Spending and Your Financial Security

A key factor in your financial success is knowing how much you spend. Not to the penny, but with some measure of accuracy, how much do you and your family spend in a year?

Knowing your annual expenditures is critical to your ability to save. How else can you accurately answer these questions: Is your income greater than you are spending? Do you need to make any changes?

When you are in the earlier stages of your life, determining your annual expenses and comparing this to your income is the basis for what you can save and invest. The earlier you can begin to save, the better you will be. You will have greater financial security and more financial freedom. You will be able to have more choices and flexibility. You will not have to take on as much financial risk later in your life.

For clients nearing retirement, a critical part of their financial planning with us is determining how much they need from their investments and other sources to provide the life they want. To do this, we compare their future projected income versus their expected expenses.

Income can come from various sources, usually from distributions or withdrawals from their investments, as well as Social Security, pensions or other retirement plans. We work with clients to quantify these amounts and make reasonable assessments of how much they can expect to generate or withdrawal from these sources, so they will not outlive their assets.

The other side of this equation is how much you will be spending. For many, this is a challenge to determine or estimate. We are not saying you need to live on a specific budget. But the more accurately you can quantify your annual expected expenditures, the better planning we can do.

There are many ways to determine what your annual expenditures are, or will be. The more accurate you can be about tracking or determining your past spending and projected future expenses, the more confidence you will have in the financial planning process.

Determining your annual expenditures can be done in many ways. It does not need to be exact. Using technology and online resources, pretty realistic figures can be quickly determined. Consider what you can gather from just the following:

• Credit cards, over a year or two
• Review your checkbook for large and small expenses
• Mortgage and property tax payments
• Utility bills, which you could be paying through your checking account or credit cards
• Car payments, which are likely linked to your checking account

Many of these records can be obtained for a few years, online, such as credit card statements and bank statements. These will provide you with a good starting point. If you want to go a step further, you can track your finances with an online tool, such as Intuit’s QuickBooks or Mint.com.

As you near retirement, or to plan for your future, you will also want to consider changes or events that may occur in the future. Depending on your age and other factors, these could be things like: how long you plan to work, travel plans, education expenses, changes in your home, major family events and health care costs.

Gathering, reviewing and projecting your expenses provides you with necessary information we can use to help you plan a financially secure future. This information can also be an important step in evaluating how you are spending your money, and whether you want to make changes in your spending habits.

Good data leads to better decisions and better planning. We can work with you to assist in the various aspects of this process, so you and your family can have as much financial security as possible.

The Positive News

All too often, the media or financial analysts focus on the negative, rather than the positive. While researching and reading over the past week, I’ve come across the following positive items.

  1. Housing starts in June, 2015 were 26.6% higher than last year and permits to build new homes rose 30% compared to June, 2014. Both statistics are 8 year highs. These show continued economic recovery and indications of builder and consumer confidence.
  2. The price of crude oil dropped below $49 per barrel in the US on July 23rd, which is lower than any time in the last 3 years. If it remains around these levels, expect gas prices to continue to fall.
  3. Jobless claims in the US for the week ended July 18th was the lowest level in 41 years. While the weekly figure may be an aberration, the seasonally adjusted claims of 225,000 is far less than 6 years ago, when nearly 600,000 Americans were applying for claims each week.
  4. The federal deficit continues to fall. Last week, the government reported that the current fiscal deficit will be $455 billion, which is less than the $483 billion predicted in February 2015 and far less than the $1 billion annual deficits during the financial crisis around 2008-10.
  5. Apple stock fell after their earnings report Tuesday afternoon, as some of their results were slightly less than some analysts’ expectations. They are pretty impressive to me. Apple reported quarterly revenue of $50 billion, profits of $10.7 billion and 47.5 million iPhones sold during the 3 months ending 6/30/15. They sold 35.2 million phones during the same quarter last year. Apple now has cash on hand of $202.8 billion. The first iPhone was sold approximately 8 years ago. They may sell 200 million iPhones in 2015.
  6. While the Greece debt crisis is important for its impact on the European currency and its lenders, the country is economically tiny in relation to most of the world. Its economy is smaller than Peru and half the size of Ohio’s economy. Its stock market capitalization is just 0.03% of the MSCI All Country World Index. Its debt is large compared to the Greece’s economy, but represents only about ¼ of 1% of world debt markets.

The media’s attention on negative issues, as well as the overwhelming volume of information today, can cause you to lose focus on the bigger picture. Our role is to help you have a broader perspective, so that you can be confident and financially secure, to live the life that you and your family desire. We hope this information helps you to be positive.

5 Password Security Tips

The best way to protect yourself and your personal identity online, that you can control, is your effective use and management of your online passwords. You cannot control whether someone is able to hack into a major website. You can control your passwords, which could significantly limit the effect of online hacking and security breaches.

Put simply, hackers will use the information they obtain from one website to access other websites. If they have your email address and a frequently used password, you are subject to much greater online security risk. This is why it is important that you do NOT use the same password(s) at many or all of the websites you log into. By following the steps below, you can greatly reduce this risk.

The goal of this blog post is to help you get started with better password management and to significantly improve your password security.

5 Steps to Better Password Protection:

  1. Identify the following websites you frequently use:
    • Your online e-mail account.
    • The bank account that you access the most online, or use the most.
    • The credit card that you access the most online, or use the most.
    • The website that you visit the most, which has a password or username.
      • This does not need to be a financial website, just one you visit frequently.  It could be an online newspaper or sports website.
    • Websites that also have the same passwords as any of the above websites.
  2. For each of the websites listed above, change your password for these sites.  This should take you less than 30 minutes, at the most.
  3. When you change your passwords, follow these basic concepts:
    • Your password for each website should be different.  Do not repeat passwords.
    • Each password should be at least 8 characters, and include a random combination of all the following:  capitalized letters, lower case letters, at least one number and other symbols.
      • Examples: 59*Tm@8W, MT27&$keAP
  4. For the other websites you’ve identified under #1 above, which you have repeated passwords at multiple websites, change a few of these passwords over the next week.
    • For example, 5 website passwords each day, for the next week.
  5. Start to use a password manager program, which helps to save and retrieve your passwords, and can log into websites without you having to remember all your passwords.
    • I use and highly recommend 1Password.  There are other programs, some which are cheaper, but this is a great one.
    • By using 1Password, you can login to their app or icon on your internet browser and 1Password’s program will enable you to login to most websites without you having to remember each and every password.
    • 1Password stores and helps you create new passwords.  Their program works across all devices, so you have your passwords with you, on your phone, PC or tablet.  This is way better than paper.

 

We have more detailed suggestions, which you can read in these previous blog posts: Practical Tips for Online Security and How to Securely and Efficiently Manage Your Passwords.

Our goal is to provide our clients with a secure future. As technology has become pervasive in our society, internet and password security is an important aspect of your financial well being.

We truly hope that you take the steps recommended here.

If you have questions, or would like further guidance on this topic, please contact Brad, at bwasserman@wassermanwealth.com.

This is Big – and Full of Energy

We often refer to this motto: “Focus on things that matter and things you can control.”

Today, we want to focus on something different, something which matters a lot, but which we have no direct control over: the long term trend towards much cheaper oil and gas.

Sometimes you may not realize when a broad and important trend has begun or is occurring. Increased knowledge provides you with greater clarity, which results in more confidence about the future.

We want to emphasize the importance of the energy revolution which is occurring through the technological breakthroughs of fracking and horizontal drilling. This is likely one of the great societal changes of our time, similar to the changes which have come from the microprocessor.

Horizontal drilling and hydraulic fracturing (fracking) have increased U.S. crude oil production by 3.6 million barrels a DAY in less than four years. This has resulted in a crash in oil prices, even though oil demand has remained very strong, both in the U.S. and worldwide.**

Three years ago, the price of oil was around $88 per barrel. Last July, oil was $96 per barrel. Today, and through much of 2015, oil has traded at $60 or below, and is now around $52-53 per barrel.10 Year price of oil chart through 010615

We think the long term trend for oil prices is to remain near the $50-60 per barrel range, or go even lower.

There may be volatility and swings in either direction, as demand and supply adjust. As compared to oil prices of the past, the long term trend should be lower, not higher.

What has caused the huge oil price decline?

The technological advances in fracking and hydraulic drilling has resulted in the huge decline in oil prices. The operators have reported “they can produce more profitably today at a price of $65 a barrel than they could at $95 a barrel three years ago… Where can they be profitable three years hence – $40 a barrel? $30? The oil patch today is afire with the same technological imperative and competitive mission that has powered the U.S. electronics revolution – think Moore’s Law – to dash headlong down the learning curve, crushing costs and prices and making up for it in volume.” **

The U.S. and the world are no longer subject to the OPEC cartel controlling oil prices. The frackers are using “just-in-time” production. OPEC cannot simply withhold supply, as that would cause prices to increase. Frackers would quickly react by investing and increasing drilling and production of new and existing wells. Oil production is no longer dependent on multi-billion investments with many years of lead time. And as productivity and innovation increase, which they are quickly throughout the world, the cost of oil production will go lower.

Why is this important to you and your financial future?

This long term trend toward much lower oil prices has many significant benefits for each of us, as well as corporations and governments throughout the world. Some of the benefits are:

  • Costs will be greatly reduced. The cost of gasoline will be less. Transportation costs of materials and parts will be less, increasing corporate profits and reducing the rate of inflation.
  • Government spending will be less than if oil prices were higher. Just imagine how much gas and oil products the U.S. Government and military utilizes. The more they save, the less they spend (or borrow).
  • The lower the cost of oil, the lower the rate of inflation. If inflation is lower, than interest rates will remain low. The Federal Reserve has stated that one factor in keeping interest rates low is that inflation is below their 2% target rate.
  • Interest rates’ remaining low by historical standards helps to improve corporate profits, lowers the cost of borrowing, and encourages economic investments, all which are positive for world-wide stock markets.

Conclusion

Daniel Yergin is one of the world’s foremost energy experts. He is a Pulitzer Prize winning author of many books, including his 2011 book on energy, The Quest. In this book, written only four-five years ago, Yergin significantly underestimated how quickly fracking and horizontal drilling would have on the supply of energy. While I highly recommend this lengthy book, it is clear that technological change can occur faster than even a top expert can anticipate.The Quest book cover

Yergin concludes The Quest with these thoughts on energy and technological innovation:

“It…is the search for knowledge, which advances technology and promotes innovation… What has been accomplished since could not possibly have been imagined. The challenges of meeting rising energy needs in the decades ahead, of assuring that the resources are available on a sustainable basis to support a growing world, may seem daunting; and, indeed, when one considers the scale, they truly are… But what provides for reasoned confidence is the increasing availability of what may be the most important resource of all—human creativity.

A famous geologist once said, “Oil is found in the minds of men.” We can amend that to say that the energy solutions for the twenty-first century will be found in the minds of people around the world. And that resource base is growing. The globalization of demand may be shaping tomorrows needs. But it is accompanied by a globalization of innovation. The generation of knowledge and the application of science have increasingly become a worldwide endeavor; and the links and interactions, amplified by ever-widening information and communications systems, multiply the speed and impact of what can be accomplished. This means that the resource base of knowledge and creativity is expanding. This will fuel the insight and ingenuity that will find the new solutions…That is at the heart of the quest, it is as much about the human spirit as it is about technology, and that is why this is a quest that will never end.”***

So instead of worrying about the Greek debt problems, let’s focus on the positives of the technological advances our society has made. Then keep focused on your goals and personal financial plan.

P.S. If you want to see a great sketch by Carl Richards on the Greece issue and you, click here.

Sources:

**The Shale Boom Shifts into Higher Gear, by Donald Luskin and Michael Warren, WSJ, May 31, 2015

***The Quest, by Daniel Yergin, 2011, The Penguin Press.