4 Steps For Nurses to Become Fiscally Fit in 2018

4 Steps For Nurses to Become Fiscally Fit in 2018

A new year means New Year’s resolutions.

We promise ourselves to eat healthy, exercise more, or have better work/life balance. Others aspire to bigger goals like running a marathon or getting that big promotion. While some of us are just trying to cut back on our Starbucks addictions (the struggle is real!). But no matter how big or small our resolutions, we’re convinced this is the year we make a change for the better.

But what about your finances?

I get it. The three topics your mother told you to never bring up to strangers are: politics, religion, and finances. Well, allow me to introduce myself. My name is Kyle and I’m a financial advisor with a passion for helping nurses. I drink black coffee, love a good Malcolm Gladwell book, and enjoy spending time with friends and family in my hometown of Pittsburgh, PA.

Now that we’re no longer strangers, let’s get down to business!

Step 1 – Protect Your Today’s

Protection should always be the first financial consideration. Before focusing on building your tomorrows, it is prudent to properly protect yourself against what might happen today.

Most people know they need to insure their life, their car, and their home or condo. But they often overlook insuring their most important asset – their ability to earn an income. Your income is the primary source of funding for a lifetime of things, from basic necessities to the hopes and dreams you have for yourself and those you love. The $3-9 million or more you’ll likely earn over the course of your medical career is surely an asset worth insuring.

But what would happen if your income stopped because you were too sick or injured to work? Without a paycheck, how long could you pay your rent and utilities, buy groceries, make student loan payments, etc.? In all likelihood, your life would be thrown significantly off course.

What a nurse could earn over a 35-year career, starting at $55,000 and getting 4% annual pay raises.

Before you say this could never happen to you, consider the fact that 1 in 4 of today’s 20-year-olds will become disabled before they retire.[1] And if you’re thinking that most disabilities are the result of freak accidents, you’re in for a surprise. The vast majority of disabilities, about 90%, are caused by various forms of illness including cancer, mental disorders like anxiety and depression, muscle and back problems, and heart disease.[2]

Disability insurance can help replace your paycheck if you can’t get up and go to work. Should disability strike, it pays cash that can be used to keep your household running as well as to help you adjust to your changed circumstances? While it’s common to have some disability coverage through your employer, these types of policies might not be enough. Supplemental coverage – on top of what you have through work – can help fill any gaps that your group-disability policy may not cover.

You can learn more about individual disability insurance here.

“But Kyle, insurance costs money and I can’t afford another bill!”

I understand. I am saving for a wedding next year and every dollar is precious! However, getting coverage is not as expensive as you think. Premiums for an individual disability policy typically cost between 1-2% of your gross income. For a nurse making $50,000, that’s less than two dollars a day to protect over 4-million dollars of future income!

As a nurse, you’ve made a significant investment of time and money to build your career with the promise of financial security and the other rewards your profession provides. But should you become too sick or injured to work, that promise evaporates.

Step 1 on your fiscal fitness journey is to protect your greatest asset, you!

Step 2 – Become a World-Class Saver

Once you’re properly protected, and ONLY when you’re properly protected, are you ready to start building wealth for the future. But when should you start saving? How much should you save? These are great questions with very important answers.

Start Saving Today

“The best time to plant an oak tree was 30 years ago. The second-best time is today.”

-Chinese Proverb

Retirement is an oak tree. It takes decades of nurturing and attention to grow those first few pennies into a healthy sum of money from which you can retire.

To illustrate my point, let’s look at two different scenarios.

Brian Proactive recently graduated with his BSN from State College. He understands the importance of saving and makes it a priority to squirrel away as much as possible. He saves 10,000 a year for 40 years. Assuming a 6% rate of return, he would end up with somewhere in the neighborhood of $1,600,000.[3]

Jenny Procrastinator, on the other hand, put off saving. She spent most of her 20s and 30s eating out, going on expensive vacations, and driving new cars. On her 40th birthday, she starts feeling behind on saving for retirement.  To catch up, Jenny begins saving $20,000 per year for the next 25 years. Assuming the same 6% rate of return, she ends up with roughly $1,100,000.

Even though Jenny saved double the amount per year that Brian did, she has significantly less money. How does this happen? Time. Brian had an extra 10 years for his money to compound and grow that Jenny simply did not.

So as the wise man once said, start saving as soon as possible!

Save 15-20% of Your Gross Income

There are a lot of forces working against your money: taxes, inflation, new products and services, replacing old products, living a better lifestyle, and unexpected life events. What does this mean? Life gets more expensive.

The proper way to fix this problem is by saving 15-20% of your gross income. Doing so will put you in the best position to recreate today’s lifestyle in retirement. This means a nurse making $50,000 should make it their goal to save approximately $10,000 per year.

It’s okay if you’re not there yet! Here are some tips to find extra cash to put away.

  • Pay raises
  • Tax refunds
  • Overtime and/or holiday pay

Step 3 – Preparing for Life Events

Changes in life often come with financial consequences. For both opportunities and setbacks alike, you need money that you can count on being there when you need it most. Therefore, you will want to always maintain balance between your liquid assets and other long-term financial strategies.

Money that is liquid is money that can be easily converted to cash, quickly, with minimal impact to the price received.

Some Examples of liquid places to save

  • Savings accounts
  • Checking accounts
  • Money markets
  • Non-qualified “taxable” investments

Long-term investments can be illiquid. This is money that can be difficult to convert to cash, or difficult to access due to taxes and penalties.

Some Examples of relatively illiquid places save

  • Retirement accounts – 401(k)s, 403(b)s, IRAs, Roth IRAs
  • Real Estate Equity

The biggest mistake nurses make is over relying on their 401(k). While retirements accounts are great for 30-40 years from now, they’re not so useful if you need that money before then. In fact, money inside of a retirement plan cannot be accessed without taxes and penalties until the age of 59 ½. Rather than putting 100% of your annual savings into a 401(k), consider reducing your 401(k) contributions to the company match and saving the difference in liquid places.

Here’s an example.

A nurse making $50,000 should save $10,000 to become a world-class saver. That $10,000 should be equally divided between: cash savings, taxable investments, and a retirement account.

Remember, it’s about balance.

Step 4 – Living Debt Free

For most nurses, especially those just beginning their careers, debt is the biggest concern. Between student loans, car payments, and credit cards, it can be overwhelming. Rightfully so! Short-term debt can be a destructive force and can greatly affect your wealth building results. However, knowing when to handle short-term debt is equally as important as not having it. Once you’ve protected your today’s, become a world-class saver, and prepared for life’s curve balls, then you are in the position to attack debt.

High-interest debt should be the first to go. It’s nearly impossible to make progress with investments when they’re paddling upstream against 15-30% interest rates on credit cards. Pay off cards with the highest interest rates first. As balances are paid, reroute the money that was going to the credit card company to somewhere productive on your balance sheet. That might mean you boost your emergency fund or start saving more into longer-term strategies. But regardless of where choose to save it, the goal is not to spend it!

For lower interest debt like student loans or mortgages, don’t be in such a hurry to pay these off. The interest portion of your payments is tax deductible and having lower interest rates may give you the opportunity to out-earn your cost of borrowing.

Debt can feel like climbing a mountain where you never reach the summit. Be patient. Understanding that you don’t have to pay off everything right away gives you the freedom to breathe. You can’t let paying down debt get in the way of protecting your income, saving for your future, or preparing for what life has in store.

A New Year a New You

Becoming fiscally fit is going to be hard. There are going to be times when you’ll feel frustrated, angry, and want to quit. They’ll be times when a particularly grueling day at work will try to convince you to self-medicate with retail therapy. Don’t give in! If you want your gorgeous before and after picture come 2019, it’s going to take hard work and dedication. Believe in yourself. You can do it.

But if you’re still feeling anxious. If you’re still not ready to make a change. Allow me to suggest a few sage words: THERE’S NO BETTER TIME THAN THE PRESENT!

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Lifetime Financial Growth is not an affiliate or subsidiary of PAS or Guardian. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Links to external sites are provided for your convenience in locating related information and services. Guardian, its subsidiaries, agents, and employees expressly disclaim any responsibility for and do not maintain, control, recommend, or endorse third-party sites, organizations, products, or services, and make no representation as to the completeness, suitability, or quality thereof.

2018-52869 Exp 01/20

[1] U.S. Social Security Administration Fact Sheet, October 2015.

[2] Council for Disability Awareness 2014 Long-Term Disability Claims Review

[3] This calculation does not take into account the effect of fees and taxes. 6% is an arbitrary rate of return that may or may not reflect actual market performance. Past performance does not guarantee future results.

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