August – When I was in school, we went back after Labor Day. That was the end of Summer. Now most schools seem to start mid- August, robbing children of precious free summer days. And while they have replaced it with three weeks off at Christmas, it’s just not the same. Of course, as empty nesters, we do not have to cram vacation into the school holiday schedule; there are plenty of gorgeous days in September. We can adapt.
What’s going on in the markets? As I write this on July 29, the S&P 500 is up 8.27% year to date and the Bloomberg Aggregate Bond is up 2.18% year to date. I think the economy looks healthy, though there is tension in employment and interest rates. The guessing game seems to be around what President Trump will do next? The announced Tariffs in April drove the market down temporarily, but as countries came to the negotiating table, the markets recovered and rose to new heights. Rangling over the future of the Fed by Chairman Powell has put some ripples in the water. But all in all, I feel confident that as we head into a mid-term elections, the Republicans will want to prove their strategy works in order to hold onto controlling interest in the House and Senate. Of course, the Democrats will want to prove this ineffective and look to gain seats. Wouldn’t it be nice to have a team pulling together to take advantage of the opportunities the country has to offer?
I have been giving some thought to budgets (everyone’s favorite topic). Let’s say for example you had $100 after tax as your earnings. What would you do with that amount? There really are simply two categories - spending and saving. (I also realize these numbers will vary depending on where you are in life: entering the work force, full on expense of an active family or the retirement years). Based on my experience, these two categories can be further split. Dividing ‘spending’ into necessary and discretionary and ‘savings’ into short and long term. We can quibble about what is necessary versus discretionary, but deep down we all know the difference. I had a client who has three golf club memberships, all in the same city and he insisted they were necessary.
Let’s talk briefly about short term versus long term savings. In my mind, short term would be for any projects that are happening in the next three years. You need cash reserves for rainy days (3-6 months of necessary expenses) and this belongs in a money market or Certificate of deposit account. Beyond the three years, but not retirement money, might be savings for education (529 accounts, etc.) car purchases or a remodel. Finally, retirement accounts have restrictions on distributions before age 60. Some people believe they will simply contribute up to the match (3-5 percent), if one exists. This will NOT replace your income when retirement does roll around.
So how much goes to spending and how much to saving? I’ll break it into three life stages. If you’re single - 60% to spending and 40% to savings, mid life with children - 70% to spending and 30% to saving. And finally in retirement - 90% to spending and 10% to savings. Is this easy, no. Will it be rewarding, yes! If you want to get to the bottom of your budget, give us a call and we can walk through it with you.