achievements, failures, triumphs, and disappointments. What you make of your life and the path you choose are measures of your values and integrity; in the words commonly attributed to another president, Theodore Roosevelt, “A man who has never gone to school may steal a freight car, but if he has a university education, he may steal the whole railroad.” Con man or corporate mogul, the choice is up to you, but your decision will be easier if you understand and master the role that money will play in your future.

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