Where Does Money Go?

On July 14, 2015, in Finance, by Early Financial Freedom
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Have you ever wondered how your annual spending compare to the rest of the country? I sure have and The U.S. Bureau of Labor Statistics have a good answer for it.

According to the latest data, which is from 2013, Income before taxes was $63,784 and Average annual expenditures were $51,100.

CONSUMER EXPENDITURES IN 2013

CONSUMER EXPENDITURES IN 2013

 

The lion’s share of the expenditures were Housing ($17,148 or 33%) followed by Transportation ($9,003 or 17.6%) and Food ($6,602 or 12.9%).  In other words, Housing, Transportation and Food accounted for 64% of the total expenditures of an average family in 2013.

CONSUMER EXPENDITURES IN 2013
Income before taxes $63,784
Age of reference person 50.1
Average number of people in consumer unit 2.5
Average annual expenditures $51,100
Housing: Shelter $10,080
Housing: Utilities, fuels, and public services $3,737
Housing: Household operations $1,144
Housing: Housekeeping supplies $645
Housing: Household furnishings and equipment $1,542
Total Housing $17,148 33.6%
Transportation: Vehicle purchases (net outlay) $3,271
Transportation: Gasoline and motor oil $2,611
Transportation: Other vehicle expenses $2,584
Transportation: Public and other transportation $537
Total Transportation $9,003 17.6%
Food at home $3,977
Food away from home $2,625
Total Food $6,602 12.9%
Pensions, Social Security, Life insurance $5,528 10.8%
Healthcare $3,631 7.1%
Entertainment $2,482 4.9%
Cash contributions $1,834 3.6%
Apparel and services $1,604 3.1%
Miscellaneous $1,420 2.8%
Education $1,138 2.2%
Personal care products and services $608 1.2%
Reading $102 0.2%
Source: U.S. Bureau of Labor Statistics

 

 

Living Overseas: How to Hedge Inflation Risk?

On May 30, 2015, in General, by Early Financial Freedom
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Our current situation, in a way, is a little unique. We live in Turkey so we spend money in the local currency, which is Turkish Lira. Our business is in the US and we earn in dollars. Inflation in the US has been tamed at about 2-3%, but the local inflation is about 8-10%, local currency. Another wild card in the game is the exchange rate; it has been favorable for the dollar for a few years but there is no guarantee it would continue this way; if the history is any guide!

 

So, our dilemma is: what would be the best way to hedge the local inflation risk?

 

Below are some ways I though/research about:

  • Stay in dollars as long as possible
  • Move a large portion of your assets onshore into local currency investments that produce income
  • Buy local real estate that would generate income and capital appreciation

 

Please do let me know if you have any other practical ideas for this situation.

Summary of The Smartest Retirement Book You’ll Ever Read

On May 30, 2015, in Finance, by Early Financial Freedom
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Below are the key points of The Smartest Retirement Book You’ll Ever Read by Daniel R. Solin. I read this book back in 2012. It is worth to read.

 

  • Investing in an income-only portfolio can be risky
  • A two-year cash cushion and a well-balanced portfolio can help reduce your portfolio’s volatility and give you the courage to invest in stocks
  • Investing in individual stocks is too risky for most investors. There are no safe individual stocks
  • Most investors do not need EFTs in their retirement portfolios
  • Risk is the foundation of all returns. There is no free lunch. This applies to bonds as well as stocks
  • Most investors do not need TIPS in their portfolios
  • Make sure that your bank and credit union deposits don’t exceed the FDIC’s insurance limits
  • An immediate annuity can help reduce the risks of outliving your money
  • Variable annuities are unsuitable for most retirees
  • Equity-indexed annuities are unsuitable investments
  • Don’t use investment averages to determine how much money you can prudently withdraw from your retirement accounts
  • To keep from depleting your retirement savings, limit your withdrawals to 2 to 4 percent per year
  • You can squeeze a little more from your nest egg by modifying the 4 percent rule to consider inflation
  • Intelligently tapping your retirement nest egg can add years to its life
  • A Roth conversation for some high-income earners can have a meaningful, long-term benefit
  • Taking Social Security benefits too early can affect the quality of life of the surviving spouse
  • Even if you are lucky enough to have a pension, you may not be able to rely on it
  • A few years of additional employment can have a significant impact on your retirement income
  • Your net worth is a key factor in determining your need for long-term care insurance
  • You can enhance the lives of your loved ones significantly by leaving them an IRA… and the knowledge of how to deal with it. The best parting gift is a Roth IRA
  • If a financial professional is offering you a free meal, run
  • If you need financial advice, stick with a fiduciary who makes no effort to beat the markets and who uses a well-known, independent custodian
  • If you need help coming up with a financial plan, use a fee-only financial planner (or a certified public accountant) who charges an hourly or a flat fee and who limits advice to preparing a plan and answering your questions
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