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Do you know what’s on SALE?

Do you know what’s on SALE?

Thanks for all of the great feedback from my last blog! It sounds like many of you are well on the way to decluttering your lives. And personally, I was the recipient of a friend’s scarf that she never wore. So thoughtful of her. I hope she doesn’t stop in at Goodwill anytime soon…

Continuing down the path of organization, let’s turn to our finances. How do we begin to get a clear picture of where we are at? In the spirit of simplicity, let’s start with four numbers to know. They go by the acronym SALE, and who doesn’t love a sale? SALE stands for:

Savings – how much you are “putting away” each year, while you are working.

Assets – your investment and retirement portfolios, real estate, investment partnerships, etc.

Liabilities – mortgages, ongoing credit card balances, other loans.

Expenses – how much you spend each year.

Why do we start with these? They are the foundation of any financial plan – whether it’s a “back of the envelope” look at where you stand this year vs. last, or a sophisticated analysis of how much you should spend during retirement.

I’ve put together a guide to help you determine these figures. You’ll have to gather information about your savings and brokerage accounts, retirement plans such as 401(k)s, home mortgages, credit card bills, real estate taxes etc.

Hopefully, it’s easily accessible on-line or in your newly decluttered office area!

So let’s see what’s on “SALE”… When I ask about “you”, it may mean you personally, or you and a spouse / significant other.

Savings

Retirement savings are the annual additions to your retirement accounts, including 401(k) contributions, employer matches, IRA contributions, etc. Investment savings are the annual additions to your non-retirement accounts, such as bank savings, investment / brokerage accounts, college savings accounts and other investments. Don’t include any principal payments on debt, such as paying “extra” on your mortgage. Debt repayment will be reflected as a decrease in your liabilities.

  • Retirement savings
______________
  • Investment savings
______________
  • Total annual savings
______________

Assets

Assets can be broken into categories such as “liquid” – meaning cash, bond and stock portfolios, real estate (both homes and investment properties), and other illiquid investments and personal items.

  • Cash & investment accounts
 

 

Cash / bank accounts
______________

 

Investment / brokerage accounts:
______________
  • Retirement accounts
 
 

IRA Accounts:

______________
 

401(k) accounts:

______________
 

Other retirement

______________
  • Real estate
 
 

Home market value:

______________
 

Investment properties market value

______________
  • Other investments
 
 

Partnerships etc.:

______________
 

Business equity:

______________
  • Personal
 
 

Vehicles, etc.:

______________
 

Art, jewelry, etc.:

______________
  • Total Assets
______________

Liabilities

Liabilities represent long-term debt to be repaid. Don’t include credit card balances that get paid in full at the end of each month. Please use balances outstanding at the end of the time period, such as year-end or quarter-end.

  • Real estate
 

 

Home mortgage balance owed:
______________

 

Home equity line balance owed
______________
  • Credit cards
 

 

Balances not paid off monthly:
______________
  • Other loans
 
 

Student loans balance owed:

______________
 

Personal loans balance owed:

______________
 

Business loans balance owed:

______________
  • Total Liabilities
______________

Expenses

OK, before we go there… There is a reason that this number is last on the list. I didn’t want to lose any of you. I wish I could video tape (is that even still the right term?) the look on people’s faces when I ask how much they are currently spending. What does your face look like right now?

This number is very important. I am often asked: How much money do I need in retirement? The answer will depend on your spending. There are many software programs or on-line budgeting tools to track spending. Downloading and categorizing expenses in a program such as Quicken isn’t that hard, and takes just a few minutes each week.

I like to separate spending into the following categories (please feel free to add additional lines as needed):

Fixed Expenses

These are the “turn on the lights” expenses that you are obligated to pay and have very little discretion over. We’re going to include expenses that specifically relate to children (tuition, camp, etc.) in a separate category. Please use annualized numbers.

  • Home
 
 

Mortgage payments

______________
 

Home equity line of credit payments

______________
 

Rent

______________
 

Real estate taxes

______________
 

Homeowner’s assoc. assessments

______________
 

Property / renter’s insurance

______________
 

Utilities

______________
 

Cable / internet

______________
 

Maintenance etc.

______________
 

Other

______________
  • Auto / transportation
 
  Loan / lease payments
______________
  Maintenance, etc.
______________
  Auto insurance
______________
  Other transportation
______________
  • Loan payments
 
  Student loans
______________
  Other personal debt
______________
  • Taxes
 
  Federal
______________
  State
______________
  • Health care
 
  Health insurance
______________
  Medications
______________
  Additional medical expenses
______________
  • Other insurance
 
  Life insurance
______________
  Casualty insurance
______________
  Disability, long-term care, etc.
______________
  • Other necessary expenses
 
  Groceries
______________
  Pets / veterinarian
______________
  Other
______________
  • Total fixed expenses
______________

Variable Expenses

These are the expenses you can control. Seriously. You will learn more on the impact of these expenses and your values in future blogs. Please use annualized numbers.

  • Variable expenses
 
  Restaurants
______________
  Entertainment
______________
  Travel / vacations
______________
  Hobbies
______________
  Health club etc.
______________
  Clothing
______________
  Spa / salon, etc.
______________
  Other
______________
  • Total variable expenses
______________

Children’s Expenses

It is beneficial to know these expenses in isolation. At some point, you will have independent children and you will be able to eliminate these expenses. Ha! Just kidding. Kids are like the line in “Hotel California”… they check out but never leave ☺️

  • Children’s expenses
 
  Activities
______________
  Tuition
______________
  Camp
______________
  Child care
______________
  Other
______________
  • Total children’s expenses
______________

So now you have your 4 numbers:

Savings Assets Liabilities Expenses

You should track these numbers on an annual basis. You can call me a numbers geek, but the first weekend in January I track these numbers. I enjoy seeing the trends. As assets and savings increase you will feel great.

If you are retired, knowing the big picture will help you determine if you are on track to meet your retirement goals.

Knowing these numbers is just the beginning… Looking behind the numbers will truly help to achieve your financial goals. More to come on this!

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Rappaport Reiches Capital Management, LLC
5202 Old Orchard Road, Suite 160
Skokie, IL 60077
Phone 847.832.0030
Fax 847.832.0033
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