The Problem with Living on Social Security Alone, Longevity and Retirement Savings Disconnect, and Missing the Airport – Links

A wooden bridge spans a small brook with colorful trees in the background

I know you have other things on your mind right now, but don’t forget about retirement planning. If your only income is from social security, it’s going to be a lean ride.

Are you missing the airport? Yeah, me too. There’s something about the energy, the potential, the anticipation of the next adventure.


Retirement

Can you live on social security alone? – (USA Today)

Of course, it depends. But if you do, don’t expect much extravagance in your life. How you can supplement your retirement savings.


The retirement savings disconnect – (Barrons)

“Americans’ optimism about their longevity comes at a time when planning for retirement has become more complex.”

Along with this longevity comes a healthier and more active retirement. Make sure your savings keep up with this new reality.


Travel

A lifelong traveler takes a journey inward – (The Washington Post)

I hope that we will be able to travel, interact with, and witness the world again shortly. When we do, it will certainly seem strange. But when has travel not been strange?


There’s a second wave of COVID-19, so be careful where you travel – (Chriselliotts.com)

Use common sense and avoid crowds. The article contains some useful links if you’re researching a location. It’s going to be a long winter, folks.


Missing the airport – (The Points Guy)

I miss the buzz of an airport. I miss the mass of people in motion to see loved ones or going on vacation. I miss the anticipation of far-flung destinations. Now, if I could only get there without going through a metal detector.  


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    Financial Advisor David Tuzzolino

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    Is It Ever a Good Idea to Buy a New Car?

    Dark car park entrance exit

    I feel like I need to whisper this to you in a dark parking garage with my face obscured by shadows, but, “I’m a financial advisor who buys new cars.” And I will argue that, yes, sometimes buying a new car is a good idea despite the many financial pundits that will tell you purchasing a new car is one of the worst financial mistakes you can make. Here are the top five reasons you should consider buying a new car instead of one that is used.

    Getting Exactly What You Want

    Have you ever found yourself wandering the aisles of a used car lot or scouring a website searching for the perfect car? Rarely do you find exactly what you’re looking for. One car has every feature you could dream of, except it has a metallic-mustard paint job. Another vehicle is perfect in every way, except your history of backing into poles makes the absence of a backup camera a non-starter.

    Buying a used car is often filled with compromises. However, if you decide to buy a new car, you can have it delivered the exact color, and with the exact features, you desire. Some of these choices can also save you money. Buying a used car can result in being stuck with expensive options you don’t necessarily want.

    My last car-buying adventure was eight years ago. Three decisions I remember clearly were All Wheel Drive (AWD) or Rear Wheel Drive (RWD), standard or automatic transmission, and whether I needed a navigation system or not.

    I bought a new Lexus, and the experience is still fresh in my mind. One feature I was happy to skip was the navigation system. I remember staring at the price tag and then my phone. Price tag. Phone. I couldn’t justify the price versus the free navigation system in my hand. Thank you, Google! I’m not sure exactly how much I saved in 2012, but if you decide to skip the navigation system on a new Lexus IS today, you’ll save $1,670.

    Most of the cars on the dealer lot had AWD. Safer? Perhaps, but also more expensive. I could have saved approximately $2,000 by selecting a RWD car. For someone who has a short, or no (thank you coronavirus), commute, and rarely needs to drive in poor weather, this option could be attractive.

    My first car was a 1976 White Datsun B210, and it had a stick-shift. I still have an affinity for manual transmissions and only recently bought an automatic.

    Stick shifter in black and white

    You can save between $1,000-$2,000 by going old school. Unfortunately, the stick-shift is dying out, but it’s another example of a feature you can select in a new car to lower the price.

    There are dozens of places to save money on a new vehicle. Don’t like leather seats? Order cloth. Would you be happy with a 4-cylinder? Downgrade from the V6 engine to save money. Not everyone wants a moonroof. If you can do without, you might be able to save some money.

    All of these extras add up, and if you are buying a used car, you will be stuck with the features already decided for you. If you order a new car, you can drop unwanted options and potentially save thousands of dollars while getting exactly what you want inside and out.

    A caveat here is if you strip out options that everyone else wants, you’ll likely get a lower price when you sell your car. However, if you’re like me and you plan to drive your new car for a dozen years or more, this will matter less. And if your new car is perfect in every way, you’ll be less likely to begin eyeing up the new models after a few years.

    Technology

    The speed of technological advances is accelerating in society, and new cars are no exception. There may be advanced features on the latest model that are absent from older cars – technology that is important to you. One area of emphasis is safety. New technologies include lane-keep assist and automatic emergency braking. If this is a brand-new feature and you want it, buying a new car is the only way to go.  

    Is parallel parking the bane of your existence? Would you rather walk three blocks to pay a valet $30 to avoid parallel parking for free in front of a busy restaurant? Self-parking technology alone might be worth buying a new car if older models don’t have it. There are many features that may make purchasing a brand-new car attractive depending on the model you’re considering. 

    Low Interest Rates

    The average credit score in the U.S. has been around 690-700 over the last 15 years. And according to Bankrate, the Annual Percentage Rate (APR) people pay for a new car with a score in the range of 661-780 is 4.68%, versus 6.04% for a used car.

    As reported by Edmunds, the average length of new and used car loans have increased over the last decade to 72 months. Let’s take a look at the overall cost difference of buying a new versus a used car.

    The best-selling, non-pickup truck for 2020 is the Toyota RAV4. Using pricing and depreciation data from Caredge, I calculate the total cost with a 72-month loan to be $34,094 for a new RAV4 and $30,998 for a one-year-old model. That’s a difference of just over $3,000 for the six-year length of the loan.

    White Toyota Rav 4

    The loan’s overall cost for the used RAV4 was lower due to a lower purchase price, but the used car owner paid over $600 more in interest charges due to a higher rate. Always keep in mind that the APR difference between new and used has a cost.

    If you have excellent credit, there are often opportunities throughout the year to get an even lower rate. For example, Toyota is offering 0% APR, as I write this article, for 60 months and 2.9% APR for 72 months. You won’t often see rates this low on used cars. Just remember to always check the fine print on any loan.

    Negotiations

    This may be the best reason of all to buy a new car. It’s not a monetary win, but there is a tremendous value gained by not having to haggle with a used-car salesperson. I have accompanied several friends to buy a used car and my experiences, unfortunately, matched the used-car salesperson stereotype. I sat through high-pressure sales, a focus on payment and not price, and frequent huddles with the manager.

    The difficulty of negotiating the price of a used car is – no two are alike. Options, condition, and mileage differ between every vehicle. These differences put you at a negotiating disadvantage.

    The beauty of negotiating for a new car is each one is identical. Yes, options can vary, but each car you purchase should be in showroom-floor condition with a handful of miles. And if you can’t find a vehicle with the exact options you want, you can order a new one from the factory. This uniformity allows you to more easily negotiate the price of your new car with several dealers.

    Not a fan of the negotiation process at all? Let me introduce you to the Internet Sales Manager. Without even stepping into the dealership, you can get the price for the car you want simply by sending an email. Contact several firms that each have the same car (or can get you the car), and lower your price by having them bid against each other. Only when a price is finalized will you have to stroll into the dealership – your negotiations complete.

    Admittedly, you can also negotiate used-cars by email. However, negotiations tend to be more difficult when you’re not comparing apples to apples.

    Private Sellers

    If you plan to buy a used car from a dealer, this won’t apply to you. However, to get the best price on a used car, you’re going to have to buy it from a private seller.

    Safety is always a concern when buying a car from a private seller. A dealership may have its faults, but worrying about your security isn’t one of them. There is no telling who is on the other end of a private sale.

    A man in a gray suit menacingly points a banana

    You’re also going to have to take care of the transfer of ownership paperwork and complete it yourself. The details for each state will vary, but most involve some legwork. In Pennsylvania, you will need to take a trip to the Department of Transportation as an agent will have to witness the transfer.

    When you’re buying a used car from a private seller, you have little recourse if it turns out to be a lemon. You want to have it inspected by a mechanic you trust and ask a lot of questions about its history. Obviously, this involves time and money.

    Is a new car from a dealer looking better to you now? You can avoid most of the private seller headaches by purchasing a used car from a dealer, but you’ll pay extra for the privilege, and the spread between new and used car pricing will narrow.

    Summary

    Don’t immediately assume a used car will be the right choice for your next car purchase because that’s what you’ve heard from the experts. Investigate the used-car inventory in your area. Compare new and used-car pricing. Then compare these options with ordering a car from the factory with precisely the features you desire. Weigh the differences in pricing, interest rates, technology, and your comfort level with negotiations to make your final decision. You may find that by cutting a feature you don’t want, sticking with a car that depreciates slowly, and scoring a low interest rate, a new car will be just as, or more, attractive than a used car.


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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    Why Start an Emergency Fund?

    A man with a crazy gray wig and red glasses yelling representing the life of the party

    There is nothing less sexy in personal finance than the emergency fund.

    Yes, I realize that contemplating death while diving into a life insurance policy is no fun either, but I’ll save that for another day. While the emergency fund may not be the overindulgent life of the party, it is definitely the dependable friend who will get you home and safely into bed.

    The hierarchy of savings is a popular topic in personal finance. Search for the phrase in Google, and you’ll see what I mean. I like to think of an emergency fund as the foundation of the saving’s pyramid. It should be the first place you save money. Yes, even before you jump on Robinhood to start trading options.

    Michael Kitces included a fantastic version of the pyramid you can find in his article – “The Hierarchy Of Tax-Preferenced Savings Vehicles For High-Income Earners.” It appears below.

    A colorful pyramid illustrating the hierarchy of savings

    How much should I save?

    The most common recommendation is to save enough to cover 3 to 6 months of expenses. Solid advice. But how do you know which number is right for you? Ask yourself the following questions.

    • How many sources of income does my family or I have?
    • How stable is my job?
    • How quickly would I be able to get another job?
    • Do I have substantial investments that are reasonably liquid outside of my emergency fund?
    • What percentage of my monthly spending is discretionary, and can it be cut in an emergency?

    It can be difficult to answer some of these questions accurately but err on the side of adding an extra month or two in savings if you’re in doubt.

    What makes an emergency fund so important?

    There’s no better way to derail your retirement plans than to pile on some high-interest debt because you lost your job. Your emergency fund is there to provide funds when life throws an unfortunate surprise at you. 

    A brown shoe about to step on a banana peel

    An emergency fund also gives you options. Panic over a lost job, a medical emergency, or a car accident can result in rushed, poor decision making. If you find yourself unemployed, would you rather calmly look for a new position that fits your career goals with a company you admire or grab the first job that comes along because you’re desperate for income?

    Do I have to worry about this? I make some serious coin!

    Given the importance of establishing an emergency fund, it’s sad to see only 28% of people in the U.S. have savings equal to six months of expenses, according to the Federal Reserve. And before you dismiss this as a problem for Generation Z, the same survey shows that only 39% of people over 55 have savings to cover six months. But high-income earners are rock-sold, no? Not really. Only 54% of earners in the top quartile could cover expenses for half a year using emergency savings.  

    What’s even worse? This survey was completed well before COVID-19. I’ll take a wild guess that savings levels are even lower now for many Americans.

    Even with a high income and substantial retirement savings, an emergency fund is a good idea. Retirement savings are great – for retirement. If you have to access retirement accounts in an emergency, there may be penalties, taxes, and fees. You will also miss out on the growth those investments would have delivered, potentially setting back your retirement goals.

    When should I access my emergency fund?

    Uh, in an emergency? True, but try to define what this means beforehand. An emergency should be a serious, unexpected financial event that must be addressed. Medical bills, car repair, a job loss are all reasons to tap your fund.

    A toy ambulance

    I work with travelers, and I know the pandemic lockdown has been difficult. You might believe that a trip to Paris after you’ve received a COVID-19 vaccine is an emergency of mental health. But, no, while possibly an emergency, it’s not a good reason to tap your fund.

    How to build it?

    Put your emergency savings into a separate account. Setting up an automatic withdrawal from either your paycheck or a checking account is the best way to fund it. I emphasize automatic, so it happens without effort on your part. It may take time to meet your emergency fund goal, but religiously making a deposit on a set schedule works well.

    Where should I put it?

    Liquidity is the key. Emergency money should be saved in a place that can be accessed quickly. A high-yield savings account or a money market account is ideal, and both are insured by the FDIC up to $250,000. Don’t get cute and reach for a higher yield by putting your emergency fund into an investment product that might lose value, is not insured, or is not readily available when you need it. Also, there are many financial institutions that are competing for your business, so look for accounts that will not charge you a fee of any kind. Bankrate is an excellent resource to find the best yielding money market accounts.

    How else will an emergency fund benefit me?

    An exciting part of having an emergency fund, yes, I said exciting, is it gives you financial flexibility. You can use this flexibility to save some serious money. How, you ask?

    Do you have a low deductible on your auto or home insurance? An emergency fund can allow you to raise the deductible and save money over the long term, assuming you’re not accident-prone.

    A common question asked by travelers – Do I need travel insurance during COVID? The answer may be no if you have a hefty emergency fund, and your only possible loss is financial, measurable, and manageable.

    If the possible loss can be strictly defined and equal to 10% of your emergency fund or less, I’d recommend passing on the insurance. On average, you will come out ahead financially in the long run. However, if you have a history of making claims, you have a habit of losing things, or you can’t sleep thinking about being uninsured, then buying travel insurance is a good idea.

    If you do need to access your emergency fund, replenish it as soon as you can. It won’t help you much if you drained it last year and forgot to fill it back up.

    Summary

    Fully funding a liquid account that is to be used only for emergencies is an essential first step in financial planning. The account can reduce stress, present you with options, and save you money. Unforeseen events will happen in your life, and it’s always better to be operating from a position of financial strength and security than having to scramble around to see which long-lost relative will float you a loan. Get this foundation of financial savings right, and you’ll be on your way to retirement glory.


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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    Retirement Planning for People Who Love to Travel – Beware the Bucket List

    Beware the Bucket List - People run with the bulls, photo from above

    Failing to Plan for Travel Spending Later in Life Can Sink Your Retirement Plans

    The rule-of-thumb for spending in retirement is your expenses will drop to 80% of what they were pre-retirement. This number may be adequate for some retirees, but for travelers – it’s unacceptable.

    The Botswanan safari you’ve always dreamed of is expensive. The RV you’re going to use to explore the country will set you back a fair amount too. Plane tickets to visit the Cup of Noodles Museum in Japan – not cheap, and a little odd, but no one is judging you here. That bucket-list of travel experiences and destinations you want to conquer can significantly affect your budget. And according to Merrill Lynch, 67% of retirees age 50 and older have not budgeted for travel in retirement.  

    bucket list travel - safari where a giraffe stretches upward to eat leaves from a lone tree in the savanna

    As a traveler, you should expect an increase in travel-related expenses for at least the first several years of retirement as you work through your bucket list. You’ve been dreaming about the moment for many years, you’re feeling healthy, and the jump in leisure-time all will contribute to a jump in travel spending.

    How do you prepare for this new chapter in life? Create a retirement budget that includes all of these new, travel-related expenses. The earlier, the better, so you can make the necessary adjustments in your spending and saving habits along the way.

    Expenses That Will Decline

    Let’s start with the good news first. You have expenses during your working life that will likely go away or drop substantially when you retire.

    Your daily commute can include gasoline, parking, wear and tear on your car, and the cost of public transportation. These will disappear except as they relate to leisure.

    Your wardrobe will likely change, as well. Goodbye work clothes, hello loungewear! Yes, this may be an oversimplification, but you should be able to retire enough clothing to the point of actually being able to find something in your walk-in closet.

    College tuition for children and mortgage payments are additional expenses that can go away. Taxes should decrease given the drop in work-related income. In addition, there’s no need to save for retirement anymore, because you’re living it!

    Expenses That Will Increase

    Yes, spending will increase in certain areas of your life during retirement. Some of these expenditures you will welcome with open arms, and some you will grudgingly pay wearing a look of disgust.

    Travel expenses can jump dramatically in the first few years of retirement. However, there can be a considerable difference depending on your travel style. Flying in first-class while hop-scotching around the Pacific, staying in 5-star

    5 Star Resort in the South Pacific on many people's bucket list

    resorts, and dining at 3-star Michelin restaurants is one end of the spectrum. Driving a few states away to attend a barbecue with your family who put you up for the weekend will be less expensive.

    The cost of health care in retirement is what every red-blooded American fears. But preparing for these expenses ahead of time can ease the sting.

    Budgeting

    If you don’t currently have a budget, I highly recommend you put one together. It’s retirement planning 101 and is key to projecting when you’ll be able to retire.

    Your budget is likely to change dramatically, however, at retirement, especially if you’re a traveler. I recommend you put together a second budget, which will begin once you retire.

    Many expenses in your life will not change at all. However, for those that will, do your best to estimate the change, especially for items that will significantly affect your budget.  

    One expense that can drastically move up or down is housing. Paying off a mortgage or downsizing can bring down the cost substantially.

    Is relocation a consideration? What does the cost of living look like in the new location? Do you want to buy a vacation home, but keep your original home? Adjust your budget for the potentially significant changes. 

    Budgeting for Travel

    If you love to travel, this part should be fun. Let your mind run wild and think of all the adventures you’d like to have in retirement. Create a travel bucket-list that contains all of the events you’d like to attend, destinations you’d like to visit, and experiences you’d like to…well, experience.

    Do your best to estimate your travel costs accurately.  How many trips will you take per year? How long will they be? Will spending be extravagant or constrained?

    Also, ask yourself how your travel might change. As people age, they tend to value service, comfort, and safety more, and they are willing to pay extra for it. Staying in nicer hotels and traveling with higher-end tour groups can be the result. For all but the most intrepid retirees, gone are the days of solo backpacking through Europe and sleeping 10 to a room in hostel bunk beds.

    Travel in Style - a hostel room filled with bunk beds

    However, there are also changes in retirement that can reduce the cost of travel. The time-freedom that comes with retirement allows travelers to vacation during the off-season, book last-minute deals, and travel in a more deliberate way, such as taking a bus or train instead of an expensive flight.

    If you’re like me, you weren’t in a very good mood the day your first invitation to join AARP arrived in the mail. However, a benefit of being over 50 is discount offers start piling up. By the time you turn 65, discounts on airlines, hotels, restaurants, etc. are prevalent.

    Now that you’ve put some thought into retirement travel, include it in your budget. Be as accurate as you can, but don’t be afraid to err on the high side. It’s better to budget for a bucket-list trip and decide not to take it than the other way around.

    Here are some websites that will help you put together a budget and assist you with finding discounts:

    TripAdvisor – an excellent resource for trip planning and pricing flights, hotels, tours, and more.

    Kayak – another fantastic resource for pricing the major components of travel, includes one of the most flexible, user-friendly airfare search engines available.

    The Senior List – an extensive list of discounts on transportation, lodging, and dining for people 50+.

    Numbeo – if you’re trying to determine how expensive/inexpensive a city or country is, this website is includes the local cost of living index and the prices of everyday items.

    Winding Down

    A difficult part of budgeting far into the future is the many unknowns. One of the most important factors is health. I want to think I’ll still be the healthy, adventurous soul I am now when I’m 90. Unfortunately, this is unlikely to be the case.

    Travel spending tends to decline with health. Ask yourself – how healthy and active are/were your parents later in life? How about your grandparents?

    Studies show, on average, travel spending starts to decline as travelers enter their 80’s, so this is a good time to start lowering the travel component of your budget. Just don’t do it too rapidly, as many older retirees are still actively traveling. If you want to be conservative, don’t drop it at all.

    Summary

    Don’t be part of the two-thirds of Americans who fail to budget for travel in retirement. Instead, take a pro-active approach to plan your future and start saving early. The 80% rule-of-thumb may leave you ill-prepared for the active retirement many travelers desire, so try and budget for the large expenses later in life as accurately as possible and be conservative when making estimates. A little planning should ensure you’ll end up crossing off your bucket list in style.  


    Enjoy what you just read? If so, you can subscribe to my newsletter below. You’ll also receive a PDF that shows you exactly what a comprehensive retirement plan for travelers looks like. Thanks for reading!

     

     
     
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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    The 5 Biggest Mistakes Made by Travelers Planning for Retirement

    Three pictures of travel destinations lay on a map next to a old film camera

    Do you like to travel? Are you looking forward to a future when your leisure time will be measured in months, not seconds gained by cutting your 30-minute lunch “hour” short?

    A man checks his watch and is pressed for time

    There are pitfalls particular to travelers when planning for retirement. This article will help you avoid them so you’ll be ready to retire and tackle the next chapter of your life with confidence.

    Not Budgeting for Travel in Retirement

    A retirement study published by Merrill Lynch reveals that 84% of retirees over the age of 50 have done “hardly any” planning for leisure activities for the next ten years. And 67% have not budgeted for travel in retirement.

    The best retirement plan in the world is useless if it doesn’t include spending on travel in retirement. For the first several years, retirement-bliss is often filled with bucket list travel, which can be extremely expensive. Your new RV, a trip to the Galapagos Islands, and the two-week African safari won’t be cheap. Sure, your travel spending may decline after this initial period, but it tends to stay elevated for people who love to travel.

    Failing to plan for travel will present you with two difficult choices. Either come up with the money from other places in your budget or miss out on the travel you love.

    Why not build travel into your retirement budget in the first place? Your future self will thank you for it.

    Not Acquiring the Right Health Care Insurance

    Medicare will not cover you in an emergency when you’re traveling internationally, except for very limited circumstances. If you’re a traveler who plans on leaving the U.S. in retirement, you need to make sure you’re insured in another way.

    Some Medigap policies and Medicare Advantage plans will cover you outside of the country, but not all. There are also time constraints to this coverage. For example, Medigap policies will only cover you for the first 60 days when traveling.

    There is also travel insurance that can be purchased on a one-time or annual basis. A year-long policy may be less expensive, depending on how often you are traveling.

    Some credit cards will also pay your emergency medical bills when traveling. Read the fine print carefully, but for travelers without an ongoing plan, this can be a good way to cover yourself without having to shop for a new policy each time you leave home.

    As a traveler, it’s important to objectively analyze your needs and make an informed decision as you approach 65. How much is each insurance option? How much of your medical bills will each alternative pay? What is your exposure if you have a severe medical emergency? Are there time limits when traveling?

    There are enrollment periods when signing up for the government plans, so if you decide to make a change, you might have to wait a while. This is another reason to prepare for the critical decision concerning health care well ahead of time.

    Another concern is early retirement. Travelers that retire before 65 must find health care insurance before Medicare kicks in. Alternatives include the Health Insurance Marketplace, a spouse’s insurance, or a part-time job that provides the benefit.

    Not Using the Right Credit Card

    Finding the right credit card as a traveler can be a warm fuzzy feeling. You will earn miles or points, you will not have to pay foreign transaction fees, you will have access to airport lounges, and sign up bonuses can be tremendous – equivalent to a free flight or more.

    Remember the medical insurance we discussed earlier? Some higher-end cards will not only cover you in case of a medical emergency when traveling, but also include rental car coverage, trip cancellation insurance, lost luggage reimbursement, and medical evacuation coverage.

    Two credit cards with stellar benefits are the Chase Sapphire Reserve Card and the American Express Platinum Card. The Points Guy does an excellent job of explaining the benefits of each. Don’t be shell-shocked by the $500 plus annual fees, as most semi-frequent travelers will easily recoup the cost via attractive benefits such as a $300 annual travel credit and reimbursement of TSA pre-check fees.

    If you’re using the wrong card, you could be missing out on thousands of dollars. That’s money you could spend on another trip!

    Paying Too Much in Taxes

    Raise your hand if you’d like to pay more in taxes. I didn’t think so.

    A woman raises her handMaxing out your retirement accounts is one of the best long-term, tax-saving moves you can make. If you work for a company that matches your contributions to a retirement plan, such as a 401k or 403b, make sure you’re at least investing enough money to capture the entire match. There are many additional tax-advantaged plans you may be eligible for, including an IRA, Roth IRA, SIMPLE, SEP IRA, etc. Use them to save aggressively.

    Do you have access to a Health Savings Account (HSA)? Max it out, and try not to touch the funds until retirement. An HSA presents the opportunity for you to deposit money before tax and withdraw it tax-free. Pay for your current health care needs with after-tax cash instead.

    People who love to travel don’t have to worry about what they are going to do in retirement, because…well, they love to travel. This can lead to early retirement and a prolonged period between a high-income career and the required minimum distributions that must be taken from retirement plans.

    During this stretch, you may find yourself in a lower tax bracket when you retire, which presents the perfect opportunity to convert an IRA or a Rollover IRA into a Roth IRA. You’ll be taxed on the conversion, but this can be your chance to take advantage of a lower tax bracket. This money will grow and be distributed tax-free. It’s better to be taxed early, while in a low tax bracket, then wait until you are forced to take money when you may be pushed into a higher tax bracket. This maneuver can be complicated, so I recommend checking with a financial advisor to see if it’s a good fit for your situation. For do-it-yourselfers who want to dig into this topic, Kitces.com has detailed information on the conversion here.   

    Waiting Until Retirement to Travel

    Waiting to travel can be the biggest mistake you make as a traveler when planning for retirement. If the COVID-19 pandemic has taught us anything, it’s – don’t wait until retirement to travel!

    Few quotes hit home now, during our coronavirus-hellscape, more the one from motivational speaker Wayne Dyer – “Do it now. The future is promised to no one.”

    (David Tuzzolino caveat: “You might want to wait until the pandemic dies down before “doing it now,” but I’m sure you get my point.”)

    Don’t make the mistake of waiting until retirement to start checking items off your bucket list. Things change; you might not get the chance if you wait.

    Your health can deteriorate rapidly, or new responsibilities can come along that make traveling problematic. Money issues may crop up.

    If you love to travel, plan diligently, and create an extra-long list of retirement destinations, events, and experiences. However, the worst thing you can do is sacrifice the present by delaying your travel dreams for a tomorrow that may never come.


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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    Do I Need Travel Insurance?

    Travel Insurance - A hand holding a bubble with a plane and suitcase in it

    There’s an old saying – “Never ask a barber if you need a haircut.” The same can be said for travel insurance. If you’re asking the person who’s going to be making money on the sale, the answer will always be yes.

    Do you need travel insurance? Like most things in life, it depends. However, I’m going to help you decide for yourself.

    Types of Insurance

    While necessary, insurance can be a little dry. Please bear with me as I run through the most common types of travel insurance – warning, you are about to enter a no-humor zone.

    Trip cancellation/interruption insurance covers non-refundable expenses associated with a trip being canceled or interrupted. It is normally the most expensive portion of the overall travel insurance package. If you’re buying a la cart, it can be multiples of the other types of insurance.  

    Emergency medical covers emergency health care expenses while you’re traveling.

    Medical evacuation insurance will cover the cost of evacuating you to a decent medical facility, and possibly home.

    Travel accident insurance will cover you if you’re unlucky enough to experience death or dismemberment due to an accident.

    Baggage protection covers the cost of your luggage and its contents if lost, stolen, or damaged. It will also reimburse you for essential items you may have to buy if your baggage is delayed.

    Trip delay insurance covers the necessary expenses you may encounter if events out of your control cause your travel to be delayed. It will cover expenses such as accommodation, meals, and transportation.

    Comprehensive travel insurance is coverage that wraps all, or nearly all, of these individual types of insurance together.

    Cancel for Any Reason (CFAR) insurance is a supplemental option that can be added to a travel insurance policy. In the age of COVID-19, the merits of CFAR have become a popular discussion. CFAR will add about 40-60% to the cost of comprehensive travel insurance and will cover approximately 50-75% of the trip if used.

    What Travel Insurance Do You Need?

    There are financial risks and health risks to consider when buying travel insurance. Although the risk of losing money should be a concern, the risk of a medical emergency is paramount.

    Health Risk

    Emergency medical insurance is unquestionably the most crucial insurance to obtain for a trip as you’re not just exposed to a financial loss, but you may be putting your health at risk. If you have health care insurance, carefully read through the policy to see if you are covered, or call the insurance company and talk to a representative. If you’re not covered, emergency medical is critical. It also tends to be relatively inexpensive.

    A remote cabin, surrounded by mountains

    Medical evacuation insurance can be equally important. The more remote your vacation spot, the more crucial thisinsurance can be. You should also take into consideration the quality of medical care in the locations you’re going to visit. Medical evacuation insurance is often inexpensive and is highly recommended because, again, it’s your health that is at risk without it.

    Financial Risk

    Travel insurance prices vary greatly and often range from 4-12% of the cost of a trip – not an insignificant number. How do you determine if you should splurge for the protection? Ask yourself these questions.

    Am I already covered under existing insurance policies?

    Check your health care insurance first. Make sure your policy will cover you based on your location and the duration of your trip. Many policies will only cover you for 60 days if you’re traveling outside of the U.S.

    Homeowners/renters insurance will often cover your valuables while you are traveling. Check your policy for coverage limits while away from home.

    Do I have a credit card that will cover me when traveling?

    If you have a credit card specifically designed for travelers, it will likely have some level of travel insurance. The good ones will cover nearly everything.

    For example, the Chase Sapphire Reserve card will cover you in the following scenarios: trip cancellation/interruption, baggage delay, trip delay, lost luggage, accidental death, emergency evacuation, and emergency medical and dental.

    If you don’t have a credit card that offers these protections, consider snapping one up. They offer other valuable perks for travelers as well, such as airport lounge access, generous mileage rewards, and travel credit.  

    How often have I had to cancel a trip in the past?

    Take an honest look at your travel history. How many trips have you had to cancel on short notice? Is it something that happens frequently? Or never at all?

    Risk - a tan shoe about to step on a banana peel

    I have been traveling extensively for over 25 years. A normal (non-pandemic) year averages three to four trips. I can think of only two or three trips during that time that I’ve had to cancel.

    The more often you’ve canceled trips in the past, the more attractive travel insurance might be. If you’ve canceled very few trips in the past, the less travel insurance makes sense…

    Are there reasons I might have to cancel this trip?

    …unless you have reasons to believe circumstances have changed. A complicated life filled with a demanding job, and people that depend on you can make travel insurance more attractive.

    Do you have loved ones that are elderly or in poor health? Do you have small children who have a sniffle after every birthday party they attend? Travel insurance starts to look more attractive if there is a higher likelihood that an event will arise and force you to alter your plans.

    There are no guarantees that you’ll never have to cancel a vacation if you’re living a life with few potential conflicts, but you’re playing a game of percentages.

    Is this an expensive, once-in-lifetime trip?

    Are you embarking on an around-the-word, retirement cruise? Or did you grab a super-saver fare for the weekend to do some hiking a few states away? The more expensive your vacation, in relationship to your financial means, the more important travel insurance will be.

    Am I losing sleep?

    Travel is supposed to be fun. If you’re worrying, it is not. Throw out everything you read in this article if you will lose sleep without comprehensive travel insurance. Buy it and sleep well.

    Only Cover What You Will Actually Lose

    Many travel expenses will be refunded to you, whether you have travel insurance or not. Thanks to recent changes, airline tickets can often be rebooked for free. Hotel stays can generally be canceled without penalty.

    Always pay attention to the cancellation policy of any pre-paid travel expense. There is often a substantial difference between the total price of a trip and the amount you might lose if you have to cancel.

    Do the Math

    Let’s say you have a vacation scheduled where you will lose $10,000 if it is canceled. A comprehensive insurance policy will cost you $1,000. Dividing $1,000 by $10,000 results in 10%. If you believe you have less than a 10% chance of canceling your trip, you should decline travel insurance as you will come out ahead over time.

    This comes with a lot of caveats, however. The calculation above is rough and does not include deductibles. Also, it is impossible to calculate the odds of a canceled trip precisely.

    Make sure you can financially afford the loss if the vacation does get canceled. Do you have an emergency fund that covers 3-6 months of your daily expenses? You should. Will your losses only be a small percentage of this fund?

    If you will be financially crippled by a canceled vacation, then buying insurance is a smart move regardless of the odds. If the loss will be a small hit to your overall financial wellbeing, consider not purchasing insurance and self-insure the trip.

    COVID-19

    The recent pandemic sweeping the globe has even skeptical travelers reconsidering travel insurance. If this is you, double-check to make sure any policy you purchase covers COVID-19. And also, make sure you understand the situations in which it will cover you. Some policies only cover you if you are infected with the disease, not if an area you are traveling to becomes a hotspot, and you decide not to go. A better option might be to book everything on a refundable/exchangeable basis until things normalize.

    CFAR is an alternative for skittish travelers who have high non-refundable expenses. Just keep in mind the substantial cost and limitations. It will only cover 50-75% of your losses, and there are constraints as to when it must be purchased and how soon before a trip it can be used. The Points Guy has a good article that describes the coverage in detail.

    Summary

    When booking a vacation, don’t immediately run out and buy comprehensive travel insurance. Carefully calculate the non-refundable portion of your vacation, analyze your current insurance policies for coverage, and consider self-insuring the financial parts of your exposure.

    Above all else, a vacation is supposed to be fun and refreshing. If not buying a travel insurance policy is keeping you from enjoying your hard-earned time off, throw out all of the calculations, and buy a policy that will help you sleep like a baby.   

    Baby sleeping

     


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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    Retirement Planning for People Who Love to Travel

    A scale balancing a globe on one side and a stack of money on the other side - perfect to illustrate retirement planning for travelers

    What is PathBridge Financial?

    I am a financial advisor who is not going to be a perfect fit for every person seeking guidance. 

    Why? Because PathBridge Financial was designed for a very particular type of client. I developed a firm for people nearing retirement (or retired already), and who love to travel. 

    So what in the world does that look like?  

    B.P.F. – Before PathBridge Financial

    When I left my last job at one of those large, unnamed financial institutions, I had a decision to make. (Actually, the institution appears on my LinkedIn bio, but I thought “unnamed” financial institution added some mystery.)

    The easy path – find a position at another firm and resume my career doing the same thing. I am not someone who hates the corporate world. And I certainly was not the bitter, angry dude who sits in a cubicle all day badmouthing management while frequently shooting glances at a retirement countdown clock. Digital clock with a picture of a lounge chair on a beach that says Countdown to My Retirement

    I worked with a great group of people, and I thought we were adding real value to our clients’ lives. I enjoyed the work, and I was happy to go into the office each day. Sure there was some mind-numbing bureaucracy, but there were also some phenomenal benefits! Oh, how I miss employer-sponsored health care!

    The harder path was starting a firm from scratch. Where do I begin? What if I fail?  What do I do when my computer freezes up 20 minutes before a client Zoom meeting, and there’s no tech-support line to call? Questions I’ve had to answer.

    Eventually, I embraced the challenge of starting a firm of my own.  Computer issues be damned!

    Helping Others

    The idea of helping clients with the financial part of their lives excited me. I won’t go through my entire bio (you can find it here), but I’ve had a long career in the finance world, and I’ve picked up some valuable knowledge along the way. I wanted to share this hard-earned insight and make a difference in the lives of people looking for help.

    The investment and financial planning world is complex and can be challenging to navigate when it’s not your full-time job. But ignoring it is not an option. I’ve seen the change that comprehensive financial planning can make in people’s lives, and it can be monumental.

    Why Focus on Retirement?

    The 10-15 years before retirement are crucial to your financial future. Salaries tend to peak, images of life in retirement start to come into focus, and there’s still time to make meaningful changes, although it’s running out quickly. You’re not alone if you’ve recently woken up in a cold sweat and asked yourself, “Do I have enough money to retire?”

    Each one of us goes through a similar process when preparing for retirement, and by working exclusively with clients at this stage of life, I can deliver customized solutions. As in medicine, would you rather work with a generalist or a specialist?

    People Who Love to Travel

    Traveling adds another dimension to retirement planning. Expenses often jump in the two to three years after retirement as bucket list items are crossed off. Failing to plan for these expenses will lead to a budget shortfall and can damage retirement and travel dreams.Retirement traveler searches for a place to travel. Blue world map covered with a passport, camera, magnifying glass, and a bottle of wine.

    Health insurance, including Medicare, is a minefield for travelers. Many policies will not cover you overseas, and those that do often won’t protect you past 60 days.

    Additional areas of financial planning important to travelers are obtaining the right credit card and buying travel insurance. The right credit card can offer extremely valuable perks such as generous sign-up bonuses, complimentary checked-bag fees, and airport lounge access. The right card may also include travel insurance, which can often allow you to skip the expense of buying a separate policy.

    I have experience working through these issues with clients, and as an avid traveler, I’ve tackled many personally. Again, would you like to work with a generalist or specialist?

    Small Firm

    PathBridge Financial is a small firm. Is this good or bad? It depends on what you’re looking for.

    Some people feel all warm and fuzzy when they enter the wood-paneled offices of a multi-billion dollar banking institution such as Wells Fargo. A firm with an army of financial specialists at their disposal and tremendous resources.

    Unfortunately, you also can be exposed to less than ideal practices. I’m not pointing the finger at any one bad actor. But I have worked in the industry long enough to witness less-than-ideal practices at several firms.

    At large institutions, unless you’re a client with tens of millions of dollars, your account can be passed around to junior advisors with little experience. There is often pressure for advisors to invest client money in company-run products, regardless of whether they are the best alternative.

    Large, public companies are also under pressure from shareholders to maximize earnings each quarter. Questionable revenue-generating activities can be the unfortunate result. 

    On the other end of the spectrum are small firms. Regrettably, I have no wood-paneling. I also don’t have an army of financial specialists sitting in offices down the hall. I do, however, have an outside network of specialists who can help when their expertise is needed.

    I can guarantee that your financial plan and portfolio will be customized using products that are best suited for your situation. There are no proprietary products to be pushed here.

    When you call PathBridge Financial, you’re going to talk to me. And I’m never going to pass your account off to a junior associate because I’m leaving for another firm. There’s also a succession plan in place just in case I’m run down by the proverbial bus.

    Did I skew the benefits of working with a small firm a little in my favor? Hell, yes! I’m slightly biassed, and that’s why I started a small firm instead of going to work for another large institution. There is no right or wrong answer. This is a very personal decision, so do your homework and decide what’s best for you.

    Fee-Only

    There are many ways a firm can be paid for financial advice. Fee-only firms do not earn commissions on the products they sell and are compensated exclusively by clients. This fee structure reduces the likelihood of a conflict of interest arising and your hard-earned money going into a high-commission product sold to you so your advisor can afford a Christmas cruise.

    PathBridge Financial is, and always will be, a fee-only firm. I have also never been on a Christmas cruise. For more on the benefits of a fee-only advisor, please see the following article at smartasset.com: “What Is a Fee-Only Financial Planner?”

    Me

    I’d love to say that I’m the outgoing life of the party – the type of advisor that will enter a room of 100 and leave a half-hour later with 50 new friends. I am not. I’m an introvert. I prefer small groups as compared to a packed room, so networking is not my strongest attribute.

    All is not lost, however! Introverts are known as good listeners, analytical, observant, and trustworthy. Yes, I’d say that describes my 20 plus years in the financial industry.

    My financial planning style involves listening intently to client issues and carefully analyzing the data presented. Trustworthy? I have chosen to operate as a fiduciary because doing what’s in the best interest of my clients is non-negotiable.

    So, no, I will not walk out of that room with 50 new “friends”. But I might walk out of the room, having made a meaningful connection with one or two good people. And building meaningful connections is what being a financial advisor is all about.

    Humor

    If you are a regular reader of my blog, you’ve noticed I like to inject a little humor into my writing. The world of financial planning can get awfully dry sometimes. There’s no reason for this.

    I’m sure there are readers who roll their eyes when my attempt at humor falls flat, but if I can get a slight chuckle every so often, I’ve made financial planning more fun. I know when I find a topic fun, I am more likely to remember the material and implement the information into my own life. Most people react in the same way.

    Investments

    The investment knowledge of financial advisors can range from very little to expert level. Some advisors will contract the investment portion of their business to a third party. There’s nothing wrong with this, and it’s the right thing to do in situations where the advisor’s investment knowledge is lacking.

    I am on the other side of the spectrum. I have spent a good portion of my financial career analyzing and managing investments. I am a CFA® Charterholder, in addition to a CFP® Professional, a distinction only a small percentage of financial advisors can claim.

    I manage globally diversified portfolios with the goal of keeping fees as low as possible while monitoring performance. Tax efficiency is a focus, and investments are chosen based on a long-term time horizon.

    Summary

    PathBridge Financial is not for everyone. However, if you’re looking for a small firm that specializes in helping clients prepare for retirement with a focus on minimizing taxes, reducing fees, and personalized service with a touch of humor, you’re in the right place. If the idea of working with a fee-only, fiduciary with investment expertise, who takes pride in pro-active listening and in-depth analysis, you may have found a home.

    I decided to become a financial advisor to help people, so if any reader ever has a question or concern, big or small, please reach out. I’ll do my best to help. Financial/Retirement planning can be complicated and confusing, so if you decide you’d like an experienced guide to help you navigate the way – PathBridge Financial is here for you.


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  • Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    I’m a Financial Advisor and I Love Credit Cards!

    Why It Makes Sense to Use Credit Cards Wisely

    The poor, lowly credit card. Demonized by money gurus everywhere. Is it possible that credit cards aren’t nearly as bad as they are made out to be?

    I’m a financial advisor, and I love credit cards! Yes, I said it. They can be a great tool if used wisely. They can also be a nightmare if used improperly, but that can be said about most financial instruments.

    Let’s jump into the benefits:

    No ATM Fees

    The average withdrawal from an ATM in the U.S., according to the Federal Reserve Bank of Boston, is $103, and the average ATM withdrawal fee in 2019 was $4.72 per Bankrate.com. That’s a 4.6% tax on consumers every time they access their hard-earned money. If you need a cash withdrawal, try to use an ATM that is affiliated with your bank, sometimes easier said than done when you need cash right away. Or, better yet, open an account that refunds any fees charged for using a third-party money machine.

    Admittedly, credit cards come with their own set of fees/interest charges to avoid. However, this shouldn’t be difficult to do as long as you research the right card for you and are diligent in paying it off each month.

    Stolen or Lost

    Have you ever been robbed at gunpoint? I have! It’s loads of fun (sarcasm). Shortly after college, while getting into my car after the evening shift at a local department store, I had a gun pushed into my ribs. The only thing I could think of immediately after the incident – “That was a very big gun!”

    I had cash and credit cards in my wallet that night — the cash, gone forever. The credit cards, I quickly canceled them. Actually, I got the cash back because the robber was later caught, but that kind of ruins the moral of the story. If you’re ever robbed, you’re likely never going to see your cash again.

    A funny side note is this robbery almost resulted in me being in the middle of an all-out, courtroom brawl. However, I’ll save that story for another day.

    Almost everyone has lost money at some point in their lives. The wallet that fell out of your pocket, the purse you left on a table. The money you blew on the ponies…actually, that’s a different type of loss outside the scope of this article.

    Would you rather lose cash or credit cards? Credit cards can be canceled and replaced; cash cannot.

    Credit Score

    Credit cards can help you increase your credit score as long as payments are made on a timely basis. Our good friend, the FICO score, is used by institutions who would like to extend you credit. 35% of the FICO score is based on your payment history. Pay off your credit card on time, and your FICO score goes up.

    A high FICO score will make it more likely financial institutions will give you a loan. It can also lower the interest rate you are offered. Even most people who avoid debt like the plague have a mortgage or car loan at some point in their lives. The savings can be substantial if you can get a lower interest rate on these loans.  

    Emergencies

    Oceanfront View in Cabo
    Four Seasons Resort Los Cabos at Costa Palmas

    Credit cards can be a comfort when real emergencies occur. What is not a real emergency? – “I’m having a nervous breakdown at work and a week-long vacation in an Ocean Front Executive Suite at the Four Seasons Cabo sounds good.” Nothing against this type of spending if you can fit it into your budget. It actually looks quite lovely! However, if you’re going to have to run a balance on your credit card, it’s not a good idea.

    To clarify further:

    Emergency: Your car was sideswiped by a Tesla driver who fell asleep at the wheel while autonomously driving down the highway, and you have to cover the deductible on your vehicle in order to drive to work to support your three kids.

    Not an Emergency: You will look “tasty” in a new, apple-red convertible.

    If you establish an emergency fund early in your career, hopefully, an emergency charge to your credit card is never needed. It’s a nice fallback, however, in times of great need. A thirty-day reprieve while waiting on a paycheck might be precisely what you need. You should still do whatever you can to pay off the entire balance each month to avoid paying interest.

    Rewards

    Now it gets good. What type of rewards make the most sense in your life? Does cashback sound good? How about airline miles? Do you dine out frequently? Where do you spend the majority of your money? Make sure your credit card is best suited for the type of rewards you want to receive by doing research at sites such as nerdwallet or The Points Guy.

    Many cards have no annual fee. For those that do have a yearly fee, make sure the rewards are good enough to cover it. Many credit card companies will waive the first year’s annual fee, so keep in mind you will automatically be charged in the future.

    Credit card reward programs are constantly changing, so please double-check the specifics of the cards mentioned below. Some of the credit cards I hold:

    The Discover Card offers unlimited 1% cashback on your purchases. 1% isn’t a tremendous reward, but they also offer 5% cashback on specific categories that change every quarter. In the last three months of this year, the 5% cashback applies when making purchases at Amazon.com, Target.com, and Walmart.com. Do you think you’ll be doing some holiday shopping with any of these companies? Yes, that’s what I thought. The best thing about the Discover Card, there’s no annual fee.

    The United Explorer MileagePlus card has a yearly fee of $95. But it makes a lot of sense in my wallet. I love to travel, and this card has some nice perks. There’s a generous sign-up bonus of 40,000 miles, which can be leveraged into a couple of free domestic flights. You will also receive one mile per dollar spent and two miles when using the card for dining, hotels, or with United Airlines.

    There are additional perks as well, including a reimbursement for money spent on TSA-Precheck and priority boarding. You can relax in a United Club twice a year, which is a great place to load up on food and drink before boarding a plane where you’re lucky to have a bag of peanuts thrown at you. And then there’s my favorite perk of all, a waiver of the checked-bag fee.

    A little about me and the checked-bag fee. There are few things in this world I hate more than paying to check a bag. I will do nearly anything I can to avoid paying it, including wearing an entire suitcase full of clothing to the point where I am so layered I look like Joey in the episode of Friends where he puts on all of Chandler’s clothing

    I fly on non-business trips at least six times a year. Most airlines charge approximately $30 per flight-leg for the privilege of chucking your bag into the underside of the airplane. I am always flying out of Pittsburgh, and, unfortunately, most trips involve at least one layover. That is six trips a year, times four flight legs per trip (I have to return home), times $30 = $720 in checked bag fees I can avoid paying. And if you’re flying with a companion, their first bag is free as well, so double that savings!

    As I mentioned earlier, do your research and find the credit card that makes the most sense for you. If a card has an annual fee, make sure the benefits you receive outweigh this charge. Also, try not to fall into the trap of opening up new accounts each year and piling up a wallet-full of credit cards you never use. Close accounts if you’ve stopped using them.

    No Change!

    This point may seem silly when compared to the other benefits in this article, but I can’t imagine going back to using cash all of the time and walking around with a pocket full of change. I cringe thinking of the $19.03 purchase where I hand the cashier a crisp, new $20 bill only to receive a handful of coins. And don’t get me started on pennies!

    There’s also the random container in the back of your closet where you dump your change. It could be an old Tupperware container, a shoebox, or your 1980’s-era, “I Shot J.R.” mug. I Shot J.R. MugRegardless of the receptacle, it will become full one day, and to empty it, you’ll have to cart it off to a bank or find a Coinstar kiosk. Then this evil cycle begins again.

    Can you tell I have a personal beef with coins? A credit card can put a stop to this never-ending cycle.

    People Who Use Credit Cards Spend More Than People Who Use Cash

    Some studies show consumers spend more money when using credit cards as compared to using cash. Two factors seem to drive this behavior: pain and convenience. Pain is associated with handing over paper money; it hurts a little bit. On the other end of the spectrum is the simplicity of using a credit card. It’s convenient and causes little pain.

    A quick swipe of a credit card and you’re out the door. It’s almost like it wasn’t real money. No counting out bills and watching the cashier pull them from your greasy, little hands. The ease of this transaction will lead you to the poor house, right? Better get used to it.

    You know what is more convenient than swiping a credit card? Clicking a mouse or waving your iPhone in front of a scanner, and it’s the future. Like it or not, transactions are moving online. It’s only getting easier to spend money. The crutch of using cash to make transactions less convenient and more painful is just not practical.

    So, unless you can program a virtual hand to reach out from your computer or smartphone and slap you upside the head every time you hit the Amazon 1-Click button, you’re going to have to get used to a digital world of transactions with no pain. But there may be a solution.

    Want to feel some pain to curb spending? Start a budget. A nice benefit of using credit cards is most of your spending is recorded in one place.

    At the end of the month, sit down with your credit card statement and go through your spending. Put a picture of your child, spouse, or other loved one nearby where you can see it clearly.

    Did you spend more than your budget allows while stocking your wine cellar instead of funding your daughter’s college savings plan? Take a look at the picture. This is the person you let down, who depends on you to save for their future. Feel pain? Something unpleasant is happening, because studies say you will save more for the future if you do this.

    If you make the switch from using cash to credit cards, monitor the change in your spending. Has it climbed dramatically? Are you finding it difficult to pay off every month? If so, you may not have the right mentality to use credit cards wisely.

    Summary

    Credit cards can be an excellent financial tool if used properly, and the benefits over cash are numerous. In today’s digital world, it has become simple to spend money conveniently and without pain. Strictly using cash to force fiscal discipline is impractical. A better way to attack responsible spending is by putting together a budget and sticking to it. Best of all, if you play your cards right (pun intended), you won’t have to pay those soul-sucking baggage fees!


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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.