Do you have a plan? Do you have a financial plan? Do you have financial goals? Do you have any goals?

What do you want to be worth when you’re 30 years old, 40 years old, 50 years old, etc.?

What do you want to be doing with the rest of your life or at different stages of your life and how are you going to do that?

Do you want to be like Timothy Ferriss of “The 4-Hour Workweek”, where you take mini-retirements. Sounds good to me. I suppose a bit tough to do for a lot of folks but he is definitely on the right track.

I highly recommend you read his book The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich for some new ways to think about retirement, work life and thoughts on how to design your own life.

It’s important to ask these questions and try to answer them in some form, because not only are you looking into the future to try and sculpt or shape it, but it also creates a bit more stability in your mind as well as open the possibilities you might not have thought about.

I know some folks don’t like to perform repetitive tasks in life because they always want to do something different so they don’t get bored with life or complacent. However, if you’re married or have a family where other people financially count on you, then you might want to plan some of your financial future by setting goals.

We’ll take the first action that I talk about on this blog, open an online savings account. Sounds simple for some, on the other hand it might be difficult for others.

After you’ve accomplished that goal, you might set other goals for the account. Let’s say you’ve decided to save enough for that proverbial 3-6 months of emergency funds and that would make you feel good and secure about any hardships that come about during everyday life.

Well, write down the target amount. Let’s say you would like to save $5,000.00 before you stop automatic deposits to that account. So do some simple math and let’s say you deposit $100.00 a month through automatic deposits for four years.

You’d be contributing $1,200.00 a year for four years and you’d have $4,800.00 in your online savings account. Plunk $200.00 more in there for the final month or $100.00 for an additional two months and that would give you your $5,000.00, 3-6 month emergency funds that would then grow at around 5% which would give you $250.00 a year that your money would make for you.

Now, I know that sounds wonderful and that sometimes emergencies happen right when you’re in the middle of your savings plan or for some folks all the time, but this is something that you forge ahead with until you hit that magical number that you’ve set for yourself.

I would start thinking about your tax refund, if you usually get one, and NOT planning on using it at all except for your online savings account or funding your Roth IRA account.

Stop thinking about your tax refund as if it’s some kind of gift or Christmas present from the government. It’s you’re hard earned money that you lent the government instead of making money on it yourself. Just say NO to that type of thinking!!

“A journey of a thousand leagues begins with a single step” – Confucius

A family member of mine will be reviewing what it will take to participate in her employer’s SIMPLE IRA soon. So what do we know about the SIMPLE IRA? The SIMPLE part is Savings Incentive Match Plan for Employees of Small Employers.

The SIMPLE IRA is a retirement plan for small businesses with less than 100 employees who earned $5,000.00 or more during the preceding calendar year. Compared to other retirement plans for small business owners it offers lower start-up and annual costs. They are simpler to operate.

Here are some advantages for the employee:

• Employees can contribute, on a tax-deferred basis, through convenient payroll deductions.
• Your employer can choose to match the employee contributions or to contribute a fixed percentage.
• Employees are 100% vested and are in complete control of their own accounts.
• Employers can make contributions for employees over the age of 70 1/2 even though the employee can’t if they are over 70 1/2.

The disadvantages include the benefits of a SIMPLE IRA don’t provide an adequate retirement in its self.

Only the following institutions can be designated as trustees of SIMPLE IRA plans:

• Banks
• Mutual Funds
• Insurance companies that issue annuity contracts
• Other IRS approved institutions

Trustees agree to:

• Receive and invest contributions, and
• Provide the employer with a summary description of the plan features each year.

Two models are offered:

1. Not for use with a designated financial institution, or
2. Use with a designated financial institution

Number one means the employees are allowed to select the financial institution to receive their contributions. Number two means the initially deposited contributions are with a designated financial institution.

Employee Contributions:

• You can contribute up to $10,000.00 per year.
• Employees can change their contribution level once a year during the plan’s election period. However, there can be more election periods during the year.

Employer Contributions (two choices):

1. A 2% non elective employer contribution equal to 2% of their compensation, regardless of whether they make their own contributions.
2. A dollar-for-dollar match up to 3% of pay, where the employer matches the employee’s contributions up to 3%.

Click to Enlarge

Distributions

• Employees cannot take loans from their SIMPLE IRAs.
• Contributions and earnings can be withdrawn at anytime as a lump sum or a roll over to an IRA or another employer’s retirement plan.
• Subject to income tax for the year in which the distributions are received
• If withdrawn prior to 59 1/2, generally a 10% additional tax applies. If this happens within two years from the beginning of the plan the 10% penalty is increased to 25%.
• There is a Required Minimum Distribution when the employee reaches 70 1/2.

So there you go. Almost everything you wanted to know about a SIMPLE IRA.

Here’s a real budget for a 75 Year-Old woman.

I rounded the numbers so they were a bit more understandable. The property insurance, car insurance are split out over 12 months even though they are not paid every month, just when they’re due, once and twice annually.

Her assets include (rounded of course):

• Home – Paid off for some time now – Approximately $125,000.00
• Credit Union – $20,000.00
• Vanguard Funds – $15,000.00 in Prime Money Market Fund – VMMXX – Yield 5.14%
• Vanguard GNMA Fund Investor Shares – $30,000.00 in Bond Fund – VFIIX – Yield 5.34%
• Checking Account – $10,000.00
• EE Bonds – $3,000.00

Some attributes to be concerned about:

• Weekly visits to the casinos
• Honoring her husbands wishes to update certain aspects of the house both minor and major

Work Ethic and Mindset:

• Born in The Great Depression era
• Clipped/Clips coupons
• Food was the topic of daily life
• Normal day jobs – 9 to 5
• Lived in two houses over their life and ended up in the current house for more than 40 years with one major addition to the house.
• Always looking for deals and how to save money on purchases of anything
• Only takes the Required Minimum Distribution from the Vanguard Funds – around $2,000.00/year
• “The money in the Vanguard funds will never be spent!!” she proclaims.

Other benefits include family members who are able to buy her things like new car, new TV, and other around the house items. Can move in with family members when the time comes.

Subtitle: We’re Goin’ To Hawaii!!

Don’t Buy Variable Annuities. Why? Because they could provide your money manager with a free trip to Hawaii on you right from the get go (when you first fork over your cash).

Well, that’s not the only reason and it’s not the only investment that could do that.

There are different annuities (variable, fixed, etc.), but here’s the downside on variable annuities and they’re just not worth getting into. Besides being confusing as heck for some folks, sometimes the financial person trying to sell them doesn’t come right out and tell you they are annuities.

Variable Annuities are a family of mutual funds you can invest in by an insurance company. They can:

1. Have the highest commissions and that’s why some of the financial folks sell ‘em. (Trip to Hawaii part)
2. You have a limited number of investment choices. There might be 20-30 funds in the annuity but there are tens of thousands of funds out there to choose from. What are the odds that the annuity has the best 20-30 funds to choose from?
3. Fees and expenses can be very high. Over time could possibly be 20% right off the top of your earnings. (Trip to Hawaii part)
4. Taxed as ordinary income – could be taxed much higher than investing in the same mutual funds outside of the annuity.
5. If you take money out the first year it could be charged 7% or more.
6. And a host of other rules and regulations. Just say ‘No’.

Again, it would be better to invest in mutual funds that are going to work for you from the get go.

Recently I was listening to someone talk about, “I have to wait until I save up tens of thousands of dollars so I can get help from a money manager to invest in the right mutual funds.” No you don’t.

There was a time when you’d take very little money into a money manager and they’d say, “come back when you have $100,000.00 or more” and now it seems some are saying “$50,000.00 or more”, but you can great started way before we save up $50,000.00. You can open a Roth IRA if you read my third action for as little as $250.00.

I’ll be adjusting this third action a bit by emphasizing that I highly recommend investing in a Roth IRA. There’s always a tax position you have to consider when you’re investing. So you have to ask yourself, is this a taxable account or not. Based on how you answer that, will determine how you buy your mutual funds.

For instance, if you’ve topped out the $4,000.00 contribution (if you’re under age 50) to your Roth IRA for 2007 and you’re still wanting to invest in more mutual funds, then you’ll most likely have to invest in those funds in a taxable account.