Wednesday, December 2, 2015

Ready or Not, 2016 Is Coming!

How Ready Are You?

If you’re like me, then it’s time once again to assess your yearly budget.  That is, it’s time to see how well you fared with forecasting your income and monthly cash-flow against your total expenses, savings and other set-asides throughout 2015.   With a new year fast approaching, it would be good to determine whether you are on a manageable pathway or whether you need to make year-end corrections in preparation for 2016.  I would especially recommend this exercise now before venturing out to spend what you may not actually have on holiday gifts, events and personal extravagances.

By now you should have a good and accurate understanding of your financial circumstances.   Ideally, what you inventory as your finances should belong to one of three main categories:  

1) Glad-Giving-   What you have donated throughout the year versus what you had planned to give.
2) Spending Budget-  What you set aside to pay your regular, anticipated and unexpected expenses.
3) Savings Budget-   What you purposely set aside to save (or invest) versus what actually occurred.

This assessment will allow you to either sleep better at night or realize why you haven’t been able to do so this past year.  Hopefully, you haven’t had too many sleepless nights.  However, if you did, you are not alone.

Debt-To-Income Ratio (DTI)

In a recent NerdWallet report, as of October 2015 Federal Reserve statistics show that Americans had some very real debt loads.  Specifically, their U.S. household consumer debt profile found the following results:  the Average credit card debt is $16,140; the Average mortgage debt: $155,361;  and, the Average student loan debt: $31,946.   This can be especially menacing when a consumer’s Debt-to-Income exceeds 20%.   
The mathematical computation behind this means a person earning $45,000 a year would carry a non-mortgage debt load averaging about $750 per month.   According to Clearpoint Credit Counseling Solutions and other credit counseling agencies, with a 15% DTI this usually sends a good signal to credit lenders about an individual while a DTI of 20% or higher would send a caution signal to potential lenders, especially mortgage lenders, as they think such a person is carrying more debt than reasonable to manage.

This is even more critical for mortgage lenders who factor in what are termed Front-end Ratio and Back-end Ratio formulas.  In other words, mortgage lenders try to assess the total impact as well as types of debt you as a lender might carry and be liable for.  This enables them to evaluate each potential lender using standard and non-standardized ratios based on the lenders income.

Here is what that looks like using the same calculation:

Using Yearly Figures: 
                Gross Income of $45,000
                $45,000 x .28 = $12,600 allowed for housing expense.
                $45,000 x .36 = $16,200 allowed for housing expense plus recurring debt.
Using Monthly Figures:
                Gross Income of $3,750 (or $45,000/12)
                $3,750 x .28 = $1,050 allowed for housing expense.
                $3,750 x .36 = $1,350 allowed for housing expense plus recurring debt.

Historically speaking, “The business of lending and borrowing money has evolved qualitatively in the post-World-War-II era.   It was not until that era that the FHA and the VA (through the G.I. Bill) led the creation of a mass market in 30-year, fixed-rate, amortized mortgages. It was not until the 1970s that the average working person carried credit card balances. Thus the typical DTI limit in use in the 1970s was PITI<25%, with no codified limit for the second DTI ratio (the one including credit cards). . .  In the following decades these limits gradually climbed higher, and the second limit was codified (coinciding with the evolution of modern credit scoring), as lenders determined empirically how much risk was profitable. This empirical process continues today.

Caveat Emptor

If this conventional process is good enough for the world’s banking systems to rely on as key in their lending criteria, then this same concept should help you evaluate whether there are potential threats looming in your financial future.  Whether evident today or merely a perceived undercurrent, discovering how you can avoid financial difficulties ought to be a high priority, even for those considered well-to-do.  Knowing what you spend and how you spend it is simply good responsible stewardship.

Giving Thanks With A Grateful Heart

Along those lines, determining whether to give as well as the amount to be given also speaks of good and faithful stewardship practices. After all, the earth is the Lord’s and the fullness thereof, the world and all that is in it (Ps. 24:1)  This means it is a good and honorable thing to acknowledge the Lord and be a blessing to others.   And for any New Testament adherent that does not believe in tithing, glad-giving can certainly be performed as cheerful and hilarious giving (2 Cor. 9:5-8)  practiced based on what you have determined in your heart to give (2 Cor. 9:7).  In fact, with over 1.3 million registered charities in the US alone, there is no shortage of giving opportunities to satisfy every donor type.

The Process

Whatever you do, do not be discouraged or upset with yourself or others that have some responsibility for your annual expenses.  It is only through trials that we learn and hopefully grow from each lesson.  And with the changes taking place in how we manage our finances, you should expect that some review and adjustment might be required.  

Today, FICO Scores still play an integral part in all consumers lending.  And as long as they do, learning to operate with set budgetary goals is one of the best ways to always meet your personal needs and the lending standards of the day.
And, if you do not have a process yet, might I suggest the following preliminary steps:

1.   Review your Credit Scores (all three)
2.   Review All months of your Banking Statements (deposits, withdrawals and savings)
3.   Review your Giving
4.   Determine Your DTI (Debt-To-Income Ratio) Using the Formula Above
5.   Add your Total (12 Month) Income Sources To Determine Total Income - Taxes
6.   Add your Total (12 Month-regular) Bills first, and Divide by 12 to Determine Monthly Expenses
7.   Determine whether your Monthly Income matches or exceeds your Monthly Expenses:

(If Expenses Exceed Income, then determine what you can adjust).
(If Net Income results, then consider Giving more or Saving).

Of course, for help with any part of this process, please consider how the LifePlanning Institute might be able to assist you.




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Tuesday, November 10, 2015


There are times when it is difficult to applaud efficiency in government, especially when it comes at someone else’s expense.  Social Security, the historic “third rail” of politics, is currently under scrutiny and recent benefit-cutting measures have been enacted that will impact tens of millions of current and near-retirement age beneficiaries.  This is an appropriate action but under scrupulous political circumstance.

Under the recently passed Bipartisan Budget Act of 2015, Congress implemented a significant change to what had become a very promising retirement planning strategy for maximizing benefits.   Effective November 2, 2015 and extended for a period of 180 days after enactment, what some considered an “unintended loophole”—termed File and Suspend—ended preventing eligible beneficiaries from “double dipping,” or getting the advantage—if married or divorced—of taking one’s own benefits and qualifying for half of your spouse’s benefits (once at their Full Retirement Age) even if they choose to suspend their benefits until attaining age 70.

Who Is Affected?  

“This amendment grandfathers in anyone who is already using the claim-and-suspend filing option as well as those who request it between now and the next six months,” said Web Phillips, senior legislative counsel at the National Committee to Preserve Social Security and Medicare.

In addition, anyone who is 62 or older by the end of 2015 will retain the right to collect just spousal benefits starting at their full retirement age of 66, assuming their spouse has already claimed retirement benefits or had requested to file and suspend their benefits within six months after enactment of the law.

Future retirees who are younger than 62—those born in 1954 or later—are out of luck. The rules regarding “file and suspend” will change beginning six months after legislation is enacted. After that, anyone who files and suspends will no longer be able to trigger benefits for a spouse or dependent child, nor would they be able to request a lump sum of suspended benefits. No one will be able to collect benefits on his or her Social Security record until the primary beneficiary actually begins receiving.

Who Actually Benefits Most?

The amendment to close “unintended loopholes” in the Social Security Act is part of a larger budget deal to keep the federal government running for the next two years. The inclusion of new limits on two key filing strategies — file and suspend and filing a restricted claim for spousal benefits — was the result of secret backroom budget negotiations between congressional leaders and the Obama administration, said Mary Beth Franklin with Investment News.

Other reports indicate that as much as $57,000 in potential file-and-suspend and spousal-[bonus] benefits may not be realized by retirees.   Given how many Americans rely extensively on SSA benefits to live during their retirement years, this is an enormous loss to eligible retirees equivalent, according to Congress, in returning (or not distributing) about $20 billion over the next two years.  And, if the trend to make government more efficient remains at the center of these reductions, then this is just a shot over the bow for Social Security, Medicare and Medicaid, and possibly any other federal—and consequently State—directed programs.

So, What Is The Alternative?

Saving for one’s retirement has been a central theme for over a generation now.  The Silent Generation benefited from company-sponsored Defined Benefit Plans or, basically, lifetime annuity contracts.  Some Baby-Boomers will also benefit from such plans based on their employer and time in service, but most were introduced to Defined Contribution Plans, or 401k, 403b and Individual Retirement Accounts.  In effect, the major shift towards self-reliance emerged very strong during the 80”s, such that today’s X-Gen’s to Millennials are expected to sock away all they can and not depend on government or even an employer for their retirement future.

So, where does that leave us?  Are any of the programs and periods mentioned really good for us as a people of faith?  Is it reasonable to expect that conventional worldly-systems would ever provide for our well-being, or have the legislative changes underway shaken each of us enough to realize that only we and our loved ones can truly fare for ourselves?  Hopefully they have.

Life-Planning, a term I coined back in the 1997, is the only comprehensive planning strategy that factors in what you and your family can and should do for your own posterity—a posterity that runs for multiple generations.  Planning for retirement as an isolated event is and has always been foolish as so few people ever really retire, per se.  Sure, there are some who truly stop all activity that generates income and rests on their financial security.   But given the difficulties so many Americans have faced these past few decades to grow their personal worth through savings, investments and buying and selling real estate, is it any wonder that a majority of so-called retirees today still perform some type of revenue generating activity? 

Said another way, reality can be mean.  Financial circumstances will always influence how one lives and chooses to work in this present life.   More importantly, measures can always be taken to insure that you and your family experience an ever improving quality of life if you are willing to set this as a goal. 

Taking Personal Initiative

Privatizing Social Security and offering what former President George W. Bush termed Personal Investment Accounts has always been the right solution when you combine individual responsibility with social responsibility.  This was first considered in the mid-60’s by Congress.  If your income tax dollars are withheld for your future retirement, then you should be afforded some say in how they are secured and invested.   And since our government and legislators have failed to see the sensibility in this strategy, why not take your own measures.  From all financial calculations, an investment earning 8% annually will double every nine years, and 40 working years divided by nine says your investment will double at least 4 times. 

Accordingly, $1,000 invested annually for 40 years earning 8% per year will generate a retirement nest egg of $279,781; and, at 10% the same $1,000 annual savings would reach $486,862.  So, what if a family committed to this concept and set $1,000 aside each year for its family members until they were of the age to assume this responsibility.  This personal investment retirement strategy would generate a respectable supplement to any other retirement plans that are in place through career employment, self-employment or possibly Social Security.   The annual set aside is equivalent to merely 2.74 cents per day, less than the average person spends buying a daily newspaper, a cup of coffee or breakfast sandwich.  

What this tells us is that it is not about whether Social Security remains solvent or continues to provide “unintended loopholes,” but that we as concerned Americans can take steps to secure our financial future using strategies that will not break the bank.   Even attaining higher yields or investing at higher rates is within our direct and immediate control, and we should not think otherwise.    Fulfilling the biblical mandate to leave an inheritance to our children’s children (Pr. 13:22) requires personal and intentional imitative coupled with sound investment management.   We have the means and the solutions.  Now all we need is the will to take matters into our own hands… 


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Thursday, October 22, 2015

 Count the Cost 2.0:  It's Coming Soon!!...

Let me get right to the point.  My sincere apology for my lengthy absence from providing practical and timely articles!  Much has occurred personally and professionally which I cannot share at the moment, but will share in time.

More to the point, there are several great features about to be launched that you the reader should enjoy.  For one thing, they provide good, practical insight about the financial events taking place all around us, but from a spiritual perspective. 

Providing a Christian worldview in contrast to the popular conventions of our day is the mission of these blogs, and I am confident that the Life Planning Institute has more to share that will add significant value.  This I can promise.

So, if you lost heart and gave up on us, please wait.  Beginning in November, I will be providing regular weekly blogs and related articles on topics that will definitely help you manage your personal finances better.  

Future topics will address the most pressing financial issues of our day, such as Social Security and Medicare, The Affordable Care Act and Healthcare, Paying for Higher Education, Saving for Retirement, Shifts in the Investment Markets and, of course, things you can and should do to improve your own quality of life.  

As important as these issues are to you, remember they are just as important to the Lord!..

Thanks for being a Reader, and blessings...


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