By Gary Pittsford, CFP®
President and CEO, Castle Wealth Advisors, LLC
Our economy and stock market have already been through more than nine months of tremendous turmoil. People are concerned about their jobs, their income, their net worth, and they are not sure what to do next.
About 70% of our U.S. economy depends on the American consumer to spend money. Right now the American consumer feels battered and bruised and it is going to be a while before they feel comfortable enough to spend part of their income to buy cars, TVs, refrigerators, laptops, or a new home. Part of this is due to the fact that close to 10% of American consumers are unemployed, which means they won’t be buying much of anything. The employed 90% of our country is also feeling the squeeze, and spending much less as they struggle to pay their monthly bills and save for retirement. Homeowners are also under tremendous pressure, as most of their homes are down in value, which means their net worth is down and their debt to equity ratio is up. To make things worse, federal income taxes are scheduled to go up in 2010, along with state income taxes, real estate taxes and sales taxes, which will all increase at different rates and at different times.
What are we to do? Our suggestion is that we all go on a diet.
A financial diet, that is. Not one that makes you physically thin, but one that thins down your monthly budget’s expenses, and makes your personal finances fat with cash, savings and an overall higher net worth. The following are a few ideas to help you do just that:
- Take advantage of the lower mortgage interest rates, which were approximately 5%, but are now closer to 5.75%. We have been helping lots of clients re-mortgage properties and lock in a lower mortgage rate, which reduces their monthly payments and gives them cash to save.
- Pay off or pay down all credit cards as fast as possible. The typically high and non-deductible interest rates on credit card accounts will eat away at your finances and make it very difficult for you to actually get ahead each year.
- Increase savings as rapidly as possible. The average American consumer has already increased their savings from less than 1% about two years ago to over 5% currently. We have always told every client that we work with to try and save at least 10% to 12% each year. Unfortunately the average American consumer has been well trained to spend all of their income each month and then also spend all of their borrowed home equity loan money, and use credit cards frequently. Now they are working fast to reverse this process.
- Try to maximize retirement savings in a 401(k) or 403(b) plan. If you have children or grandchildren going to college you should contribute to a well managed 529 college plan so that you can take advantage of the tax free growth over the next several years.
The next time we are together, let’s talk about your diet plan that should include steps to fatten your portfolio for the future while preparing you to manage higher taxes, economic inflation, more expensive gasoline, and other worldwide challenges during this tough economic time. Many of us have survived similar economic challenges in 1973 - 1974 and 1980 - 1981, and I am confident that with the help of our diet plan, we will all come out of this financially fatter than ever.
Gary Pittsford, CFP®, is President and CEO of Castle Wealth Advisors, LLC. Castle specializes in helping families and closely held business owners with valuations, succession planning, estate and income tax analysis and retirement income security. Castle’s senior partners work with clients throughout the country in making logical decisions that help them fulfill their personal and business financial goals. For more information visit www.Castle3.com, call 1-888-849-9559 or e-mail Gary directly at .