Budgeting Tips

The decision of when to draw social security benefits can have a lifelong impact on one’s ability to have sufficient enough funds to afford retirement. For too many retirees, an insufficient social security nest egg is all they have.

Waiting to collect social security benefits versus not waiting to collect social security benefits can be a difficult decision make. A number of factors need to be taken into account in order to make an intelligent and well-informed decision.

This article will highlight the impact of various situations on this decision.

US News makes the following case about whether or not it ever makes sense to take social security before the full retirement age:

While you’re eligible to start drawing Social Security at age 62, your monthly benefit is reduced by 25 percent from what you would receive at your full retirement age (66 or 67, depending on when you were born). If you wait until age 70, you can expect your monthly Social Security benefit to be 76 percent more than if you start drawing at 62.

In the article, Leann Sullivan, vice president at TFC Financial Management in Boston, makes this interesting point: “Probably the primary time is when there’s a health issue.”

Someone who can no longer work because of illness or who doesn’t expect to live very long would be smart to draw sooner rather than later, she says.

In addition, here are four situations in which it may make sense to take Social Security early, as US News also noted:

1. You can’t live without the money. For those who have no other source of income or not enough money to pay expenses, early Social Security may be necessary to put food on the table. “A lot of times it’s going to make sense for one of the spouses to collect a little bit earlier,” Lucey says. “There’s just a lot of cases where additional cash flow earlier in retirement makes a lot of sense.”

2. You don’t expect to live past age 80. According to the Social Security administration, a man turning 65 this year can expect to live to just over 84. For a woman, the expected age is 86 1/2. But people with terminal illnesses or serious health issues may know they won’t live that long, so taking Social Security early makes sense.

3. You can’t work but you aren’t eligible for disability benefits. Someone who had a physically demanding job may not be able to do that particular job anymore but isn’t considered disabled because he or she can do other kinds of work. For individuals who are otherwise in good health, seeking a new job at 62 may make sense. Others might be better off drawing Social Security.

4. You’re a widow or widower. Widows or widowers can draw from their former spouse’s benefits starting at age 60, and that does not affect their ability to draw their own benefits later. Divorced spouses or minor children may also be eligible for benefits.

This analysis looks at it from a similar but slightly different angle. The following five steps guide you on a methodical approach to evaluating this important decision:

Step #1 – Find Out Where You Stand

You need to know how much your benefits will be and when, exactly, you'll reach what the Social Security Administration (SSA) considers "full retirement age," the age at which you can receive those benefits without penalty. Your benefits are based on your lifetime earnings. If you're over 60 but not yet receiving benefits, you should receive a statement in the mail from the SSA reviewing your potential benefits at different retirement ages.

Step #2 – If you’re out of work or in financial trouble, take the money as soon as you can.

The earliest you can collect benefits is age 62. But you'll pay a penalty of 25% or more in your monthly benefits by filing before full retirement age. You also could lose more if you continue working while collecting a monthly Social Security check. Until the year you reach full retirement age, your benefits will be cut by $1 for every $2 you earn over a certain amount annually. That is why retirement experts generally suggest you wait until you reach full retirement age, or even older, before filing for benefits. But if you're unemployed and out of savings, or if you're only working part-time and finding it impossible to make ends meet, then none of the above is as important as your immediate need. The decision is really a no-brainer. Take the money as soon as you qualify.

Step #3 – If you’re working and in good health, wait at least until full retirement age.

If you're married, and you die before your spouse, he or she can often collect a survivor's benefit based on your earnings. But if you elect to take early benefits, your spouse will receive a reduced check after you're gone.

Step #4 – If you really like your job, wait even longer, but not beyond 70.

One of the oddities of Social Security is that full retirement age isn't the point at which you reach your maximum possible benefits. Keep working and paying into the system, and you can earn even more later.

Step #5 – Apply with Uncle Sam.

Once you've decided the time is right, applying is pretty simple. You can do it over the phone or online. The government says it can take as little as 15 minutes.

In conclusion, besides following the approaches outlined in the two reports above, we highly recommend you engage the services of a financial planner or other suitable professional should you have a desire to learn more about adding social security benefits to your portfolio.

What with all the talk about “cash flow” and “cash flow management,” it’s worth your while to gain a better understanding of what these terms actually mean.

Positive cash flow, for example, does not mean the business is profitable.

A business can be turning a profit, and at the same time the profitable business could be dramatically and dangerously close to the precipice of having to liquidate and go out of business. Arguably, positive cash flow is more crucial to the small business’s success than is net profit because you can’t pay your bills with net profit, you need to have cash to pay your bills.

As noted here, the definition of cash flow management for business can be summarized as the process of monitoring, analyzing, and optimizing the net amount of cash receipts minus cash expenses. Essentially, net cash flow is an important measure of financial health for any business.

According to a study performed by Jessie Hagen of U.S. Bank, 82% of businesses fail due to poor management of cash flow. If your business constantly spends more than it earns you have a cash flow problem. For small businesses, the most important aspect of cash flow management is avoiding extended cash shortages, caused by having too great a gap between cash inflows and outflows. You won't be able to stay in business if you can't pay your bills for any extended length of time!

As Entrepreneur observes in a recent report, new startups should fully understand that running out of money is one of the primary reasons that businesses fold shortly after a launch. This scenario is a proven statistic, but startups can avoid joining the ranks of failed businesses by being smart about how they spend their startup capital, as noted in the following five tips:

1. Know when you’ll break-even

Knowing the point at which you’ll break even won’t necessarily impact your cash flow, but it will give you goals to strive for and a ready-made target for forecasting where your cash should go in order to reach that goal.

2. Always maintain a cash reserve

Every startup should expect shortfalls. Having cash reserves for those lean times lessens the blow, the stress and the distractions, and allows you to stay focused on growing your business.

3. Collect receivables immediately

Try to make any invoices “due immediately” and limit the use of net terms longer than 15 days. If you can do so, delegate the task of keeping an eye on receivables and customer follow-up to get money in as quickly as possible.

4. Extend payables where you can

While you want to bring payments in as quickly as possible, work with your suppliers and vendors to get the best deal you can and extend payables to net 60 or more, if possible.

5. Make the best use of technology

Always back up your files and cash-flow spreadsheets. Not only will this keep your data secure from local file corruption or data loss/theft, but it will also make it easier for you to gain access from anywhere you have an Internet connection.

In conclusion, it’s fairly obvious that a lot of time and resources are at stake in this process known as “cash flow management.” There is a lot to lose if the management process is not embraced by management; but a lot to gain if the process is embraced and run well.

Last month we featured an article that provided a general overview of the types of bankruptcy available to debtors who have hit hard financial times. We addressed the fact that despite the purpose of bankruptcy, that it is supposed to be a mechanism for giving the debtor a chance for a “fresh start,” the ramifications of declaring bankruptcy are far reaching and drastic, to say the least.

The article made the following points:

Debtors facing foreclosure and/or excessive debts are too often under the misconception that declaring bankruptcy is the perfect solution to these problems. Bankruptcy stays put on your credit record for quite a long time making advancing in life incredibly difficult. In addition, the updated bankruptcy law, passed in 2005, includes severe restrictions that make it more complicated to file for bankruptcy.

What this follow-up article hopes to achieve is to shed some light on the types of debts that are not eligible to be discharged in bankruptcy. As noted by The Simple Dollar, it’s important to understand that bankruptcy is not the cure-all to your financial problems, and that not all debts are eligible to be discharged in bankruptcy. For example, If you owe back taxes or child support, bankruptcy will not be able to help you.

Simply put: non-dischargeable debts are debts that don’t go away when you file for bankruptcy.

As The Bankruptcy Site notes, neither Chapter 7 nor Chapter 13 gives you a perfectly clean slate. Yes, many kinds of debts can be wiped clean, but in both scenarios, some debts cannot be eliminated.

Lawyers.com gives the following list of debts that will not magically disappear when you declare bankruptcy:

Debts Incurred After You File Bankruptcy

Any debt you have before you file for bankruptcy will go away (get wiped out) as long as it’s dischargeable. But, after you file—even while the bankruptcy case is still pending—debts you incur remain yours.

Secured Loans

A common question potential bankruptcy filers ask is whether it’s possible to keep a house or car after filing. The answer is yes—as long as you continue to make the payments. Mortgages and car payments are common examples of what are called “secured” debts. Any time you promise to give back the purchased property if you don’t make your payments, you have a secured loan. Secured loans are non-dischargeable in bankruptcy (unless you give the property back).

Unsecured Priority Debts

Bankruptcy wipes out most unsecured debt, but it doesn’t eliminate “priority” unsecured debt. There’s almost no way to get rid of priority debts. They also get paid before other unsecured debts if money is available to pay creditors. Here are some examples of unsecured priority debts.

• Domestic Support Obligations

Your spousal support or child support payments aren’t dischargeable in bankruptcy. Child and spousal support generally encompass amounts necessary for the child or former spouse to meet basic living requirements. Money owed as a result of a marital property division is different than this kind of support—in some states it’s dischargeable.

• Income Taxes

Bankruptcy crosses lots of minds when the tax man cometh. While it isn’t impossible to discharge unpaid income tax debt, it’s tough to meet the requirements.

• Other Government Debts

Like taxes, many debts owed to the government (such as fines and penalties) are going to stay with you till the grave. But not all. If you aren’t sure how a given government debt will be treated, a bankruptcy attorney can assist you.

• Student Loans

Even though student loans aren’t “priority” unsecured debts, you can’t get rid of them in bankruptcy—that is, unless you can demonstrate that you have an “undue hardship.” A disability that prevents you from working can qualify as an undue hardship.

Debt From Fraud, False Pretenses, and False Representation

Trying to work the system can come at a steep price. One consequence might be your debt not being discharged. The trick here is that debts resulting from fraud, false pretenses, or false representation are dischargeable unless your creditor files a lawsuit in the bankruptcy case, called an “adversary proceeding.”

Debts You Didn’t List in Your Asset Case

Contrary to common belief, “not including a debt in bankruptcy” isn’t an option. You’re required to list all of your debts when you file for bankruptcy. If your case is an asset case (one where there is money to distribute to creditors), and you fail to list a debt, the omitted debt is non-dischargeable.

Examples of Other Debts That Are Never Discharged

• Child support and alimony
• Fines, penalties, and restitution you owe for breaking the law
• Debts arising out of someone's death or injury as a result of your intoxicated driving.

Between the discussion in last month’s and the current month’s articles on bankruptcy, it should be obvious that we are dealing with subject matter that is highly complex.

The bottom-line action point, however, is simple: If you happen to be entertaining the idea of filing bankruptcy, we recommend you engage the counsel of on attorney who specializes in bankruptcy matters.

Having to manage personal finances is one of the stressful realities that makes up a part of normal daily living. As a single person managing his or her finances, he or she doesn’t have to be concerned with coordinating financial management efforts with anyone else. However, if the scenario involves a couple, such as a husband and wife, an entirely new dynamic is introduced. In theory, at least, there should be some sense of coordination between both members of the couple. What affects one member of the couple affects the other member of the couple, right?

If you and your partner are like most couples, chances are, you fight about money. Numerous studies have shown that money is the No. 1 reason why couples argue — and many of the recently divorced say those battles were the main reason why they untied the knot.

We’ll begin with the following quick points, as noted by Key, that address a number of financial mistakes that partners can make that create serious angst in their relationship:

1 - Merging The Finances

The Wrong Approach: United we stand, divided we bank (i.e. separate bank accounts).

The Right Approach: It's yours, mine and ours (i.e. share the bank account).

2 - Dealing With Debt

The Wrong Approach: Your debt will ruin us; you must find a way to pay it off.

The Right Approach: It's our debt: Let's decide how to pay it off together.

3 - Keeping Spending In Check

The Wrong Approach: I'm a saver and you're a spender. That's the problem.

The Right Approach: We both spend, but on different things. Let's budget.

4 - Investing Wisely

The Wrong Approach: You're a risk-taker, I'm risk-averse. Hands off our retirement savings.

The Right Approach: Let's think in time frames and take as much risk as our goals allow.

5 - Keeping Money Secrets

The Wrong Approach: What my spouse doesn't know will never hurt him/her.

The Right Approach: Big financial secrets can ruin a marriage.

6 - Emergency Planning

The Wrong Approach: We're fine. We don't need to worry about money.

The Right Approach: Anything could happen. Let's plan for emergencies.

Examples of Financial Fights All Couples Have

In a piece by CNBC on the topic, the following examples of conflicts provide more insight about problems to avoid:

1 - Risk Taker vs Risk Avoider

One of you is more comfortable with the ups and downs of the stock market. If your spouse is intent on taking more risk than you're comfortable with - by putting more money into stocks, or investing in start-ups or buying Bitcoin - agree on a small percentage of your money that can be used in that way (no more than 5 to 10 percent) and a similar amount that you can save or invest as you wish. Then stick to your plan with the rest.

2 - Lending or Giving Money to Family and Friends

Forget about loaning money to friends and family in the majority of cases. If you can't afford to do it as a gift, don't do it at all - it won't end well. If you've already done it and you want to preserve the relationship, tell the recipient you're forgiving the debt, but that you don't want to be asked for more in the future.

In conclusion, the above points make it clear that good communication and teamwork is the real key to conflict-free financial partnership in marriage. A health dose of humility, patience, and selflessness will go a long way too because, after all, no one is perfect.