Should You Pay off Your Mortgage?

It's common that most people believe that you should pay off your mortgage before retirement. For many homeowners their mortgage is their largest expense. And it's also true that if they were able to eliminate their mortgage, that they would be able to reduce their need for income during their retirement years.

What people fail to see sometimes is that while paying off the mortgage does reduce expenses, it also eliminates a potential source of income. When you take funds from your savings and retirement accounts, you are removing funds from your capital base and compromising your ability to generate growth and income in your investment portfolio.

Paying off the mortgage definitely improves peace of mind, but sometimes the financial trade offs are just not worth it. Retirement accounts which are typically invested in mutual funds or other investments have the potential to grow at a much faster pace than real estate. In addition, once a home is paid off, it is difficult to tap the equity and reverse mortgages can be expensive.

Wishing You Wealth in all its Greatest Forms,

Alex

Problems with the Past

Not all financial planning works as it is supposed to. Since I have joined the profession, I have realized that every time I read an article, pick up a book or attend a seminar…some of the information is wrong. Keep in mind that this is not always the fault of the writer or financial advisor, but it’s because the advice is based on an experience that no longer exists.

The tools and techniques that most financial advisors use tend to be based on the millions of retirements that happened before they become planners or even went to college. Years ago, it was rare that most would be able to go to college or graduate degrees. Instead of having spent years in post secondary education, they started working early and worked for years and years. They were taught to live within their means, cut out debt and try to make due saving the little that they earned.

The key here is to make sure that the education that the financial advisor has is updated with today’s realities, including taxes and inflation. There was a great article on Marketwatch.com that discussed how over the last 10 years, many investors actually lost money in the stock market. This is not to say that one shouldn’t invest in the market, but to be aware that there is a need for newer thinking for many investors.

Wishing You Wealth in all its Greatest Forms,

Alex

Top 3 Bank Fees that Sting

It seems as if banks are on the offensive these days. The amount of interest they are earning on their deposits is way down, so the money has to come from somewhere. When you make a deposit at the bank, they lend out your money and get paid an interest rate and credit you a rate. For instance, they may receive 1.0% on your deposit and pay you 0.75% and they keep the difference…so in this scenario they are earning 0.25% on your money. Since rates are so low, savings accounts are paying very little and their income is way down.
For most banks, fee income is important during this economic downturn.

The top three fees that you should be aware of include:

1. Overdraft or Bounce Check. If you write a check for more money than you have in your account, you will be hit with this fee. This fee has been on a gradual rise and can range from $20-$30 per occurrence. The key is knowing what you have available in your account and balance your checking account regularly.

2. Bad Deposit Fee. If you try to deposit a check from someone and the check bounces, you are also charged a fee. It hardly seems fair, but only take checks from people who are good for the money.

3. ATM Fee. If you are using an ATM that doesn’t below to your bank, you are going to get charged to withdraw money. They always get me at the Orange County Fair, ball games and concerts. Make sure you get the money you will need before you head out or get used to paying to get at your money.

Wishing You Wealth in all its Greatest Forms,

Alex

Magic Rule of 72

Have you ever wondered how long it would take your money to double? There is a guideline to figuring out the time called the "rule of 72." How you calculate it is by taking the amount of interest you are earning and divide it into 72. For instance, if you were earning 9% interest you would take 72 and divide it by 9.

72/9 = 8 periods

So at a compound interest rate of 9%, you would double your money in 8 compounding periods, which is usually measured in years.

Back in 1791 Ben Franklin left $5,000 to the city of Boston and instructed them to let it grow for 100 years. In 1861, it had grown to $322,000. During that year, they decided to build a school with most of the funds, but set aside $92,000 for 100 more years. In 1960, the $92,000 had grown to $1,400,000. It's unlikely that you will have 100 years to let your money grow, but the rule of 72 can help you see how long it would take money to double. Below is a sampling of interest rates and how long it takes to double.

Interest Rate	Years to Double
0.5%	144.0
1.0%	72.0
3.0%	24.0
5.0%	14.40
7.0%	10.286
9.0%	8.0
12.0%	6.0

Wishing You Wealth in all Greatest Forms,

Alex

Great Depression Revisited

Some of the wisest individuals today are the seniors that witnessed the stock market crash in 1929. After the crash, panic stricken consumers feared that they would lose their life savings at the banks. So they went to the banks, became a mob and attempted to withdraw their money simultaneously. With so many people trying to make total withdrawals, it resulted in banks not being able to meet the cash demand. Some were able to retrieve all their money, while others didn't receive one cent. Many banks failed in the weeks and months that followed. Does that sound familiar? Subsequently, in 1933 the FDIC was created to protect consumers and instill public confidence.

Beyond bank failures, the general business climate soured while commercial and residential construction declined over 60%. Businesses failed since people didn't have any money to buy the goods and services that were once necessities. During these times, banks did very little lending since they had little confidence that customers would be able repay the loans with high unemployment. During this time of massive unemployment, there was no welfare or unemployment insurance.

If you speak to an elder who lived during this time, you'll soon realize that the recession that we are experiencing today is minor in comparison. It might seem like dark days, but we now have programs designed to protect us when we are unemployed, when we are hungry and protecting our hard earned money in the chance that a bank fails.

It's easy to take these things for granted and feel as if the government isn't doing enough. The United States is down, but it is NOT out. I am looking forward to the recession ending, yet will continue to treasure each learning lesson that it provides.

Wishing You Wealth in all its Greatest Forms,

Alex

How the Wealthy Really Live

Since my youth, I have always wondered about the difference between the wealthy and those that struggle and live paycheck to paycheck. Later in life, I was surprised to learn that it was much more simple than I realized. Those that are wealthy don’t always make more than the average American. The biggest difference is how they live their life.

1. They follow the plan

A financial plan is the most important part of getting on the path to financial freedom. Too often, we set goals for ourselves and fail to reach them because we don’t stick with it. The wealthy not only have a plan, but they follow the program. When we are consistent with our actions, they become habits. If you could develop one positive financial habit a week, imagine where you would be in just one short year. Those that are wealthy are diversified in their investment plan and have implemented sound insurance, tax and financial strategies and are willing to put off instant gratification for long term results.

2. They are penny-wise

The wealthy who have worked hard and developed their prosperity over time have also developed an attitude of frugality. They realize that every penny invested or spent wisely will bring about more pennies, which will bring about dollars. Those that are truly wealthy have the ability to discern between a need and a want and spend their dollars accordingly.

3. They ignore social prominence

The world’s “average” millionaires live rather simple lives. They tend to own their houses outright and drive older cars. The poor tend to rent and drive expensive automobiles. Those that are truly wealthy are that way because of their habits. Often times, you would never know their wealth by the way they dress, drive or live.

Every person can become wealthy if they take the time to cement those habits that allow them to become that way. We all have choice in our lives and you can choose to live a life of prosperity or a life of lacking. Take the time today to build positive financial habits.

Wishing You Wealth in all its Greatest Forms,

Alex