Your true wealth, and perhaps your greatest asset, is your ability to earn an income. Your income pays for all of your living expenses, including housing, transportation, food, clothing, and recreation. It also pays for property insurance and premiums on liability and life insurance policies. A closer look at your monthly expenditures will likely reveal even more expenses.

Prepare for Uncertainty

What would happen if you suddenly had to stop working? How would you pay your expenses? While no one likes to consider the possibility of becoming disabled due to an illness or injury, the risk of disability does exist and warrants full consideration as you plan for your financial future.

Should you sustain a disability, how would you meet your financial needs and obligations? Would you have sufficient funds to support yourself and your loved ones during a six-month period of disability? How might such a situation affect your ability to borrow money? How quickly could you liquidate a portion of your assets to provide needed cash? If you are married, perhaps your spouse could provide the necessary income to support your family, but the combined responsibilities of spouse, parent, caregiver, and breadwinner can be overwhelming.

Social Security may not replace all of your lost wages should you experience a serious illness or accident. In addition, you must meet very specific criteria to qualify for Social Security disability benefits, and it may be months before payments begin.

Alternative sources of income may, at best, be limited. The bottom line is that you need a dependable source of income. If you lose your ability to earn an income, you jeopardize your future financial independence.

Know Your Options

Some employers offer a salary continuance plan in the event that you sustain a disability. However, most group plans have an upper limit or “cap” on the benefit amount. Consequently, the percentage of pre-disability income covered under a group plan may be insufficient to meet your needs. In many plans, only base salary is covered, which leaves bonus and other incentive income unprotected. Also, with a group plan, you are not the owner of the policy, which leaves your coverage vulnerable to termination should you change employers. Finally, if the benefits are provided under an employer-paid group plan, they are taxed as ordinary income, which further reduces the actual amount available to cover your living expenses. One solution to these limitations may be to supplement your group disability insurance plan with a disability income insurance policy that you own and is tailored to meet your needs. A policy can help reduce the gap between your pre-disability level of income and the benefits provided under your group plan.

While no one likes to ponder life’s uncertainties, it may be wise to consider protecting your greatest
asset—your ability to earn an income. An individual disability income insurance policy can help protect your financial independence in case of an injury or long-term illness.

Written and published by Liberty Publishing, Inc.

Inflation, which is defined as a rise in the average price level of all goods and services, can have a significant impact on the economy and your financial outlook. Learning more about the CPI, and how it measures inflation, can provide a strong foundation for understanding not only market and economic swings, but also the ways in which U.S. fiscal and monetary policies affect your financial well-being.

Determining the Market Basket

Each month, the U.S. Bureau of Labor Statistics (BLS) surveys prices for a “market basket” of goods and services in order to create an economic “snapshot” of the average consumer’s spending, which is quantified as the CPI. Actual expenditures are classified into more than 200 categories and eight major groups. These include the following categories:

• Food and Beverages: common groceries, alcoholic beverages, and full-service meals
• Housing: rent, furniture, and utilities
• Apparel: clothing, shoes, and jewelry
• Transportation: vehicle lease and purchase costs, gasoline, auto insurance, and airfare costs
• Medical Care: doctor’s visits, hospital care, and prescriptions
• Recreation: cable television, toys, pets, events, and sporting equipment
• Education and Communication: school tuition, postage, telephone service, and computer equipment
• Other Goods and Services: tobacco, haircuts, personal services, and funeral expenses.

Because the CPI assesses expenditures in these fixed categories, the CPI is a valuable tool for comparing the current prices of goods and services to prices last month or last year.

Interpreting and Using the CPI

As a measure of inflation, the CPI has three main functions. First, it serves as an indication of economic health and the effectiveness of government policy. To a certain extent, some inflation indicates a healthy economy; however, too much inflation, or no inflation at all, can indicate economic trouble. In fact, one of the primary economic policy goals of the U.S. government is to maintain an inflation rate ranging from 1% to 3% each year.

If there are constant fluctuations in the CPI, Congress and the Federal Reserve Board (the Fed) may take measures to control the amount of inflation and stimulate economic growth. As a result, business executives, labor leaders, and individual consumers may change their spending and saving patterns. For example, the Fed may attempt to curb rising inflation by raising short-term interest rates; this increase in the cost of borrowing money is likely to slow personal and business spending. Conversely, if the economy is not growing, the Fed may attempt to stimulate growth by lowering short-term interest rates. Lowering the cost of borrowing is likely to trigger increased spending among businesses and consumers.

As a second function, the CPI helps determine the “real” value of a dollar over time by removing the effects of inflation. As prices increase, the purchasing power of a dollar decreases. Thus, more dollars are needed to purchase the same amount of goods and services. Comparing inflation-free wages and prices allows economists to determine the actual earning and spending patterns of the American consumer, including what percentages of money are being saved or spent in certain areas.

Lastly, the CPI is used as a means of adjusting salaries and government benefits to account for price changes. For example, as a result of collective bargaining agreements, the wages of millions of American workers increase according to the amount of change in the CPI. The CPI is also used to determine the benefits of almost 50 million people covered under government programs, including Social Security beneficiaries and military and Federal Civil Service retirees. In addition, changes in CPI can be seen in the eligibility requirements for recipients of food stamps and school lunch programs, as well as through rents, royalties, alimony payments, and child support payments as determined by private firms and individuals. Finally, the CPI has been used to adjust the Federal income tax structure to prevent increases in taxes caused solely by inflation.*

Inflation can have a serious impact on the American economy due to the effect it has on government policy, as well as the spending and saving patterns of businesses and consumers. Understanding and following changes in the CPI can help you identify how the value of the dollar changes and estimate how inflation may affect your future plans. The U.S. Department of Labor (DOL) publishes current information on the CPI each month through the BLS. For more information, visit their website at
www.bls.gov/cpi.
* Source: Bureau of Labor Statistics, “Addendum to Frequently Asked Questions,”
http://www.bls.gov/cpi/cpiadd. htm#2_3 (accessed November 2010).

Written and published by Liberty Publishing, Inc.

At certain points in life, everyone must deal with banks, loans, credit, and finances. You may have learned your lessons through the “school of hard knocks,” and with your insight and experience, you can help your children steer clear of some of the difficulties you have encountered.

The Three “C’s” of Good Credit

Good credit can help your children secure the funding they need to purchase a new home or car, or start their own business. In order to establish good credit, it is essential that your children understand the role of capacity, collateral, and character. When issuing a loan, a bank may consider how the applicant rates in each category.

Capacity poses the question, “What financial resources do you have to pay back the loan?” As the creditor, the bank most likely will ask, “How long have you held your job? How much do you earn? How many dependents do you have, and do you pay child support?”

Collateral concerns what the applicant will use to secure the loan. For example, a creditor may want to know if your child owns a car or has any personal savings that can be used as security against the loan. When your child pledges an asset as collateral, he or she is promising to use the asset for repayment if, for any reason, he or she is unable to pay the balance of the loan. Personal loans generally do not require collateral, but they may have a higher interest rate.

Character is what a creditor assesses to determine the reliability of a loan applicant. The creditor may consider such information as how long an applicant has owned a car or home, or whether the applicant pays the rent and other loans or bills on time.

Establishing a Good Credit Record

It is often difficult for a young person to establish credit because they have no previous record of paying bills or making loan payments. While lack of a credit history makes securing that first loan difficult, without that first loan, your child cannot establish a good credit record. As a parent, you can help your child take the first step toward attaining credit by helping him or her open a checking and/or savings account. A creditor may look at such accounts as an indi-cator of your child’s ability to manage money.

Another step on the road to good credit would be for you to co-sign a loan application for your young adult child. As a co-signer, you are agreeing to pay back the loan in the event that your child fails to do so. Therefore, communication and trust between you and your child is essential to ensure that payment will be made by your child in a timely and responsible manner.

Maintaining a Good Credit Record

There is only one way to keep a good credit record: Pay everything off on time! Make sure your child is aware of how much he or she owes at all times. In addition, try to have your child avoid owing more than can be paid back. Help your child to understand that no one should dig a financial hole so deep he or she will not be able to climb back out.

If you take the time to teach your children these basic concepts, they will have a solid foundation to
help them avoid the pitfalls that many young people face when they begin to build their credit.

Written and published by Liberty Publishing, Inc.

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If taxes are due on awarded funds, they are payable by the scholarship recipient. Generally, students do not receive enough yearly income to owe tax, especially if they file independently and can take a personal exemption. Students claimed on their parents’ tax returns may not fare as well.

The key is to apply scholarship dollars to tax-free expenses first, such as tuition, fees, and books. The remaining taxable portion of the scholarship should be itemized in detail on the student bill, along with the scholarship amount received.

Teaching grants or project assistantships are nontaxable if integral to a student’s chosen field of study. On the other hand, research assistantships that benefit the academic institution, rather than the student, are taxable.

A scholarship can be a major education funding boost. However, the scholarship recipient must keep informed of possible “taxing” issues of scholarship dollars.

Written and published by Liberty Publishing, Inc.

Choose the right insurance partner!

If you’re the main provider, your family may depend on you to make mortgage payments, save for retirement, and fund your children’s education, in addition to maintaining your current lifestyle. While you may be comfortable with the insurance coverage you have in place for your most important tangible assets, have you considered the amount of insurance coverage you have in place for something a little less tangible—namely you? With this in mind, let’s take a closer look at how you can estimate the financial needs of your family in the event of your death.

Suppose you’re 35 years old, earn $50,000 per year, and have $100,000 of life insurance coverage. In addition, you and your spouse have calculated that you’ll need to work for 30 more years to meet your financial goals and objectives, which include paying off your mortgage, sending your children to college, and building adequate retirement savings. If you multiply your current earnings by 30, you get a very rough estimate of your future earnings—$1,500,000.

Don’t let this figure startle you. It’s not how much life insurance you need. However, it does give you an indication of the important impact you have on your family’s ability to meet its financial goals. There are a number of factors that need to be considered to objectively determine an adequate amount of life insurance coverage.

The first point to consider is whether your life insurance proceeds are sufficient to help pay the remaining mortgage on your home. In addition, many parents want life insurance proceeds to help cover their children’s future college expenses. The amount needed can be roughly calculated by matching the ages of your children against projected college costs adjusted for inflation. Next, consider your spouse’s income and whether it would be sufficient to cover the monthly expenses of your family’s current lifestyle. Providing a supplemental income fund can help your family maintain its standard of living. Finally, life insurance can help provide liquidity at death to pay estate taxes and maximize asset transfers to future generations.

As you develop an insurance strategy, remember to assess your existing policies. Calculate the additional coverage you may need based on your family’s financial obligations and any other resources, such as retirement benefits and savings. Before you crunch the numbers, it’s important to realize that determining life insurance needs is not as simple as it may appear. There are many factors and calculations that must be taken into consideration to objectively assess your needs. Therefore, it’s important to consult with a qualified insurance professional to help ensure that you have an appropriate amount and type of coverage.

Free ebook on life insurance

Written and published by Liberty Publishing, Inc.

While retirement planning usually focuses on preparing for your financial future, nonfinancial issues may also need to be addressed. When retirees report feeling dissatisfied with retirement, it’s often the nonfinancial issues that are the culprit. Specifically, lifestyle changes, as well as self-esteem and identity issues associated with the loss of one’s profession, tend to create the most difficulties.

Stay Active

One possible solution for managing these challenges may be to slowly ease into retirement. Some individuals may welcome the opportunity to continue some form of work, such as consulting, job-sharing, mentoring, or back-up management. Mentoring, in particular, enables an individual to transfer a lifetime of learning and experience to a friend, relative, or younger colleague. Phased-in retirement provides an “anchor,” allowing new retirees to explore other activities while also maintaining the meaningful role in which they have grown comfortable.

From a psychological standpoint, some people find that separation and disengagement from a lifetime of work is more emotional than they expected it to be. Experience suggests that it might take between two and five years to “decompress” from the personal investment required in work-related activities.

Maintain A Healthy Perspective

Perspective is an important factor in enjoying the retirement years. While “retirement” suggests the end of your working life, a more positive perspective suggests the beginning of a new phase of life—a phase in which you can do all the things you never seemed to be able to find the time for while you were working. For example, volunteer work can allow you to make a valuable contribution to a charitable cause and meet new people. Taking courses in areas that interest you can sharpen your intellect and help maintain your cognitive abilities. If chosen thoughtfully, these activities can be enjoyable and fulfilling.
Obviously, it’s a lot easier for a retiree to minimize work and begin considering other pursuits if financial considerations are secondary. People tend to think that it costs less to live in retirement. However, it’s actually common for retirees to choose to increase, rather than decrease, their expenditures, especially in the first few years of transition. Without working full-time, retirees may have more energy and time to enjoy entertainment, dining out, travel, and recreation.

Keep an Eye on Spending and Inflation

During the working years, it’s common to take a certain lifestyle for granted. In retirement, with more time available for reflection, it may be appropriate to assess how you have been living and prioritize your various activities. Depending on your circumstances, you may need to change your priorities or consider budgeting. On the other hand, you may find that you no longer need or want to do some of the things that seemed so important when you were working.

Additionally, be sure to keep an eye on the effects of inflation after retirement. For example, an item costing $100 when you’re age 65 will cost $180 at age 80, assuming a 4% inflation rate compounded annually. Therefore, it’s important that your retirement plan be not only a plan “at” retirement, but also a plan continuing “through” retirement, which may require revision on a regular basis.

If you view retirement as your opportunity for growth and exploration, you can make this transition exciting and enjoyable. Your horizons are limited only by your imagination. After all of your hard work, you’ve earned this opportunity—enjoy the freedom!

Written and published by Liberty Publishing, Inc.

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Getting Down to Basics

Suppose you have a $200,000 mortgage at 7% for 30 years, your ordinary monthly payment (excluding real estate tax) is about $1,331, payable for a total of 360 months. The mortgage will ultimately cost you an estimated $479,022, which includes $279,022 in interest.

If you pay $50 extra per month (about $1.64 a day) toward that mortgage, you’ll cut your total interest payment to approximately $242,597, and you’ll own your home without a mortgage three years and three months sooner. In other words, the extra money you pay out at the rate of $50 a month will save you an estimated $36,430 in interest.

Obviously, the more money you prepay, the greater your savings. For homeowners who have adjustable rate mortgages (ARMs), the practice of prepaying is especially wise when interest rates are low. Prepaying reduces your debt load if rates go up later, since interest payments are highest and principal payments are lowest at the loan’s inception.

Things to Consider

Is there a downside to prepayment? It depends. Eventually, you’ll eliminate the income tax deduction you receive from deductible interest paid. Depending on your tax bracket, the amount of money saved should be reduced accordingly. In addition, if you know you’ll only be living in your current home temporarily, prepaying may not be as beneficial in the long run. It’s important to thoroughly analyze your options before you proceed.

Another area of concern can be pre-payment penalties. While once common, they may be limited or nonexistent on relatively new mortgages. In addition, the competitive nature of lending has led banks, in some instances, to waive penalties and prepayment charges. In order to make prepayments, you can usually add the prepayment to your normal monthly mortgage check and mail one check to the bank.

Before proceeding with any type of plan, consult with your financial professional to ensure that your decisions are consistent with your overall financial goals and objectives.

Written and published by Liberty Publishing, Inc.

Mortgage Protection

1) Invest in your future. Rapidly changing technology used in various fields may require continuing education. You may wish to make ongoing education a priority to enhance your skills and increase your professional potential. The more varied and flexible your skills, the more you’ll have to offer to prospective employers.

2) Open an emergency savings account. The uncertainty of the workplace may mean that your pro- fessional life will be interrupted by career changes. If you need to return to school to change career paths, you may experience periods of time without steady income. Creating an emergency fund to cover six months’ worth of living expenses can help you manage work-related transitions. This savings fund may also be used for other endeavors, such as starting your own business.

3) Save early and continuously for retirement. Saving for retirement is your responsibility. The more disciplined and diligent you are, the better off you may be. Social Security provides only a base level of income, and many employers no longer offer traditional pension plans. With employer-sponsored 401(k) plans, the responsibility of saving rests on your shoulders. Although you may be years away from retirement, the key is to make time and compound interest your allies.

4) Let retirement funds accumulate. If you change jobs early or often, consider rolling over your employer-sponsored retirement plan funds into an Individual Retirement Account (IRA) or new company retirement plan. It may be tempting to cash in the account, especially if you’ve accumulated only a small amount, but doing so would make it immediately taxable, and you may also incur an early withdrawal tax penalty. Perhaps a greater concern, however, is that you may be unable to make up for time already spent to accrue these savings.

5) Use credit wisely. Credit card companies frequently target young adults with the lure of “easy money.” While credit cards offer convenience (it’s virtually impossible to con-
duct some transactions, such as reserving airline tickets, without one), they also have the potential to create debt problems. Because payments can be extended far into the future, overspending on credit can create an illusion of wealth. Paying off the full balance each month is the best way to manage your use of credit.

Plan Now for the Future

Remember, the funds you accumulate during your working years may be your primary source of retirement income. Although inflation can erode your savings over time, a little discipline and common sense may help you better manage your current and future financial affairs.

Written and published by Liberty Publishing, Inc.

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A LIFE Foundation poll and LIMRA survey found that 93% of all Americans say that life insurance is something most people need, yet only 41% own an individually policy.

The LIFE foundation has created a book entitled: What you need to know about life insurance. It discusses who needs insurance, how much is enough, what kind of insurance is appropriate and the different ways to purchase insurance. Visit http://www.termcoinsurance.com/life-insurance/ to download your free copy.

The fact is that, regardless of your level of wealth and the ultimate tax consequences of your estate, solidifying the future of your family is probably high on your list of priorities. That is why a well-structured estate plan is invaluable. Through it, you can control the distribution of your assets and possessions, name guardians for your children, and plan care for other dependents. There is no better time to start planning for your family and heirs than today.

Individuals involved in the estate planning process should work with their estate planning team, including their own personal legal or tax counsel.

Written and published by Liberty Publishing, Inc.