Simple Ratios and Rules of Thumb for Financial Planning

I often get asked quick questions such as “how much house can I afford?” or “how much life insurance do I need?”  Personal finance is a very subjective science and the answers can vary widely depending on who is doing the asking.  That said, it’s nice to have some basic rules of thumb which can be used to make sure you’re not totally off base when making a quick financial estimate.  Below are a few of these rules which apply to saving, spending, housing, and insurance.  Enjoy!

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3 Reasons to Rollover Your 401K

I’m a big fan of rolling over 401K plans into IRA accounts.  For many people, a 401K plan will represent one of their retirement income ‘prongs’ along with after-tax savings, pensions, and social security.  Many workers of various ages have money in 401K plans because they’ve learned that salary reductions into 401K plans will reduce one’s taxable income and grow those funds on a tax-deferred basis until those funds are withdrawn during retirement.  It’s a very widely used retirement savings vehicle.  So why not just leave those funds in your 401K if you switch jobs or retire?  I’ll give you my take on this below:

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2014 Mid-Year Market Recap and Outlook

2014 is looking smooth right now for stock and bond investors.  The year didn’t start off that way with a fairly steep decline in February, but like all the dips of 2013, it was ultimately another buying opportunity for those able to look past the noise.  Just this past Wednesday, Janet Yellen reiterated the Federal Reserve’s intent to end quantitative easing by this Fall – removing the economy’s training wheels –  and even talked about reducing the economy’s longer term “target interest rate” to 3.75% from 4.00%.  That’s good news for stocks and housing, and hopefully for the unemployed as well.

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Building a Standard for Financial Advice

There was a good article in Research magazine last month about the business of financial advice and how it needs improvement.  Research is an industry publication so it’s not the sort of article which would be distributed to the general public.  That said, I’ve read articles in consumer publications which comment on many of the same points.  Part of the problem is that the financial advice industry doesn’t really have an official designation, perhaps one that is state-issued, required for  inclusion in the industry, and that has a rigorous set of practice standards.  Accountants have the CPA, financial analysts have the CFA, lawyers have the JD, etc.  Some might say that people in the business of giving financial advice have the CFP (Certified Financial Planner) designation, which they do, but that isn’t a requirement for inclusion in the industry.   In fact, many people don’t know about or distinguish between the various financial planning designations which exist.

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Should You Buy Bonds at a Premium?

You buy a corporate bond at par or at a discount, right? It just seems like common sense. What would lead you to purchase a corporate bond at a premium? Actually, investors do sometimes buy fixed-income securities with coupon rates above current market rates. If interest rates are on the way up, buying a premium bond when interest rates are still relatively low represents a defensive play. The move does involve risk, however.
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