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10 Things You Can Do Now
To Slash Debt and Spending
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Any financial planning process begins with a change in financial behavior and expectations. The degree of change varies based on financial priorities, but in the end, it’s about adopting new habits and abandoning others.
Here are some ideas:
Refinance if you can: Mortgage rates are still at historically low levels. You’ll need at least 10 percent equity (20% of equity will save you the PMI insurance cost) in your home and a credit score exceeding 720 to qualify for the best rates, but start negotiating with your current lender first and see how well you do.
Track your spending over 4 weeks: On paper or on the computer, write down every dollar you spend in the average week (and cut off credit card use during that week). At the end of that week, start marking out non-essential items just to see how much you could live without. Start with coffee and restaurant or carryout meals and work backward from there.
Make a budget: Once you’ve established how your income covers the essential expenses you must plan for, and a few inexpensive treats that should stay in, build a budget that includes specific amounts you can allocate toward debt. Keep a running total of your spending going forward, and revisit how that budget is working on a monthly basis until you start to see some positive results, and then you can review the performance of that budget a little less frequently.
Reset your entertainment expectations: Find ways to save money with friends – cook more meals at home or rent a movie instead of going out to see one. Also, get used to checking entertainment listings for free events that interest you.
If you can do it safely, take over home and auto maintenance yourself: The do-it-yourself movement is in a new phase with the economic downturn. For any home or auto maintenance chores you may have during the year, learn as much as you can about those tasks and estimate the cost of materials and your time before doing them yourself. Previous generations made do-it-yourself a necessity. See if that option is right for you and you might save considerable money doing it. Also, for bigger jobs, pair up with friends and family and you can help each other save money.
Set a new gift policy with your adult friends and family: Does everyone on your gift list over the age of 21 really need a present for birthdays and major holidays? Suggest to family and friends to have a gift drawing, a budget limit, a moratorium on gifts, or some other alternative where you trade off gifts for quality time. Even though the holidays are a few months away, it’s not too early to think about reining in the traditional holiday overspending.
Go debit: Debit cards wearing a bankcard logo are typically welcome at most stores where credit cards are accepted. This way, you pay cash without carrying cash. If you don’t have such a card, you can get one from your bank to replace your traditional ATM card, but remember to tell them to limit your buying power on the card to only what you have in your account. And use the overdraft protection to avoid fees.
Revamp your shopping list: Give this a shot - start a central weekly shopping list on a single piece of paper and add a dollar value for each. Write everything you think you need to buy on that single sheet, from groceries to clothes for the kids. That way, you’ll see all your proposed spending in front of you, and you can get a closer look at what your true priorities are. You’ll be surprised at all the “essentials” that are not really that essential that you can cross off before you spend.
Talk to your family about spending: When you’re talking to kids about budgeting and lowering your expenses, you have to walk a fine line between discipline and fear. But setting money priorities is part of growing up, and it’s essential to discuss and agree upon them as a family.
Buy used for yourself: Make someone else’s poor luck your good luck. If you need clothing, a car or a new watch to replace the old one that’s past fixing, it might be worthwhile to buy second-hand. The best places to find these gems are on the internet on places like Craigslist. Plenty of people have unloaded items in relatively good shape to bring in cash during the recent downturn. You might do very well, and if anyone asks, don’t call it used; call it “vintage.”
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A Primer On Medicare
and Medigap Coverage
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Despite all the public discussion about health care, very few people under the age of 65 understand the basics of Medicare, the federal health program for seniors and certain disabled individuals, or Medigap, the supplemental private coverage many buy to cover treatment that shortfalls what the federal program doesn’t pay.
Even if you have years before you qualify, why focus on Medicare and Medigap now? Because as big changes happen in our healthcare system, those who understand the programs and products ahead of time will not only be better equipped to plan for their post-retirement healthcare options, but they’ll have a better understanding of these critical federal programs change over time.
Here’s a summary:
Who is eligible for Medicare? More people than you might think. Medicare is available to anyone over the age of 65 who is a U.S. citizen or a permanent legal resident for five continuous years. Yet people under the age of 65 qualify under certain circumstances, including: If they are permanently disabled and have received Social Security disability payments for the last two years, or if they need a kidney transplant, are under dialysis for permanent kidney failure or have Amyotrophic Lateral Sclerosis, also known as Lou Gehrig’s disease.
How does Medicare cover expenses? Medicare coverage is divided into three primary parts: Part A, Part B and Part D. And yes, there is a Part C. Here’s what each part covers:
Part A is the segment of the program most associated with hospital care. It covers hospital inpatient care, a limited amount of care at some skilled nursing facilities, some specific home health care alternatives and hospice care. Most people are enrolled automatically in Part A when they reach 65 and they get this coverage for free. What’s important is that Medicare doesn’t cover long-term nursing home expenses, so that’s why long-term care planning is necessary for all individuals.
Part B is all about outpatient services. This is the part of the plan that covers doctors’ visits, outpatient care and some other medical services that Part A doesn't cover, such as the services of physical and occupational therapists, and other aspects of home health care. You do have to pay a monthly premium for Part B coverage with a deductible – in 2009, the basic premium is $96.40 per month though it might be higher for some people based on income. By the way, you’ll sometimes hear people refer to Part A and Part B coverage as “Original Medicare.”
Part C is Medicare’s prescription drug coverage. Part D is administered by a number of private insurance companies that operate in various areas of the country, so this requires some shopping on your part to make sure you’re getting the right drugs at the right price. Financial assistance might be available if you need it.
Part D is actually the Medicare Advantage Plan, which is an optional plan individuals may choose so they receive their Medicare benefits through private health plans. You’ll also hear this plan referred to as Medicare+Choice. These private plans include conventional HMOs and PPOs and are required by law to offer benefits that cover everything that Medicare covers, but they don’t have to cover everything exactly as Medicare Part A and B do. There might be some customized options that allow for lower copayments or lower total out-of-pocket expenses. In the simplest language, Medicare Advantage plans blend the benefits of Original Medicare and Medigap plans (more on this below). By law, you can’t buy Medigap supplemental insurance if you’ve chosen Medicare Advantage. However, it’s very important to get some expertise on the choice between Original Medicare and Medicare Advantage plans based on your anticipated health needs to make sure the coverage you buy covers what you really need.
What about Medigap? So-called “Medigap” coverage is supplemental coverage that’s available for people who opt to be covered under Original Medicare – Part A and B coverage. You buy Medigap insurance from a private insurer, and your primary goal is to determine whether that supplementary coverage actually pays for the things you know you’ll need that Medicare doesn’t cover. You do have to pay a monthly premium for this coverage. And again, if you choose Medicare Advantage (Part C) coverage, you’re not allowed to buy Medigap coverage.
To compare Medicare and Medigap coverage, visit the Medicare Personal Plan Finder on the Medicare.gov website.
When do I enroll for Medicare? You have a six-month window to enroll for Medicare that starts three months before your 65th birthday and ends three months after. As mentioned above, if you’re already receiving Social Security at age 65, you’ll automatically be enrolled in Part A, but if not and you enroll more than three months after your 65th, you may be subject to a late enrollment penalty.
By the way, what’s Medicaid? This is the name for the federal program – and corresponding state programs – that pick up healthcare costs for indigent children and adults. Unless you’re below the poverty line or you spend out your assets in your senior years, this won’t be part of the discussion.
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3rd Quarter 2009 Investment Report
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Here we are six months after the end of one of the worst economic crises and bear markets ever, and the S&P 500 has rallied 62% from March lows (counting to the highs set on September 23rd). This makes it one of the strongest and fastest rallies ever, prompting the inevitable question of what’s next…
Equities of all sizes, styles and geographic locations continued to soar as the past quarter came to its end, with all major U.S. market averages surpassing 50% gains since March lows. Small capitalization equities of the Russell 2000 gained 19%, while the larger capitalization companies comprising the DOW and S&P 500 registered gains hovering around 16% to post their best quarter since 1998. The NASDAQ trailed with a 13% gain. Gains were widespread as global markets posted their best quarter in 20 years, with developed country MSCI-EAFE and MSCI-EM gaining close to 20%, leaving developed markets with a 28% gain for the year and developing markets up a whopping 61%.
We remain skeptical of a U.S. economic recovery predicated on government spending, while intrinsic economic activity remains weak. Never in history has a better than 50% stock market rally been accompanied by 2.7 million job losses. For the time being, speculation and a market awash in liquidity has trumped the fundamentals. It brings to mind the words of the famous economist John Maynard Keynes who in a similar time said “The market can remain irrational a lot longer than you can remain solvent.” In spite of all the good news from price appreciation, we remain defensive while trying to garner solid equity-like returns without overexposure to the vagaries of equity markets - which we know to be quite vulnerable to sharp and sudden setbacks. Currently, we remain steadfast in our belief that capital preservation and income-oriented strategies proves most logical in this risky environment.
We have made reference to Japan and its market in the 1980s, and just how similar some of the causes and effects are in the U.S. market from the late 1990s to present. Now, the U.S. seems to be following a very similar post-credit collapse pattern. After Japan’s secular bear market began post 1990 market bubble burst, the Nikkei posted six rallies of 20%+ and no fewer than four 50%+ rallies--yet Japan’s market today still stands down -74% from its highs. Is it possible that remaining cautious in the face of the current bullish sentiment may have historical precedent?
As for Capital Advantage, Inc., we continue to dissect emerging market prospects while adding to the Matthews Asian Growth and Income Fund. As it stands today, we would consider additional emerging market positions should the market experience a 10%-20% pullback. Still confident in fixed income, we currently plan to begin purchase of a high-yield bond fund throughout the upcoming quarter, as the risk/reward profile continues to appear favorable. As long as interest rates remain low, fixed income should remain the solid investment--although we realize that there may not be too much capital appreciation left in which to gain significant profits. Besides dividend paying large cap blue chip stocks, we are not adding to domestic equities unless there is a significant pullback. We continue our research on commodities and commodity-related investments as a possible way to profit from developing markets growth and the continued devaluation of the dollar, but have not yet chosen specific investment vehicles in which to do so. We remain vigilant in this volatile environment, focusing on the preservation of your hard earned capital while continuously seeking investment opportunities. While we would be more comfortable if the market corrects, one does sleep better when asset values are rising.
As always, Capital Advantage, Inc. is here to answer your questions, address your concerns, and explain in further detail our investment strategy and current plan of action. We thank you for your continued trust and confidence.
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John Hayman, CFP
Founder & President
Email John |
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Donna Zinman
Senior Financial Advisor
Email Donna |
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Gary Clarke
Senior Financial Advisor
Email Gary |
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Rick McNamara, CFMC
Director of Investments
Email Rick |
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Dawnalizabeth Henke
Chief Compliance Officer
Email Dawnalizabeth |
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Catherine Norris
Manager of Client Service
Email Catherine |
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Aimee Schwartze
Director of Client Service
Email Aimee |
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Amy Montano
Office Manager
Email Amy (AJ) |
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