Tuesday, April 17, 2012

STEP ONE: Getting My Finances Under Control. It's a Process, Not a Quick Fix.

     If I cared enough about money, I would have married it. My dear Uncle Harry always said it was just as easy to love a rich man. Unfortunately, the accumulation of wealth (much less a string of wealthy ex-husbands) was never my motivation. Instead, I was drawn to the rewards of a job well done; to pride, recognition and notoriety, in addition to being fiercely independent from the get-go. I have no regrets for taking this path, and it has paid the bills well enough. On the downside, it provided little opportunity for investing in future financial security. The truth is, if it wasn't for my parents' frugal post-depression mentality, I could easily have ended up living in my car instead of my house.
     My career path made a steady climb up the ladder of success until 2001 and the after-burn of 9/11. The entire world changed that day, right along with the rosy future we Boomers envisioned for our Golden Years. The reality is that none of us were financially prepared to handle the aftermath of the past ten years. Huge drops in investments, the drastic economic downturn, a failing housing market, limited employment opportunities (especially for Boomers), along with rising healthcare costs blindsided everyone. With more than 40 million Americans entering the preretirement Danger Zone, ages 55 to 64, many of us were, and still are, extremely vulnerable to financial ruin.
     This is why it is so important to get your ducks in a row now, before receiving Social Security benefits. Here are some measures I've taken over the past couple of years. There are many more to go, but believe me, making this start has me sleeping better at night.
  • Eliminate Debt:  I have closed all of my credit card accounts except AMX and a gas card for emergencies. I am now using cash or my debit card for everything. If I don't have the money, I simply don't buy. I worked with a debt management company to negotiate lower interest rates and manageable payments on my outstanding balances. I remained diligent about chipping away the debt, making payments on-time and without fail, until it was gone. That was a joyous day! TIP: Use tax refunds or bonuses to pay down debt, and resist the temptation to go on a spending splurge.
  • Get Organized:   After my parents passed away my poor brother, as executor of their estate, was left with the overwhelming task of finalizing their estate. He spent months sorting it all out. Not wanting to leave my son with a similar mess one day, I have collected my financial information and important legal documents into one quick-reference file. I used a 3-ring binder for legal documents: birth certificate (you need at least two official copies), passport, Social Security information, will and final wishes, divorce papers, name change documents, etc. I have a second binder for all my banking, credit card and investment information, including account numbers, pins, passwords. This is especially important if you use electronic banking. Also include copies of your last two tax returns. Place all these documents into a fire- and flood-proof lock box with duplicate keys, and be sure a family member is aware of it and has access to it. You may also want to appoint a legal proxy, in case of an emergency.
  • Secure Health Insurance:  No more denial. Anyone over 55 must have health insurance. If you lose your job, buy the COBRA insurance coverage until you can get an individual policy (a lapse in coverage makes it harder to get covered again). According to the Department of Health and Human Services, as many as 86% of Americans between the ages of 55 and 64 have some type of pre-existing condition that could restrict their access to private health insurance coverage.  Be aware that the new Inclusive Health Federal Option Plan (if it still exists after the June Supreme Court decision on the Affordable Healthcare Act) may be your only insurance choice until age 65 when Medicare benefits kick in. I found this out the hard way. Between jobs and without insurance, two consecutive hospitalizations not only left me with more serious debt, but also  uninsurable.  Thank goodness I qualified for Inclusive Health coverage with a reasonable premium that paid for recent surgery - no questions asked.
  • Pay Off Your Mortgage:  In my younger days, I thought of my mortgage payment as "rent" because of frequent moves, and as an interest deduction opportunity on my taxes. Not so these days. Now I understand that if it isn't paid for, I don't really own it. The bank does. This means it is entirely possible to lose my home if I experience a financial set back (job loss, unexpected medical expenses, etc.). Instead of spending my inheritance on a bigger home or some other unnecessary luxury, I paid my mortgage in full. If nothing else, I'm assured of a place to live, and have something of real value to sell should the need arise. My house is money in the bank - MY bank.
  • Manage Inheritance Wisely:  If you are over age 55, you are most likely in line for a family inheritance in the near future. Be practical. Whether large or small, and despite the temptation to go on a spree when you receive gift money, consider real needs first. Pay off debt. Buy a short term CD. Drive your current car a couple more years. Consult with a financial advisor for advice on secure investments, tax protected opportunities and stable stocks and bonds. Your aim at this point should be security, not speculation. Whatever you decide to do, be sure you plan for future financial needs, rather than immediate gratification.
  • Learn to Live on a Budget:  Living on a fixed income is not what we hoped for in our Golden Years, but it is the new reality. Most of us will find it difficult, if not impossible, to cover our monthly expenses with Social Security benefits alone. Let's face it we've been spoiled. If you begin now, you'll be better prepared for what's next. TIP: As an experiment, track all your expenses and splurges for one month. Add up the total and compare it to your projected monthly Social Security benefit. Believe me, it's a shock. I've been doing this for the last six months. Each month I try to cut back a little more on my spending by doing things like passing up the drive-through window, entertaining at home more and dining out less, combining errands into one trip instead of half dozen mini-trips to save on gas. While I've cut my spending almost in half, I haven't reached my projected Social Security benefit. It's definitely a learning experience.
  • Find Ways to Generate Supplemental Income:  I have an energetic friend who happily adds several hundred dollars a month to her budget by baby sitting and pet sitting. Her clients love the security of  having a reliable, mature person in their home while they are away. Another friend, who loves negotiating and knows cars, helps people like me when it's time to buy or have major repair work done. The small fee he charges is more than covered by the savings I gain. He earns cash for extras. Tap into the old ingenuity instead of wallowing in gloom and doom. We were clever on the way up, and we are just as clever now!
  • Social Security Benefits:  There are pros and cons regarding early filing at age 62 for Social Security benefits. By waiting until age 66 or even 70, monthly payments will be slightly higher so you will receive a little more money each month. Also consider that once you start receiving benefits, you must adhere to guidelines that limit how much other income you can earn. You must understand that the amount of your Social Security benefit is based on the amount you contribute. Payments are based on the total dollar contribution, spread out over your remaining years. If you won't be contributing significantly going forward, there will not be a measurable increase in your benefit. After considering my current and projected work opportunities along with my financial and health status, I have opted for early filing, primarily to receive some consistent monthly income. When to file for Social Security is an individual decision. Weigh your options and make your decision based on your personal reality.
     With my finances organized and in a manageable state, I now have a solid foundation to stand on. Understanding personal finances are ever evolving, I have learned what seems secure today, could crumble tomorrow. I feel better prepared to handle the surprises. Taking these few important steps has eased my stress and provided a small sense of security. Now I can focus on the rest of my journey.

     Next week, STEP TWO: Reaching Out - My efforts to expand my social perimeter from the isolation of working at home to the world beyond.

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