2009 ACTION PLAN

OK, so we are getting ready for the new year with great hopes and expectationss. Here is our 2009 Financial Action Plan for those who want to make a real change on their financial outlook. But before we detailed the steps, let us come to some agreements; sort of a reality check.
First we can agree that next year, more companies will probably close their doors, so this means more lay offs bringing unemployment rates to over 6.7 % a 14 year high. Second, we can agree that banks and credit card companies will continue to be skittish in lending and trying to minimize their losses, so this means less available cash flow, lines of credit, higher interest rates on cards and possibly lowering card limits or freezing balances, banks will try to remained positive by still keeping lending rates high as they pay low rates from the Feds. This is called arbitrage and that is how they make their money, and do not pass the saving to consumers. Third, we can agree that the economy will take a least a year to rebound depending on the government decisions, perhaps longer than a year. Four, the Feds do not have a plan to help small business owners so you are on your own, they may bail out big companies even though small businesses account for over 50% of commerce in this country. And lastly, we are procrastinators and spenders, so next year some hard decisions will take place. So let us begin with the action plan you need to weather the storm and sail to a nice warm port for holidays:

1. Pay off credit cards as soon as possible, do not count on them for cash flow. Allocate enough funds to pay them off during next year. Reserve an free annual fee card with low interest and cash/miles back to use. Store cards belong to the shredder for good. This year is paramount to execute this new year resolution. I hope you paid with cash for your gifts during the holidays. Start paying off the highest interest rate bearing cards and work your way down to the least interest rate card. Refrain from using other cards to pay off balances of other cards, it is a vicious cycle.
2. Start an emergency fund account, you will need a minimum of 6 months of income and work for the account to be funded for a year of income. The reasoning behind this is to allow you ample time to recover without going into more debt or without borrowing at high interest rates. This fund is only to be used for emergencies such as: being laid off, car maintenance, fixed expenses, mortgage, insurance. Stay away from check cashing places, even though these will be out by 2010 and not soon enough, they have high interest rates on loans. Stay clear of you retirement savings accounts such as your 401Ks or retirements accounts, these are for retirement only and not to fund emergencies, many have already tapped into their accounts, it is a double edge sword, you pay a 10% penalty for taxes if under 59 1/2 years of age, and additionally, so you are selling your shares at the lowest possible value so you are also loosing again by selling low. Remember you always want to sell high and buy low and not the other way around, tapping into your retirement funds are not what to do during a recession. An emergency fund account is a cornerstone to financial stability and wealth accumulation.
3. Keep investing in your 401k/403b and retirement accounts, if your employer is still matching your contributions, it is free money and will go a long way in the future. During these times, contribute only the matching amount from your company and use the rest to pay off high interest rate credit cards since you are gaining on the interest you are paying down from a possible negative rate of return. Stay the course if you already lost value in your account. Remember, allocation models are design for the long term investment, the market will rebound, just be patient.
4. Start or revise your financial plan, this is key for next year, by putting figures on paper and using professional help, you will save hundreds if not thousands of dollars. You will be taking charge on your finances by addressing these issues head on, no matter how your finances are, you have to start sometime. We have helped clients map their goals and they are on their way to taking control and feeling safe. A detailed financial plan will help you map out your goals and trouble shoot shortfalls, you will be able to learn during the process and see how it works step by step.
5. Be frugal on your spending, next year will take some discipline and commitment to make changes. It is not easy as we habitually do not take the time to analyze our expenditures on a daily basis. Yes, I mean daily. One way to start, after you have your plan designed, you take cash only for every week of the month to use for your daily expenses, such as coffee breaks, lunches and incidentals. The amount is determined by you, refrain from using your debit cards or credit card for purchases. This will limit your spending until your allowance is gone. Very simple and it works!. You will be surprise how much you can save by using this strategy, at the end of the month any surplus money will go into your emergency fund, in addition to a predetermined amount from your monthly cash flow. A list of monthly expenses will be detailed in the plan, this will help you track them and make adjustments as needed, remember it is still your own financial plan. The hardest part is the discipline to maintain it, without going back to the routine from past years.

This action plan is basic and should get everyone started on the right direction for next year, more detailed planning concerning family and investments decisions should be left to your advisor who will help you along the way, that is what financial planning is all about, shoulder to shoulder advice. I hope you can feel excited for next year as I am. If you can look back at 2008 and decide to make changes, 2009 is the year for it. You may call me or my associates for any help or advice. Our first consultation is "gratis" and we are here to help.

Happy New Year

Sincerely,

Hannibal Chinchilla

The eye of the Storm

It sure feels like the eye of the storm if you ever found yourself in hurricane country like I have. I feel next year we will see the storm passing us by; depending on future government decisions this storm could be a class 2 or 3 to a class 5. The latter being the worst. I remember the old tale of the grasshopper and the ant. The ant saved all summer long for the winter; the grasshopper just sang along and enjoyed the nice weather. I hope you take the ant's sample and save for a rainy weather and the winter to come. Next year's indicators and surprises will come very quickly, with companies reporting records losses, they probably will lay out thousands of workers. I suggest to have a plan b and even c, just in case. At Barca Financial, our first step is to build an emergency fund for our clients who finds themselves with short cash flow. It is amazing how quickly one can accumulate resources; given some discipline and understanding of individuals goals. One may have to choose for a must have product/service or nice to have product/service. We have lived in the nice to have world. The savers will be fine. The spenders will have to make hard choices next year. Start with a financial plan or a simple family budget. It will pay off during this Depression. That's right a Depression. It took almost a year for someone to call it a recession. How long will it take for them to start calling it a Depression. We, as Americans are very resourceful; let us take the first step, one step at the time. Start saving.
Happy New Year

Financial planning "Why it is so important"

Before we leave 2008 behind, there are lessons to learn from. One would be the volatility of the economy and how we view safe investments. One must prepare to emergencies and like this year proved, to surprises. A financial plan is the keystone to prepare and adjust to these eventualities. The economy will not bounce back overnight and it will more lenient for those who plan. Procrastinators and conformists will learn more lessons next year. I have been preaching to the choir on the planning process; for those who have listen I am happy to say are more prepare and have a piece of mind facing next year's woes. I started two years ago looking at the imbalances in the economy. Of course I did not saw the severity of it, but could see the housing market, the credit crunch coming. I do not have a Crystal ball but learn from various sound bites and hear lots of precautions for next year from the experts. I recently read Dr. Swanson's remarks when interviewed by the Tucson Weekly. Dr. Swanson was my teacher at U of A. I always listened to his advice. I feel the need to communicate the coming storm. As I drive through town, I see many citizens still doing what we do every December; they worry about the holidays and go like nothing has happened. I hope everyone is saving for the emergencies and a long recession to come. Companies will continue to lay off workers and gas will go back to record levels as the supply has been cut by the main producers. In a macro level and not so distant future; we will hit the Oil Peak. This peak is when we have produce maximum levels from our natural resources and we will have decreasing oil reserve levels. The way we eat, shop, live will be change forever. One good example was when the Soviet Union ceased aid to Cuba. Cuba experienced a micro oil peak. The main topic remains to individual planning to look ahead at these future issues. The grim outlook will be for our millennials, our children; who without defined benefit plans, trouble 401k's, reduced social security (if any). The only thing for them to do is to start saving for themselves. As parents we should learn from out shortfalls and prevent our future generations to prepare. Time is a commodity we do not have. So for next year a financial plan, education, and an emergency fund should be on the top list on everyone new year resolution.

Hannibal Chinchilla

Checking your portfolio to minimize losses and gain control

We have been helping our clients and friends with the market woes. Luckily our approach since we started our company has been very moderate and away from Variable products. Recently we have been converting variable policies and contracts into a more safe approach into index products that protect the principal and provide piece of mind. They work better than CDs and Money market accounts since these are relative to the market fluctuations. An Index product helps you protect the principal and during bull markets (positive rate of returns) they gain from a pre-designated index fund such the DJIA, Nasdaq, S&P 500 EuroXX and international funds that spreads the gains. Two years ago we started with this liquidity, leverage and solid rate of return model and have averaged 5 to 7% ROI in the last year. Not impressive in the earlier years but conservative enough to beat all others. Our concerns of late are Variable Life insurance products which have lost over 50% of their principal funds. These brings a liquidity problem and potential lapses in policies. We recommend to check your current portfolios to verify the amounts and protect them from lapsing. Additionally, we have been suggesting trimming down on all expenses and weathering the impact of the current recession. We have always implemented the 12 month emergency fund accounts for times like these. These funds help deal with liquidity and current lay offs and provide ample resources to maintain holdings and future earnings. We have seen plenty of "what not to do's" recently. Like tapping into your 401K and retirement accounts; these actions negates all the earnings and hurt individual retirement plans for the future. We recommend to update your financial plan to address these issues. We often ask the question of having a financial plan; we get a lot of: I do not have any money to save or invest. the point of that it exactly why the financial plan is so important; because with one one can take control and allocated resources to be able to have savings and deal with the current market. Our model concentrates on the fact that everyone is not a planner and they are busy dealing with work, family and do not have time to really take control of their finances. We have built a solid platform that integrates all the financial needs from a simple auto policy to investments and wealth accumulation options. Our services range from all individual needs to business needs with all the products and services possible. We call this "Financial Synergy". Would you rather make one trip to deal with; taxes, investments, insurance, wills, payroll etc etc. This will allow one to concentrate on the important issue: Piece of mind. Visit our website to get quotes and schedule a complementary consultation to take control on your finances. We will be posting more issues relating to the current economic recession and how to deal with it.

Hannibal Chinchilla
Principal
Barca Financial Group

Millenium Planning part 3 of 3

Millennium Retirement Part 3

Finally, the steps to take charge and make it happen if you are a millennium, x or y generation, as previously indicated our future depends on how we leverage our finances to maximize returns, strategically placed, and the most important ingredient is that we contribute to different income streams:

The new adage is that we cannot depend on others to take care of our retirement, nor our government to take care of our social security woes and Medicare, health insurance and a volatile market. Market cycles are taking longer to stabilize and we cannot sit idle and wait to get better returns on established strategies. The following are simple steps that you can methodically take to ensure a happy and healthy retirement phase:

1.Establish a plan, which has to be analyzed and change on a minimum annual basis.
a.Seek advice from professionals who do it everyday and are independent so they are working for you, not a big brokerage house.
2.Establish a reasonable budget, cash flow analysis, taking into consideration income streams, and expenses. Analyzing expenses is paramount because it is a common practice that we overspend and do not track all out going expenses properly. You have to practice keeping good accounting for a month to three months to best analyze expenses, so you know exactly where your money is going. This is paramount; remember it is your plan and retirement.
3.Maximize to the matching contribution from an employer if you are contributing to a 401K, ask your Human resources representative for the different Asset allocations available in your plan so you can turn it over to your financial advisor. Most of the time they do not know because they are not licensed and in the investment business. Depending on your age, this is critical because they usually used a cookie cutter model for the employee population, like 2010, 2015, 2020 models. Do not withdraw prematurely until you are 59 ½ to avoid unnecessary penalties. In bear markets (bad economy) consumers tend to tap into to retirement savings to meet expenses and cash flow needs. See emergency fund strategy below to avoid this.
4.Once you have a clear picture of income/expense analysis then you can see how much money is left for savings. Remember you must beat the current inflation interest to really gain on your investments.
5.Dedicate sometime to prepare the plan with your advisor and write down your short term (1-3 years) mid term (5-10) and long term goals. You can use a finite amount to fund and prepare a milestone chart to check your progress.
6.Depending on your age, be prepared to fun qualified funding and non-qualified funding, specially tax free investments within your plan. Many prepare only with qualified funds which are taxed upon withdrawal and give a false sense of security on the amounts accumulated.
7.Minimize debt as much as possible throughout your plan, pay down credit cards and keep the ones that give you something in return (air miles, gift cards) no annual fees are best. Avoid store credit cards as they have high interest rates. Debt is ok as long as they give you a rate of return, we call these preferred debt. Such as a home mortgage, commercial properties, land (if lease), business vehicles, equipment, etc. Non preferred debt is such as credit cards and unnecessary loans that accumulate interests on principal and interest rates.
8.Build a 3 month income salary to start as an immediate goal, place this money in an account that generates at least 3% interest rate to keep up with inflation. I prefer virtual banks since they are not brick and mortar institutions thus passing the savings to their customers in higher producing interest rates. By placing the money in a separate account than your usual checking or savings you need to ask yourself why you need to withdraw it. These funds must be safeguarded and maintain in a healthy level to be used only for emergencies. Ultimately you want to accumulate a full year income savings. Then be prepared to start funding more aggressive vehicles for the long term horizon. Communicate with your financial advisor to keep track on this strategy.
9.Educate yourself with your choices of vehicles to ensure you understand how they are expected to perform and keep communicating with your banker, plan administrator and financial advisor professionals.
10.If married allocate funds for college funding for your children. There are various ways to do this, talk to your financial planner to analyze the best strategy for your plan and goals. Education is paramount for your children’s future.
11.Implement strategies to maximize your rate of return throughout your plan. Many seem secure just putting some money away and expecting someone is going to let them know how the plan is performing. Remember is your plan and retirement!
12.Protect yourself and family for unforeseeable emergencies, losing your job, changing jobs, divorce, lay offs and premature death are common factors that affect your family’s plan. Protect your love ones. See your advisor for strategies and best practices.
13.As you near retirement, as I call this the retirement red zone (10 years out) this is a critical time to aggressively fund as you may be at your highest earning capacity. You may be able to pay down all your debts, pay off you house, maximize contributions to your various future income streams and have a clear view of where you are going to be.
14.During retirement or soon there after another critical stage takes place, you money needs to be protected to ensure life time income. You can attend workshops we provide to our clients in preparation to their retirement. This ensures ample time and planning to let your money work for you and provide income for you and family.
15.Enjoy your planning process and once you see your money grow you will want to save more. It works and it gives you peace of mind.
16.Be Happy and prosper.

This is a simple step process you can do yourself; although I recommend you seek advice to have a professional help you along the way.

Financial Synergy

Hello everyone,

The past few weeks have been interesting, I decided to go on my own and I am happy to say it is the best move I have ever done. The freedom to be able to provide the best financial planning advice to my clients will be much enjoyful to everyone. I am using financial synergy with other professionals to ensure all aspects of our planning process with the best trusted advisors in town. We will provide much more for your planning dollar. I look forward to this new approach and I know our clients will enjoy this setting. I am finalizing the last part of my millennium retirement piece and I hope you enjoy it. Please post comments and provide suggestions, I have read all of the suggestions provided during our previous Financial Workshops for women series and I will be starting another series of workshops on September 16th. You input is very valuable to me and I hope you will enjoy the new series. Knowledge is power as long as you implement it.
Let's make it happen

Sincerely,

Hannibal Chinchilla

The New Millennium Retirement Part 2 of 3

The New Millennium Retirement Part 2 of 3
On my last blog, I started the new millennium retirement series discussion; in which the outlook for the generation x retirement is more complex and challenging. Some strategies can be implemented with enough time and planning; unfortunately many seem to be unaware of the situation until it is too late. Barca Financial implemented a series of workshops in which a learning process takes place. With this knowledge the process can start. For example a strategy that we have been discussing is the equity in real estate which unless is put to work, it remains lock in the property returning a zero rate of return. Many Americans leave this valuable asset lock for years until it is too late. The following is one of the many strategies we use.
Here is how it works, if you have some equity in your real estate property (ies), preferably in rental properties since the renters will pay for your retirement or your primary home, you take it out in cash out lump sum to be invested in a liquid, safe and inexpensive vehicle. Many Americans have taken money out in a refi transaction, unfortunately they use it to pay down debt and other purchases that will return no dividends, if paying for credit cards, and they should look into a credit card strategy and use other means to pay down debt. This becomes a vicious cycle every 4 to 5 years, since they do not have the discipline to invest the money for the long term. They also incurred a higher mortgage payment and less liquidity for incidentals. Others take a HELOC (home equity line of credit) for their emergency funding. This worked well before; although many lenders, banks sent letters stating that they are freezing or reducing these loans. Borrowers that bought in the height of the bubble could be upside down on their equity and home values. If they depended on these funds they can face some trouble. The key is to remain liquid during slow markets and a bear market. For those that came to our workshop and learned the way to harvest their equity in time are enjoying ample cash flow and an average 7% or more on their investments. We heard the reversed mortgage strategy and we know that it is only advisable as a last resort; these homeowners did not plan properly and this is the only way to get the remaining equity available in their home.
This strategy works well for properties that are going to be sold eventually before retirement. Many retirees face the decision to keep their home or move to a smaller place, children have moved out and the house may be too big and expensive to keep. Currently the average homestead is about 5 years, if we incurred a fixed 30-year mortgage; we should know that we are paying a lot up front for that interest rate. A 5 or 6% is not the actual effective rate. If you do the numbers we come out in the 80%+ or more depending on the year. It would take approximately 21 years into a 30 year mortgage to reach 50% owed to the bank. During all this time the lenders use arbitrage and make money. Our strategy is the opposite. The home owner becomes the banker and uses arbitrage to have liquidity, safety and a rate of return. If illness, unemployment, or a family crisis occurs this fund becomes a very safe way to fund it, without jeopardizing one’s retirement funds. By reorganizing your holdings you can prevent losses and be in a better position.
Look for upcoming workshops on the topic Wealth Accumulation on our website:
www.barcafinancial.com

The New Millennium Retirement Part 1

We are all aware of the Baby Boomer's coming into retirement which started when Kathleen Casey-Kirchling born in January 1946 started her social security benefits and leading the way to 80 million citizens who will be retiring in the next decade. We will be witness of their culture, success and failures relating to their retirements; what to do or not to do. As planners we learn strategies and methods to facilitate our client’s retirement goals and ambitions. One area we neglect to address is that times are different now and they will be a very hostile environment to our pocket books, existing retirement ideologies. The old adage don't try to fix it if it isn't broken. I want to say it is broken and it will give many unprepared citizens a false sense of security. Boomers will enjoy a different variety of benefits that we will not enjoy. One fact is that their portfolios include a defined benefit plan. These plans are a way of the past, when big companies allocated funds for their retirees who the only factor was to stay employed for a period of time, usually over twenty years or more. We know our labor force of today change jobs as frequently as three years or less. Employers cannot fund defined benefit plans any more to stay competitive against globalization and keep their doors open. Just remember GM woes with their retirees and how they could not cut costs with these plans in force. We have witnessed the biggest real estate shift and crash in U.S history, next is the Credit market and retailing industry as we fight our way through Stagflation; Boomers enjoyed the bull market of the 80’s, although they suffer some hiccups in the stock market's history during the well publicized Black Monday on October 19, 1987 and September’s 11 attack to our World Center buildings. Our portfolios and planning will endure the lack/troubles of social security funds as they may run out by 2040 if our elected officials don't do anything about it; there will be fewer workers per retiree ratios. Our boomer enjoys 10:1; we will have a 2:1 ratio.

What are we ought to do?

We cannot foresee the future but we know we have to deal with the problem sooner than later. The problem being: what are our options? We have many, but our government has limited the amount by establishing timing bombs with our 401ks, IRA’s and Roth’s. These vehicles help in the long run but will not be enough. They complement retirement portfolios but will not be enough. Boomers will enjoy their defined benefit pensions, 401ks, Roths, Real Estate holdings, Stocks,bonds, and of course social security pensions; to include Medicare and Medicaid. If, you are thirty, forty and fifty-something, you will lack some of these benefits. So, what are you ought to do?

Planning, Planning, Planning and more planning

We have the solutions and strategies that will address these concerns. The only main problem is that we love to procrastinate and leave planning for much later. Stay tuned for more to come.

UNDERSTANDING YOUR IRA/ROLLOVER OPTIONS

Important financial decisions shouldn't be made on the spur of the moment, particularly when they affect something as important as your retirement years.
if you have:

• Retired
• Recently changed jobs,
• Left qualified plan assets with a former employer after a job change, or
• Obtained a divorce settlement in which retirement plan assets are involved. (QDRO's)

The decision you make now about your retirement plan assets could have a major impact on your financial future. It's a decision you make carefully, after thoroughly understanding the choices available to you. For this very reason I recommend a sound financial plan which encompasses your goals, needs and retirement goals. Financially preparing for those changes is no simple matter. Here's why:

Retirement could last for a long time. Increasing life expectancies mean people are spending as much as 20 to 30 years in retirement on average. It takes a real financial balancing act to make sure you do not run out of money, maintain purchasing power and build in enough flexibility to address changing needs.

The number of traditional employers offering traditional pension plans known as defined benefit are shrinking, they are expensive and are being phased out with 401Ks and qualified plans. Qualified plans means that your contribute to a plan which does not incurred taxation during the accumulation period, you will be taxed during your retirement years. defined benefit pensions are a form of annuities paid up by employers and you receive a predetermined amount for the rest of your life. Now you can see that the main source becomes your 401K and what you have accumulated during your working years. Early Baby boomers are enjoying these type of plans, latter boomer have succumb to the new qualified plans and are ill prepared for their retirement years.

The three legs of retirement are being phased out and the trouble social security benefits will be shrinking, these legs included the defined company benefit pensions, social security pension, your own savings. As you can see these legs are changing and it is left to you to make adjustments to a successful plan and enjoyable retirement years. With the help of a planner you can meet your goals in a timely matter. Although we must fight complacency's and procrastinations, we always leave important decisions until the last minute.

Traditionally we spend more time planning for trivial and unnecessary expenses, for example a yearly vacation or a major purchase, a house remodeling project, etc. I found that people leave planning for last and until it is a must; this leaves the planner with a few years to work with and limited resources. We do not plan to fail but we fail to plan most of the time.

You will need to replace 70 to 80% or your retirement income, here is a sample:

A couple earning $100,000 annually combined will likely need to replace $40,000 to $50,000 in annual income after retirement. Using a "safe" annual withdrawal rate of 4%, and planning for a retirement of 25 to 30 years or more they will need to accumulate at least $1 million in assets to achieve their goal. This sounds troublesome but the numbers do not lie. In addition to this finite number we have to deal with inflation costs, economic issues, rates of return, market volatility. Most people who are not in the know have a disadvantage to deal with these facts. It is paramount to seek advice and prepare in a timely manner to continue or upgrade one's lifestyle. Two outcomes are certain, depending on how you prepare; one is that one's lifestyle will change and the other is a lifestyle which includes desires and goals attainment. Either one outcome is up to you. We are here to help you cope and prepare for proven strategies to make it happen. I will be having workshops to prepare my clients to a better understanding and how their own planning is developing. One thing we know for certain, plans change due to unforeseeable facts, but proven strategies and trigger prepares to deal with them accordingly. Please visit our website for upcoming workshops and allow time to attend to learn and be prepared.

Sincerely,

Hannibal Chinchilla

Principal

Barca Financial Group

Goals without a plan are just dreams and wishes.

Make it happen

My first blog

Hello everyone, I hope the break during the Memorial Day weekend was happy and rewarding, we celebrated one year of Bitsy's (pet Chihuahua) ordeal. She got lost for four days and three nights in the desert on the east side of town, frequent by coyotes and birds of pray. She is a miracle since she only suffered dehydration and a few cuts and bruises, she is a trooper and we are so glad to have her back. We never gave up, but it was stressful watching the coyotes roam the area we were searching. It is amazing how the neighborhood reacted and providedhelp, support and search parties. We posted a reward sign on almosts every posible spot, on Monday Memorial Day 07 we got a call from a lady who was given our number by a wonderful person who has become my client, his name is Gary and we always remember the event as he definitely Bitsy's savior, we also thank our pet communicater (Mary) who participated in the search and continue to gives us strength and hope during the ordeal. She pointed the direction and the whereabout we needed to look for Bitsy. We enjoy our pets as members of the family. This weekend Sassy our Persian Cat got her summer lion's cut.