Holiday Spending Hangover

shj121316_happy_holidaysMany people may experience a spiked eggnog hangover during the holiday season, but do you also find yourself with a spending hangover? That nagging feeling that you may have spent too much on gifts for your loved ones but you aren’t really sure how much you should have spent?

According to a recent survey by T. Rowe Price, you are not alone. Of the participants surveyed, 64% “spent more over the holidays than [they] should have”. And women are not the only ones doing the holiday shopping. “Men are more likely than women to try to get everything on their kids’ lists (60% vs. 45%).” The holiday spending hangover is increasing as well. Of the participants surveyed, 69% spent the same amount, a little bit more, or a lot more than last year.

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Making Sense of the Social Security Kill Bill

Retirement Concept Social Security BenefitsEarly this November, Congress surprised many when they introduced the Bipartisan Budget Act of 2015 causing Financial Advisors to revisit ways to maximize cumulative Social Security benefits for their clients. With the passing of this budget deal, we see the end to two Social Security claiming strategies that have benefited many individuals – File and Suspend and the Restricted Application.

The new rules for File and Suspend will take effect with all applications filed after April 30, 2016. We will see the end of filing a Restricted Application for anyone who is turning 62 after December 31, 2015. This leaves a 6 month window for clients to review their situation with their financial advisor to determine how the changes will affect them, and if they can still take advantage of these strategies before they go away.

The File and Suspend strategy was commonly used by married couples to allow one spouse to begin collecting their spousal benefit at full retirement age while allowing the higher earning spouse to delay and then maximize their own benefit at age 70. Under the new rules, any suspension application filed after April 30, 2016 will also suspend all dependent and/or spousal benefits that would have been paid off of the suspended record. In other words, a worker must now collect their own benefit in order to trigger benefits for their spouse or dependents.

Restricted Applications for spousal benefits were often filed by couples who both wanted to delay collecting their own benefits while taking advantage of a spousal benefit in the meantime. The new rules now state that anyone turning 62 in 2016 or later will no longer be eligible to file a restricted application when they reach full retirement age. Individuals who will be 62 by the end of 2015 will remain eligible to file a restricted application when full retirement age is attained. The caveat – if this strategy depends on one spouse filing and suspending after April 30, 2016, the strategy will not work and further planning with your advisor may be beneficial.

For Example: Mark and Mary are both 63 and remain eligible to file a restricted application for spousal benefits at full retirement age. Mark wants to delay collecting his benefits until age 70. However, he will turn 66 after April 30, 2016 at which point the option to file and suspend is no longer available and spousal benefits will no longer be paid off a suspended benefit. Mark will either have to take his own benefit at age 66 to give Mary the option to file a restricted application for spousal benefits, or Mary will have to forego her spousal benefit allowing Mark to delay his own benefit and vice versa.

Individuals fortunate enough to have already implemented these strategies will not see a change to their current benefits. On the other hand, individuals born after 1953 will be unable to take advantage of either claiming strategy and are encouraged along with anyone who will be 62 by the end of 2015 or 66 before April 30, 2016 to meet with their financial advisor to determine the most optimal claiming strategy before the window closes.

Source: Savvy Social Security Planning for Boomers, Social Security ‘Loopholes’ Closing

10 Beneficial Budgeting Tips

Taschenrechner und StatistkA 2013 Gallup poll found only 30% of American households prepare a detailed household budget (source). While budgeting can feel daunting at first, it can make a tremendous difference on your path to long-term financial success. With that in mind, here are 10 useful tips for budgeting.

10. Start with the Big 3
When building your budget, it’s important to look at your largest expenses first. For most people those are food, housing and transportation. Make sure to account for all aspects of your Big 3 from groceries to eating out and car payments to fuel costs. Starting with your largest expenses first will help you to get a more accurate view of what’s left to play with in your budget.

9. Bring Your Lunch
It seems so simple, but it’s amazing how much you can save in your budget by packing a lunch every day. In her article, “Buying Your Lunch Is A Terrible Idea. The End. No More Debates” (source), Jillian Berman figured she saves over $1,500.00 per year by bringing her lunch to work. If you are a household, multiply the savings for each person who packs a lunch. It adds up! Plus, you have the added benefit of controlling your portions and making healthier choices.

8. Shop Alone
Sometimes when we go shopping with a friend, we are tempted to buy items we don’t need. Or think about going to the grocery store with kids in tow. How often are items added to the cart based on their requests? Shopping alone may not be as fun, but it can help to control unnecessary purchases and keep you on budget.

7. Look at the Year, Not Just the Month
“Budgeting for the year is better largely because we feel less confident in our estimates, so add more of a buffer for unexpected expenses, according to University of Southern California’s Gulden Ulkumen, Cornell’s Manoj Thomas, and New York University’s Vicki Morwitz.” (source) Looking at a single month doesn’t account for holiday expenses, vacations, etc. Taking a longer view can help budgets be more accurate.

6. Start a Spending Diary
When starting a diet, people are often asked to track what they eat. The same idea applies to starting a budget. Your diary can be as simple as a small notepad or a note on your smartphone. Start with a week and write down everything you spend. After you analyze your first week, try to continue for the whole month to get a good view of your spending habits. Do you eat out more than you thought? Did you spend less on gas than you expected? Use the information to make adjustments to your budget.

5. Earn Extra Money
Bringing in more income doesn’t mean picking up another job. Rather, aggressively paying down debt such as credit cards, mortgages and student loans will free up more of your cash flow for other line items. If possible, avoid making minimum payments and consider adding an additional payment occasionally to help pay down your principal. Adding more money to your budget can be as simple as smart debt payment strategies.

4. Use Separate Accounts
Instead of having a single checking and savings account, consider opening multiple accounts for varied purposes. For example, create an emergency account and set up your checking account to automatically transfer funds each time you receive a pay check. Then create an account just for ‘fun savings.’ Add to your fun savings only when you have extra funds. Using separate accounts can help prevent spending just because the money is there.

3. Don’t Count Dollars until They Are There
Sure, you usually get a pretty hefty year-end bonus, but what if this is the year you don’t? Counting money based on what you expect to come in can be one of the easiest ways to blow your budget. Focus on the income you know is coming in, then if you receive extra, have a plan in place to use it wisely.

2. Save Room for Fun
As you plan your budget, make room for fun. Allowing yourself room for special treats or nights out can make all the difference in keeping you on track to achieve your goals. Be sure you are specific with your fun expenses as you plan your budget and stick to your allotment.

1. Don’t Give Up
Budgeting isn’t fun for most of us, but it can make all the difference in achieving our financial goals. Stick to it and it will get easier with time. Meet with a financial planner to discuss your long-term goals and gain even more encouragement to stay the course.

What other tips would you add to the list? Share them with us below!