So, What’s the Plan?

Figuring out the best approach to your financial security requires a shifting focus.

In a society where people have to work three jobs and still barely make a living, how can anyone plan for the future? Well, outside of the top 1 percent of this country, it is a challenge. Rachel Cohen, certified financial planner with Morgan Stanley spoke to the Jewish Exponent about how to manage money and be financially stable.
Cohen, a member of Congregation Or Ami in Lafayette Hill, is first vice president and a wealth advisor at the Cohen & Sutcliffe Group Morgan Stanley Wealth Management in Conshohocken.
During an email interview, she wrote that some of the first money management steps people should take include:
  • “Develop a budget in which you prioritize your expenses.
  • “Track your spending carefully each month. It is important to look at your income versus your expenses to see if you can carve out some money for savings.
  • “Make sure that you have adequate savings for emergencies. Your goal should be to have enough savings to cover six to eight months of your expenses.”
Another issue that plagues many people is credit card debt. With numerous commercials for credit cards, it is tough to choose the right one, she said. The average number of credit cards that Americans own is three to five, but people must decide what works best for them.
“Generally, the less credit cards you have, the better,” Cohen said. “For some people, it is too easy or enticing to have four or five credit cards to depend on and carry mounting balances that dig them into deep, overwhelming debt. The greater your debt, the more challenging your credit score and the higher your interest rates.”
She stressed it is crucial to pay off your credit card each month. It is also imperative to keep a list of your credit cards, with their interest rates and the balance, and review it each month as you pay your bills.
She added if you have multiple credit card balances, it might be helpful to consolidate them into one credit card account. This makes it easier to maintain a more reasonable perspective on what you have spent and can afford to spend moving forward.
“The cost of that product or service could cost you much more than the sale price, once you factor in the mounting interest you pay over time,” Cohen said. “So watch your APR” — annual percentage rate of interest on your balance — “and their impact on each purchase’s cost rather than thinking you can afford the minimum monthly payment. And pay off the credit card balance of the highest APR card as quickly as possible rather than spreading your payments out over cards that ultimately cost you less.”
Cohen said some helpful tips when selecting a credit card are:
  • “Ten percent of your FICO score takes into account the number of cards that you have and use. An additional 10 percent of your score is also influenced by the new or recent credit cards you have taken.
  • “Try not to open and close a lot of credit cards as that can negatively impact to your credit score.
  • “Be responsible when you spend so that you can either pay off your cards each month or at least keep your balances as low as possible.”
“Know your spending habits and whether you need the card or cards for specific recurring purchases and plan to use some instead of a checkbook or cash, and intend to pay the balance off each month,” Cohen said. “If that is the case, some type of rewards programs may have more value to you.”
“The key is to get the cards that give you the most value based on your spending habits,” she added. “The bottom line: Make sure you understand all of a card’s details so that you choose what is the best fit for you.”
In addition to selecting a secure and safe credit card, choosing the right bank can make a difference as well, she said. When selecting a bank, some factors may include: no minimum balance requirement, no monthly fees, mobile access and close proximity and/or access to bank branches.
Another reason people fall into debt is student loans. While college is important, researching what loans to take and how to pay them back is a tricky subject.
Cohen advised students and their families to apply for as many grants and scholarships as possible. Also, Free Application for Federal Student Aid (FAFSA) Direct Subsidized Loans are available to undergraduate students with financial need.
One way to reduce the debt is by consolidating loans at lower interest rates and setting up automatic deductions.
“Make sure you know what loans you have taken out and understand the payment options,” Cohen said. “It is important to know the interest rate, minimum payment, loan forgiveness, better payment plans and what loans would qualify for deferment.
“Increase your income with part-time work or see if you find creative ways to bring in extra income for a few years after you graduate,” she added. “The quicker you pay down your debt, the better. Some repayment requirements and minimum payment amounts change based on your family income. So, if you marry, your spouse’s income might raise your overall minimum payment requirement. It is better to live more frugally when you are young and pay off debt so that it does not encumber you over years and years.”
Ultimately, to have financial stability throughout life, it is crucial to start saving and planning early, she urged.
Cohen said it is a good idea for parents to set their children off on the path to retirement savings. Even a 16-year-old can open and make contributions into a Roth Individual Retirement Arrangement (IRA) or a Traditional IRA as long as they have earned income. Also, know that 2016 rules are that the maximum total amount you can contribute to your IRA (both traditional and Roth combined) is $5,500 if you are under 50 years of age and $6,500 if you are 50 or older.
“It is also important to carefully consider how you invest your retirement savings,” she said. “Your IRA, retirement plan money and other assets you might purchase/invest in — including real estate, which can have long-term value for the future — should be factored into your overarching asset allocation strategy. A professional advisor is an important resource to consider for help.”
“While it is best to start retirement planning and savings early, if you haven’t been able to save in the past, you can still set an aggressive plan to contribute as much as you can to catch up,” Cohen continued. “It may take some sacrifice, but it can be done.”
By email, she provided these tips for young adults, adults and seniors:
Young Adults
  • Make sure you become educated about personal financial management. It should be an ongoing priority in your life.
  • Try to build up a nest egg in the very early years of your younger adulthood. Some people even consider living at home with parents for a short time to save expenses.
  • Keep yourself healthy and get health insurance to avoid any large unexpected health care costs.
  • If you have student loans and would like to get out of debt sooner, consider a 10-year repayment plan. Another way to lower your total debt would be to make additional principal payments each month over and above your required payment.
  • Understand your current and projected cash flow and expenses and spending.
  • Complete an insurance analysis for life, disability and protection against other risks.
  • As you save for your children’s college, don’t sacrifice your own retirement savings needs. The kids can get loans for school, but you can’t get loans for retirement.
  • Begin paying down mortgage and other debt. This will free you up from wasting money on interest payments — you can then put that money toward your savings.
  • Your asset allocation plan and investment portfolio should be balanced based on your risk level. And remember: As you get older, you might begin looking at more conservative strategies.
  • Carefully plan when and how you will take Social Security Income in advance. Your financial needs as well as your overall health, life expectancy, other sources of IRA income, potential tax brackets, etc., all become factors to review. There are ways to maximize your (and your spouse’s) Social Security dollars while minimizing your tax consequences.
  • Before you retire, have a retirement income analysis run by your professional advisor. And don’t forget to consider future health care and insurance expenses. Some people are able to fully retire financially, but decide to continue working part-time to keep mentally and physically active. Others continue working solely for financial reasons. If you plan things out in advance and revisit the viability of your plans often, you will be better prepared.
  • Think about your potential long-term care needs and how to best cover them. Some long-term care insurance policies may be sufficient and others may not provide enough for your needs.
  • Make sure your financial affairs are in order to ensure that you make your legacy wishes clear. Wills, living wills, health care directives, financial power of attorney designations, beneficiary assignments and more are critical to review and update. Work closely with legal counsel to do this.
“You can be the biggest asset that you have,” Cohen said. “Your future earnings and income will determine the flexibility that you will have in saving and growing your net worth. You will have a better chance for financial success if you set achievable goals and develop an action plan to reach them early on. And always monitor and re-evaluate things along the way.”
Contact: [email protected]; 215-832-0747


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