SHOW NOTES: 2019-04-04 MiM

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Last Week’s Question of the Week: For tax year 2018, what is the maximum contribution to an IRA that someone UNDER 50 can make — is it $5,000, $5,500 or $7,000?

ANSWER: For tax year 2018 the annual contribution limits into an IRA is $5,500.

HOST: Today we’ll be looking at ways to simplify our financial lives and why consolidating our accounts, namely your retirement accounts, can make a lot of sense?

KLAAS FINANCIAL: Yes, we tend to repeat a lot of important things on this show, and one thing we talk frequently about with our clients is the idea of “Simplifying, Consolidating & Diversifying” when it comes to your finances. We really believe that when you truly focus on this your overall financial picture gains clarity.

There is a common misconception that having multiple advisors and having multiple accounts is safer, while what is most important is to look at asset allocation and appropriate risk. In a nutshell, asset allocation refers to the percentage that you keep in your portfolio of stocks, bonds and cash or cash equivalents. Diversify, or “don’t put all your eggs in one basket”. Diversification does not necessarily mean having multiple advisors – rather it means not owning just 1 stock or bond. It really makes more sense to utilize fewer advisors and less accounts so that your strategy is more cohesive.

Ways to Simplify:

  1. Consolidate Bank Accounts and Retirement Accounts
    Most people can get by just fine with one checking account and one savings account. If you have more, consolidate your various accounts into a single checking account and one savings account. You’ll simplify your banking, without resulting in any loss in service level. The same is true of retirement accounts. If you have several, due to having previous jobs with 401(k) plans, simplify your life by rolling those plans over to an IRA account. Not only will this reduce paperwork, but it will also eliminate account fees, and make it much easier to manage your retirement assets.
  2. Cut Back to Just One Credit Card
    Focus your credit card use on a single card. Choose the one that offers the best benefits and put the rest away. It’s much simpler to manage your spending and handle payments with a single credit card then with five or ten.
  3. Cut out services
    Not only to simplify but also to save money. Routinely look at cutting out any services that “You Don’t Need or Regularly Use”. You probably pay for subscriptions and services that you hardly use. By eliminating them, you will simplify your life and remove yet another payment from your budget. The fewer payments you need to make, the simpler your finances will be.

HOST: I assume getting a handle on debt helps as we try to simplify?

KLAAS FINANCIAL: Yes. Here are three things you can do…

Become Debt-Free. One of the very best ways to simplify your financial life is to become debt free. It won’t happen overnight, but just establishing a plan to make it happen can go a long way toward simplifying your life.

Debt doesn’t just cost you money, it also makes life more complicated. Not only do you have to spend more time paying bills, but multiple debts are serious sources of stress. Think of it this way: Each debt that you eliminate takes out one complication in your life.

It used to be more the rule than the exception: Older Americans would enter retirement debt free, with no home loans, no car loans, no credit card debt. But that’s no longer the case. Today, people are increasingly retiring with all sorts of debt — mortgages, home equity lines of credit (HELOCs), credit cards, cars and even student loans.

Consider: Americans ages 60 to 69 had almost $2 trillion dollars in overall debt at the end of 2017, up from $1.33 trillion in 2007; and Americans age 70-plus had $957 billion in overall debt in 2017, up from $457 billion in 2007, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data.

Get Rid of as Much Paperwork as You Can. Having multiple accounts for various financial pursuits can lead to piles of paperwork building up around your home. You may not even take the time to read through them, but the existence of large amounts of paperwork can be stressful all by itself.

Get rid of any paperwork that isn’t absolutely necessary, and shift account statements and notifications to online. And if you’re reducing the number of financial accounts that you have, the amount of correspondence will drop anyway.

Cut Down on Your Goals. It’s important to have goals established to achieve important milestones in life. But you probably can’t successfully manage more than one or two goals at one time. In fact, multiple goals can spread your efforts in too many directions, and cause needless confusion.

Pick the one or two goals that are most important to you right now, pursue them with a vengeance, and let the other goals go for another time. Your chance of succeeding in any one goal will increase dramatically.

HOST: What other some other Investing Principles that we should remember to simplify our financial lives?

KLAAS FINANCIAL: We covered the first one earlier, which is to diversify (“Don’t put all your eggs in one basket”). Other important Investing Principles to remember include:

  • KNOW YOUR TIME FRAME & YOUR OWN RISK LEVEL – The amount of TIME you have to invest your money can and should have a major impact on your asset allocation (how much in stocks vs bonds vs alternatives vs cash). Your risk level should work in tandem with your retirement goals and what is comfortable for you.
  • SEEK PROFESSIONAL FEEDBACK OR DIRECT GUIDANCE – While not everyone must have a money manager who invests their money for them…it is important to AT A MINIMUM seek the advice of a professional.

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Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.