If you’re on TikTok or Reddit, it’s likely you’ve come across a tenacious rumor: That it’s better to invest in life insurance than a 401(k) for retirement. So, is it true?
Life insurance vs. 401(k)
Life insurance isn’t an investment, while a 401(k) is a type of investment account offered through your employer. Permanent life insurance (which offers lifelong coverage) isn’t an investment, and its exorbitant fees erode the money you pay into your policy and any earnings you might make for the first decade.
“It was very strange to me that there were so many life insurance salespeople all over TikTok, basically soapboxing about life insurance, like it was the next big thing like it was the most amazing investment on Earth,” says Vivian Tu, founder of Your Rich Bff, a TikTok channel that focuses on financial education, based in Miami Beach, Florida.
Can life insurance grow like an investment account?
In some cases, yes. There are some types of life insurance, such as whole life insurance or universal life insurance, that have the ability to increase in cash value. But how do some of those policies earn money like an investment return? By tracking market indexes.
One of the features touted by TikTok influencers is that returns made on insurance policies aren’t affected by the overall stock market, but that isn’t necessarily true. The insurance companies may invest in the stock market with part of their portfolio, which is technically a portion of a policy owner’s premium. Though some policies provide fixed returns, some depend on current interest rates and investments. Some policies have you pick the stock or bond indexes for your policy to mirror, such as the S&P 500, and the insurance company pays you interest based on how those indexes perform.
Life insurance vs. 401(k): Fees
If life insurance can earn stock market interest in a way similar to that of a 401(k), what’s the issue?
The issue is that, depending on the policy, the staggering fees insurance policies charge often wipe out the amount you would get back from those premiums and any investment returns.
For example, if you pay the premium for seven to 10 years, most of those premiums go toward the cost of providing that insurance. In addition, there are administrative fees and the agent’s commission, though you may not see a commission listed on a statement and it may be difficult to figure out exactly how much those commissions are. Those commissions aren’t a one-time payment: You may continue to pay them for seven to 10 years, or as long as the policy is active.
The premiums you pay that cover fees don’t sit in an account waiting for you to cash them in. If you pay into a 401(k) for a decade, you get to keep all that money less any fees and investment losses. With an insurance product, it’s only after a decade (again, depending on your policy) of monthly payments that you actually start accruing premium money and interest in a cash value account the insurance company holds for you.
That interest percentage is less than you can get in a high-yield savings account and far less than the stock market’s long-term average of 10% (not accounting for inflation).
Insurance policies also have significant surrender charges, which are fees you have to pay if you withdraw money from your policy early. These charges are often so large that they can dramatically reduce the net value of your policy until the first few years pass.
For example, if you wanted to take money out of your policy after the first two years, your surrender charge would likely be so high that there would be little to no money to take out. These charges eventually reduce to zero, but it can take 10 to 16 years.
While 401(k)s do charge a 10% penalty if you want to take money out of your account before you’re 59½, that 10% is likely to be far less than a surrender charge. Plus, there are lots of exceptions to the 401(k)’s 10% penalty, including disabilities, the birth of a child, medical expenses and emergency personal expenses.
If you were to invest in the stock market through a 401(k), you wouldn’t lose 10 years’ worth of investment dollars to the cost of insurance, and your management fee would likely be less than 1%.
“The idea that 401(k) fees are higher than an insurance product that would be serving as an investment, I don’t even know how you support that idea,” says Georgia Lee Hussey, a certified financial planner and founder of Modernist Financial, a wealth management firm in Portland, Oregon.
Insurance fees are complex
In addition to paying commissions and exceptionally high fees, you may not even know how much you’re paying because insurance fee structures are so complicated.
“Whole life policies are basically called the black box of insurance policies. You can’t really see what’s happening inside them,” Hussey says. “You can understand the internal expense ratio sometimes but you usually have to go deep into the disclosure documents to understand what the insurance company is really getting paid.”
If you purchase insurance through an agent or broker (or a TikTok influencer), it’s possible that that person will be making a commission, and that’s on you to figure out.
“When you actually look into it, you realize that all of these people are, in fact, life insurance brokers. They don’t even work at life insurance companies that provide the policies,” Tu says. “The vast majority of them are not fiduciaries, so they are not legally obligated to do right by you financially.”
On the topic of using insurance to invest, it’s good to remember two cardinal rules of investing: If it sounds too good to be true, it probably is. And if you can’t explain it clearly to a friend, you probably don’t understand it, which could be a sign to steer clear.
As Tu says: “It’s insurance. It’s not an investment.”
Stocks hit fresh all time highs as the latest economic data showed the economy is still holding up as inflation recedes and the Federal Reserve nears a start to rate cuts.
Once again, smaller firms rallied, with the Russell 2000 poised for its biggest five-day run since April 2020. Conversely, the megacap space that has powered the bull market came under pressure. An equal-weighted version of the S&P 500 — where the likes of Nvidia Corp. carry the same heft as Dollar Tree Inc. — largely beat the US equity gauge. That index is less sensitive to gains from the largest companies — providing a glimpse of hope that the rally will broaden out.
The resilience of the equity market has been underpinned by optimism the economy has withstood the worst of Fed tightening. In this regard, Tuesday’s retail sales report was a “healthy” development, according to Bret Kenwell at eToro. It’s better to see the Fed cutting rates on falling inflation than to see the central bank rushing to bolster a weakened economy, he noted.
“While we are not ‘most preferred’ on small caps, they are historically cheap on a relative basis, and could snap back quickly should interest rates fall and growth remain resilient,” said Solita Marcelli, at UBS Global Wealth Management.
The S&P 500 hovered near 5,650. The Dow Jones Industrial Average rose 1.5%. The Russell 2000 gained 2%. The Nasdaq 100 was little changed. Amazon.com Inc., which kicked off its Prime Day event, outperformed. UnitedHealth Group Inc. climbed on strong results.
Traders also waded through financial earnings. Morgan Stanley dropped as results from its key wealth business fell short of estimates. Bank of America Corp. rose after saying net interest income would climb by the end of the year. Charles Schwab Corp. sank as new brokerage accounts missed estimates.
Treasury 10-year yields fell three basis points to 4.20%. Gold hit a record high on bets the Fed will soon be able to pivot.
“Retail spending in June was expected to confirm signs of an economic slowdown, but instead has breathed new life into the argument that Fed officials don’t need to worry about a sluggish real economy yet,” said Mark Streiber at FHN Financial.
U.S. retail sales, excluding the impact of a cyberattack on auto dealerships, rose in June by the most in three months, a sign consumers regained their footing at the end of the second quarter. Total retail sales were unchanged, restrained by a 2% slide in receipts at auto dealers. The figures aren’t adjusted for inflation.
“This report doesn’t negate expectations that the Fed will cut rates at its September meeting, unless of course inflation-related data releases indicate an uptick in prices,” said Quincy Krosby at LPL Financial.
Fed Chair Jerome Powell said Monday that second-quarter economic data has provided policymakers greater confidence that inflation is heading down to the central bank’s 2% goal, possibly paving the way for near-term interest-rate cuts.
Northwestern Mutual Awarded Sixth Consecutive Top-Score on National Disability Equality Index MILWAUKEE, July 16, 2024 /PRNewswire/ — Northwestern Mutual announced today that the company earned its sixth consecutive top-score on the Disability Equality Index®. The recognition is a comprehensive benchmarking tool designed to recognize companies that are advancing inclusion practices and building a roadmap of … [Read more…]
More Northwestern Mutual advisors than ever before named to Forbes’ Top Financial Security Professionals and Best-in-State lists MILWAUKEE, July 10, 2024 /PRNewswire/ — Northwestern Mutual announced today that 650 of its financial advisors earned a spot on Forbes’ Top Financial Security Professionals and Best-in-State lists – the company’s largest-ever showing on the prestigious rankings. More … [Read more…]
Americans with a financial advisor expect to retire two years earlier according to Northwestern Mutual’s Planning & Progress Study Ready to Retire: 75% of those who work with an advisor say they will be financially prepared for retirement versus 45% of people without an advisor Free from Anxiety: 64% of Americans with an advisor say … [Read more…]
A simple change to when you make your mortgage payments can save you thousands of dollars—and a few years—on your mortgage obligation.
Many people dream of saying goodbye to their mortgage and living debt-free. Perhaps the most popular method for doing this is making biweekly mortgage payments. These are just what they sound like. Instead of paying your mortgage once a month, you pay every two weeks.
Here’s how it works: You take your required monthly mortgage payment and divide it evenly in two. Then, you make that half-payment every two weeks. If your mortgage payment is $3,000, for example, you’d pay $1,500 today, and then the other $1,500 two weeks from now.
You’d then continue that process every two weeks for the rest of the year—ideally with automatic payments you can set and forget. Because the calendar doesn’t split months evenly, you’ll end up making 26 half-payments over the course of the year, or 13 total monthly payments, instead of 12.
“I’m a big proponent of biweekly mortgage payments,” says David Johnston, a certified financial planner and managing partner of Amwell Ridge Wealth Management in Flemington, N.J. “It’s a way to accelerate your mortgage payoff without hefty lump sums.”
How much can you save with biweekly mortgage payments?
The exact amount of savings you’ll see by making biweekly mortgage payments depends on your loan size, interest rate, loan term and other factors.
“Paying biweekly will save you thousands of dollars over the term of your loan, since it’ll be paid off earlier,” says Steven Conners, founder and president of Conners Wealth Management in Scottsdale, Ariz.
Here’s a look at how making biweekly payments would alter a $500,000 mortgage loan with a 6.5% rate.
Monthly payments
Biweekly payments
Loan amount
$500,000
$500,000
Payment amount
$3,160 monthly
$1,580 biweekly
Payments per year
12 full payments
26 half payments
Payoff date
Year 30
Year 24
Total interest paid
$637,722
$486,076
Savings
–
$149,646
While cash savings are likely the biggest benefit of making biweekly mortgage payments, there are other perks, too. Paying your loan off earlier, for example, can lighten your financial load as a household, freeing up cash flow to put toward other things—such as investments or your retirement account.
Biweekly payments also allow you to build equity faster. “They act as an equity booster,” says Mike Roberts, co-founder of City Creek Mortgage in Draper, Utah. “The quicker you pay down the principal, the more equity you build in the home.”
Roberts says this extra equity could prove “invaluable” later on if you opt to refinance your loan or take out a home-equity loan or Heloc. (Lenders typically won’t allow you to do either unless you’ll still have at least 20% equity.)
Finally, for many homeowners, biweekly payments just line up with some paycheck schedules better. For example, if you get paid every two weeks, it may be simpler to manage cash flow if your mortgage payments align with your pay days.
“By dividing the payment in half and aligning it with your pay cycle, it may be easier on your overall budget,” says Rachel Caballero, community development manager at TruWest Credit Union in Tempe, Ariz.
There can be downsides to biweekly payments, too. There may be fees from your lender, it could be hard to remember the payments (unless you set up autopay) and you might be taking away cash from other financial goals, such as paying down higher-interest debts or saving for retirement.
Setting up biweekly mortgage payments
With all their benefits, it might be tempting to just divide that payment in half and start biweekly payments right away. But before you dive in, you’ll need to contact your lender or loan servicer.
First, not all servicers will allow you to make biweekly payments. And if yours does, you need to make sure they’ll apply the payment to your principal at the time of payment—not just on your payment’s due date.
“You need to confirm with your servicer that the biweekly payments will actually be applied to your principal,” Roberts says. “Some servicers might hold the extra payments in an escrow account until the end of the month, negating the benefits.”
This essentially means they’ll put the payments in a holding account until your actual due date rolls around. This would keep your earlier-in-the-month payments from reducing your principal balance (and the interest you’re charged on it) as intended.
You should also ask if there’s a fee for setting up or processing biweekly payments. It might seem silly to charge a fee when the lender is actually getting bigger payments from you, but remember those interest savings.
“Less interest cost for you is less interest income for them,” says Troy A. Young, a certified financial planner and founder of Destiny Financial Group in Atlanta.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
Budgeting is such an adulting term.
Nothing can make you feel more like an adult when you need to learn how to budget your money, stop buying frivolous things, and save for retirement.
A budget just sounds like no fun.
Is it possible to learn how to budget money and still enjoy life?
However, the bright side to budgeting (and normally overlooked aspect) is by setting up a budget is you start to live within your means and start your path to financial freedom. Here are all the advantages of budgeting.
Personally, financial freedom is way more enticing!
So, that means a budget is necessary. A budget is key. A budget will change your life forever.
Just FYI…Here at Money Bliss, we like to call it a Cents Plan. Why? A budget sounds constricting. Take your money cents and put it with your head sense to make your Cents Plan.
We will detail what is the proper way to budget for money.
But the question remains how to budget money without pulling out your hair and still enjoy life. (It is easier than you think!)
Do you Need a Budget?
First, let’s answer this age-old debate. Do you really need a budget?
The simple answer is it depends on what you want out of life.
Do you want to live paycheck to paycheck, struggling with money, straddled with debt? Or with financial independence where you control your destiny?
Stress vs. joy. The choice is yours.
With human nature, our tendency is to spend money. While there are some savers in the room, it is typically a learned trait. Society wants quick results and with material items so cheap, it is easy to go overbudget.
Does extra income really solve someone’s money problems?
Last I checked, there are plenty of people who made millions are in bankruptcy because of overspending, not living within their means, and a budget wasn’t a term they used.
Here is a quick test…
If you have read this far into the post, then you need a budget. Keep reading. We have plenty of information to help you succeed. Also, you will learn various ways to budgeting that work for you.
Longer Answer & Must Read: Money Bliss Steps to Financial Freedom – this is the long term answer to “Do You Need a Budget?”
Purpose of a Budget
Okay, so we figured out that you need a budget. But, you aren’t truly convinced about why you need a budget.
What is the reason or main purpose of a budget?
The purpose of a budget is to first decide where you plan to spend/save money and then, see if you followed through on your plan.
Are you under budget? Are you over budget? Specifically, are you making progress to your life’s vision?
That is the role of a budget.
It is a guide for your money. Like we have said many times before you can manage your money or have your money manage you.
Personally, we use a budget to reach financial freedom faster and to make sure we have money set aside to travel. We have chosen to live a little more frugal than our neighbors (some might say much more frugal). However, the trade off for us is to travel now. Not wait until “retirement.”
For us, the purpose of a budget helps us to travel each year plus work our way towards financial freedom.
For you, what is the purpose of a budget? What do you want out of life?
Use on of these methods of budgeting as a guide to develop your budget.
Importance of Budgeting
There are many benefits of budgeting. However, most people struggle with a budget because saying no to yourself can be hard.
Let’s look at the bigger picture.
Do you want to manage your money? Or have your money manage you?
The choice is yours.
A budget is just a spending plan written out in advance.
You manage money your way!
That is a huge importance of budgeting. Personally, I would much rather decide how I want to spend my money. That is one of the biggest reasons we decided to pay off our debt in one year.
The importance of budgeting is to make sure you are living within your means and have the ability to pay for your expenses.
A budget doesn’t have to be complicated. It helps you lower big ticket expenses like housing, food, and transportation and then make sure you have enough remaining for the rest of your expenses.
If debt is a part of your life, then you are able to pay off debt faster by knowing where you spend money (and specifically what is worth spending money on). If you are debt-free, then you can continue paying in cash rather than racking up debt.
By moving towards a budget, then the foundation is laid to build a solid money journey.
You know where and how your money is spent. Then, you’re not left at the end of the month wondering if and when you will run out of money.
Another key importance of budgeting is it forces you to be organized with your finances. Then, you know where your money is going.
Creating a budget shouldn’t be overcomplicated or hard. That is something we will teach you how to do.
Benefits of Budgeting
Too many times people have good intentions of creating a budget and give up too quickly, then they never finally understand the benefits of budgeting.
It will take a few months or paycheck cycles to truly notice the benefits of budgeting (AKA spending less than you make).
You need to learn how to budget money and get into the groove of it.
No matter what we do…we can’t change how fast the days move. This is hard when you are working hard on your budget for the first time and want to see progress faster.
Consistency makes budgeting actually work.
A few of the benefits of budgeting include:
Stop fighting about money
Ability to reach your goals faster
Prioritize spending
Did you realize we only listed a few of the benefits of budgeting? Learn all nine Surprising Advantages of Budgeting your Money. (#7 may save your marriage)
As paychecks roll in and the months go by, you start seeing the bigger and bigger picture on the benefits of budgeting.
How to Manage Money
Now, that you read you need a budget, the purpose of a budget, the importance of budgeting plus the true benefits of budgeting, let’s learn how to manage money.
Specifically, how to manage your money.
Remember you have the choice to manage your money or have your money manage you. The choice is yours.
So, how can you manage your money?
One place to start is look at what others are doing. What makes them successful or not successful.
You can manage your money based off percentages like the Cents Plan Formula.
You can look at the household budget percentages to see how people spend money according to the statistics.
Ask a friend or family member how they manage money. (Some may tell you others won’t say a word.)
You can also go in depth with My Ultimate Money Blueprint.
Just remember, in the end, you want to manage money your way.
Steps on How to Budget Money
Managing money is more than just a budget.
It is about giving you choices in life.
These steps on learning how to budget money are very global. They aren’t specific tactics for budgeting. You can learn that in the 7 steps to making a budget.
These is the overarching themes that guide you on how to budget your money. Let’s budget your life and change your finances.
1. Life’s Vision
Before we starting truly budgeting, we just tracked our spending. Without fail each and every month, there wasn’t money leftover to do what we wanted in life. Things just didn’t seem fair.
Then, I got this hair-brained idea to pay off all of our debt in 1 year.
Let me tell you…it was the best decision we ever made. You can read about our journey to be debt free.
By paying off our debt, we decided to put us first and what we wanted in life.
Extra money was going towards all of debt each month. So, that meant everything else was hacked to make paying off debt possible.
During that time, we truly understood what we wanted in life, what was important to us, and how we would get there. I guess you could say we began to budget our life.
Do you know what your life vision is? Your why? Your next money goal?
If not, then start here on making money goals.
2. Live Within Your Means
While this seems blatantly obvious, it is one of the hardest things for people to do.
Simply put…
Income > Spending
Your income is greater than your spending (and hopefully savings is included in that number too).
One of the fastest ways to start living within your means is with a no spend challenge.
Plus it will help you uncover your life’s visions and what truly matters to you.
If you have been spending more than you make, then you are letting money manage you.
By living within your means, then you are managing your money your way.
Learn Exactly… How to Live Below Your Means and Love Life
3. Be Okay Being Different
The comparison trap is real.
With social media, it is hard to escape any type of comparison game. It used to be “Keep up with the Joneses’” and that just meant the neighbors and friends around you. Now, it is comparing yourself to influencers and people you will never meet in your lifetime.
The key to long term success on how to manage money is doing it your way, which means that your priorities will be different than everyone around you. And you have to be okay with being different.
Need ideas to stay on budget? Find 101 Fun Things To Do With No Money.
Need the motivation to live in a minimalist home? Could You Live In a Minimalist Home? (Real Life Minimalists) Hint: We were featured because while less is more.
4. Find a System to Work for You
The recommendation I always make when starting out with a budget is to use paper and pencil. Something tangible that you can touch and feel. Then, it becomes a constant reminder of your new ways of managing money.
Over the long-term with budgeting, you must find a system to work for you. Maybe an app? Maybe a spreadsheet? Possibly a software?
The key is finding a system that will work for you. And if you combine finances, it has to work for both of you.
This is where most people fail.
There are so many options for free and paid budgeting apps today. It may seem overwhelming. But, you can’t go back to other habits.
Today, we use Quicken and a personalized spreadsheet. Thankfully, Quicken does all of the hard work of downloading transactions, categorizing them, and creating reports.
5. Celebrate Successes
This is something that doesn’t happen as much as it should with money goals. Too many times, we are so focused on saving money and living frugally, we forget to live and enjoy life.
You need to stop and smell the roses.
In this case, you need to celebrate your wins along your journey.
Here at Money Bliss, we like to focus on…
Life. Money. Enjoy.
Life is first. You need to enjoy your life and figure out how money relates to your life. You need to budget your life.
Don’t be afraid to celebrate your success. And if you don’t believe us…One of the steps in the Money Bliss Steps to Financial Freedom is about celebrating success and doing something for you.
How to Set up a Budget
Setting up a budget shouldn’t be hard or complicated.
Don’t overanalyze. Don’t give up.
Most people have to work on setting a budget that works for them over a couple of months. Each month making small refinements.
The end goal is to set a budget that works for you.
A High-Level View of Budgeting:
Determine what your money goals are
Figure out your income
Track how much you are spending
Set up a Budget or Spending Plan
Track your progress
Yes, this is a very high-level view of setting up a budget. At this point, you don’t have to divide up into budgeting categories if you don’t want to.
There are plenty of resources on our site to help you finalize a budget that works for you.
Find detailed resources on how to make a budget.
The key to setting up a budget is be realistic.
You want to set yourself up for success – not instant failure.
One of the key ingredients to make you a success is pocket money. Personally, I believe this one category can make or break your budget. Understand how pocket money (AKA slush money) works.
When setting up a budget for the first time, set aside time to work through the budgeting process. A solid budget that will work (remember that is a key ingredient for success) needs to be based on your life’s visions. Not just slapped together in 5 minutes.
Learn How to Budget Money
Learning how to budget money is completely doable.
Budgeting shouldn’t be cumbersome or overwhelming. In the long run, the benefits of budgeting outweigh living paycheck to paycheck or stressed about money.
A budget makes sure your expenses (and savings) are below your income. From there you can decide how detailed you want to get with your budget.
The purpose of a budget is to help you successfully reach your life’s visions. The point where you start managing your money and not being managed by your money.
Further resources on budgeting:
Make sure to download our free budget printables!
From all of the free and paid budgeting apps, here are our top budgeting apps to check out!
This section may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. Please read the full disclosure below.
Empower Personal Wealth, LLC (“EPW”) compensates Money Bliss for new leads. Money Bliss is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.
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Your automated financial assistant and budget tracker are designed to put you back in control of your money.
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HoneyMoney increases your awareness about your money habits. Being fully aware of your money naturally changes how you spend it.
Great way to use cash flow budgeting. Plus uses “envelopes” to budget.
Start your free trial.
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Have total control over your financial life in one click.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Empower, formerly Personal Capital, is a client-centric robo-advisor offering investment and wealth management services. The company distinguishes itself from the competition by combining automation with personal service. With over 2.7 million users, Empower currently holds $16 billion in assets under management.
Unlike many financial apps designed to make investing more accessible, Empower is a robo-advisor for those who already have some established wealth. They’ve gone back and forth on the minimum investment required, which is now set at $100,000.
Get started with Empower
on Empower’s secure website
Its goal is to provide a more transparent and affordable investment platform. However, its wealth management service does target clients with larger assets, with higher fees being assessed with the fewer assets you let the company manage.
In this Empower review, we’ll get into the specifics shortly, but the upside to potentially paying higher fees is the access you get to financial advisors to help with your investment strategy.
The company utilizes five principles for investing:
the modern portfolio theory
personalized asset allocation
tax optimization
equal sector and style weighting
disciplined rebalancing
No matter how much in assets you’re looking to invest, consider Empower if you prefer a hands-on experience or if you have a large portfolio to open or transfer. Either way, we’ll take you step-by-step through the different types of accounts you can have with Empower, as well as the fees you’ll pay at different asset levels.
You’ll also learn about the special features that make Empower unique, including financial tools and expertise. If you’re looking for an online advisor for any or all of your wealth management, see if Empower is right for you.
Available Plans at Empower
There are three different plans available at Empower, which are divided up based on the amount of investable assets you have. If you know how much you’d like to invest, find the correct category to learn about the benefits and services you’d receive from Empower. Then keep reading to learn more about the fee structure.
Investment Service Plan
The first plan is targeted for those with up to $200,000 in assets to be invested. Services include access to a financial advisory team, a tax-efficient ETF portfolio, dynamic tactical weighting, 401k advice, and cash flow & spending insights.
You’ll also get to use Empower’s free wealth management tools. You do, however, need a minimum of $100,000 to get started investing with Empower.
Wealth Management Plan
The next option is the Wealth Management plan, for those with investable assets between $200,000 and $1 million. You get access to all the benefits from the Investment Service plan, plus several others.
The Wealth Management service includes two dedicated financial advisors, customizable stocks and ETFs, a full financial and retirement plan, college savings and 529 planning, tax-loss harvesting and tax location, and financial decisions support.
The financial decisions support refers to help with insurance, home financing, stock options, and compensation. Also, note while your financial advisors can help you plan for investment accounts like a 401k for retirement or a 529 for college savings, Empower doesn’t actually offer these accounts.
Private Client Plan
If you invest more than $1 million, you qualify for the Private Client Plan. Again, you receive all the perks of the previous two plans, in addition to several more.
To begin, you’ll get priority access to CFP, financial advisors, investment committee, and support, plus an investment portfolio mix of ETFs, individual stocks, and individual bonds (in certain situations).
You also receive family tiered billing; private banking services; estate, tax, and legacy portfolio construction; and donor-advised funds. Empower also offers private clients a private equity and hedge fund review, deferred compensation strategy, as well as estate attorney and CPA collaboration.
Get started with Empower
on Empower’s secure website
Fee Structure and Accounts
The more money you invest through Empower, the more money you’ll save in fees. If you invest up to $1 million, your fee comes to 0.89% of the assets being managed. If you invest more than $1 million, your first $3 million in assets are only charged a 0.79% fee. Then, your next $2 million is charged 0.69%.
The $5 million after that are charged 0.59% and the next $10 million are charged 0.49%. However, there aren’t any charged beyond the account management fees, so you don’t have to worry about annual, transfer, or closing fees.
So what types of investment accounts are supported through Empower? There are many: both individual and joint non-retirement counts; Roth, traditional, SEP, and rollover IRAs; and trusts.
Through your Empower investments, you can expect a healthy range in your portfolio. For example, when buying U.S. equities, they buy a diversified sample of at least 70 individual stocks that epitomize their tactical weighting approach and optimize your account for tax purposes.
Empower also only purchases liquid securities, so that if you ever need to access cash quickly, you can receive funds within a settlement period of just one to three days.
Funds are held by Pershing Advisor Solutions, a Bank of New York Mellon Company. It is one of the largest U.S. custodians and currently holds more than a trillion dollars in global client assets.
Tax Optimization Strategies
Empower uses several techniques and strategies to ensure clients are optimizing their taxes on investments. First, they entirely avoid mutual funds, which they regard as inefficient for tax purposes. Their asset location is personalized whether you have taxable accounts or retirement accounts.
For example, Empower typically places high-yielding accounts and fixed income into a tax-deferred or exempt account. REITs are also generally placed in a retirement account because they pay nonqualified dividends.
Finally, Empower utilizes tax-loss harvesting, meaning they use individual securities that realize losses and can, therefore, offset gains or provide a tax deduction.
Special Features
You can take advantage of some of Empower’s online resources without even becoming a client. Just by creating a Empower account, you can link all of your financial accounts for an investment checkup.
The program analyzes your bank accounts, credit cards, and investments to create recommendations on your asset allocations. You can then choose whether to make those adjustments to your investments.
Additionally, you can check holistically on how your investments are performing by considering how much you’re charged in fees. You can do this in one of two ways.
The first is through the Mutual Fund Analyzer, which you can compare performance (with fees) against the broader markets. Then you can use the general Fee Analyzer to see what you’re being charged on your non-taxable retirement accounts.
You can also use Empower for a budget check-up that analyzes your saving and spending. You can even incorporate their Retirement Planner for long-term savings projections.
You’ll be provided with several scenarios, including best-case, worst-case, and most likely. It gives you a good idea of what you could potentially expect when you’re finally ready to retire.
All of these features run through the Empower financial dashboard, so you can get a holistic view of your entire financial picture. You can use them on their mobile app or website.
Some of their investment management tools include a 401(k) Analyzer, Retirement Planner, Investment Checkup, Net Worth Calculator. Moreover, you still have the ability to contact a personal financial advisor.
As we mentioned earlier, Empower implements five distinct strategies for investing. Learn a bit more about each one to get a better grasp of how your money would be managed by this advisor.
Modern Portfolio Theory
The prime directive here is to create an efficient portfolio for clients while yielding the highest possible return for the lowest possible risk.
Empower works with six asset classes to provide this equilibrium, which are all meant to be liquid and broadly investible. These asset classes are U.S. stocks and bonds, international stocks and bonds, alternatives (including ETFs and commodities), and cash for liquidity.
Personalized Asset Allocation
There’s a reason the company is called Empower: they understand that no two investors are exactly alike. That’s why they look at your individual data and financial goals to balance your portfolio’s risk and growth.
They use a proprietary Retirement Planner software that analyzes your spending and savings habits in addition to your projected income. This helps you determine what your financial future looks like and what you may need to change to reach your future goals.
Tax Optimization
We mentioned earlier that Empower optimizes your taxes by using tax-loss harvesting and asset location, as well as avoiding mutual funds.
In fact, these steps could boost your annual returns by as much as 1%. While many financial advisors use one or two of these tactics, Empower offers a truly robust strategy to make your portfolio more tax efficient.
Equal Sector and Style Weighting
Empower’s strategy for diversification involves equalizing the composition of your portfolio by sector, size, and style.
The goal is to prevent bubbles and other volatile conditions from adversely affecting your investments too much. Likewise, they don’t rely on a few large companies, but instead spread out U.S. stock investments between 70 and 100 different stocks.
Disciplined Rebalancing
Your portfolio receives a daily review for any potential rebalancing needs. For high-level assets, they’re typically rebalanced when they deviate more than a few percentage points from the target.
Specific securities receive a smaller margin and are reviewed after just a 0.5% move from the target. Having a systematic review allows you to maximize your ability to buy low and sell high.
Who is Empower best for?
Empower offers truly extensive services for high net worth investors, particularly considering the low percentage of fees charged. This is especially true if you’re an investor with several million dollars in assets and who likes to have easy access to a dedicated financial advisory.
After all, in the Private Client tier of $1 million+, you can get advice on just about anything related to your finances, whether it’s about retirement, real estate, or anything in between.
That’s on top of the personalized asset management, so you have a one-stop-shop of both automated algorithms and a human point of contact who understands the larger picture concerning your finances.
Empower also makes it easy for this type of investor to remain passive. If you appreciate their investment management and like how the allocation and review processes, then you don’t have to do much on your own.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
For many people, budgeting can be really tedious, and feel like it traps their freedom and spirit. While there are plenty of advantages of budgeting, it is nice to have one area of free-spending with money.
That is where a slush fund comes in.
A place to spend money with freedom and not worry about ruining your budget and the inability of not being able to reach your money goals.
When you work hard for your money, it is hard to be disciplined with your money every single step of the way.
You want to reward yourself and treat yourself! Specifically with no questions asked.
That is where the slush fund comes into play.
What is a Slush Fund?
The definition of slush money or pocket money is simple – money set aside to spend as you see fit.
A reserve of money set aside for an unknown and undetermined purpose.
Everyone will have their own meaning for their personal slush fund. That is because we all have ways we want to spend our little reserve of fun money.
And this one thing can save a marriage and many, many arguments!
Slush Fund Examples
Each person will have their own purposes for spending their fun money. Here are some slush fund examples:
Spa Treatments
Car Accessories
Lunch Dates
Helping others
Music or cable subscription
Golf outings
Happy hour fun
Crafting
Honestly, the best slush fund example is something both people do not want to include in their budget. It could be something they do not agree with, or the cost, or the need.
Did you know all of the names for the slush fund?!?! Call it what you want… the purpose is still the same:
Pocket Money
Spending Cash
Pocket Change
Allowance
Petty Cash
Kitty Fund
Chump change
Just pick your favorite name for it and understand it is money set aside to spend how you choose.
Regardless of what you call slush fund money, one meaning holds true.
It is a small amount of money earmarked for one person to spend as they choose.
How to Create a Slush Fund?
These are the four rules of slush fund money. It is not hard or difficult to create a slush fund.
You just need to decide in advance how a few line items we will cover shortly.
Nothing complicated. Pretty simple. You just need to follow them.
1. Agree on amount Given to Slush Fund
Every month or week a predetermined amount is given out for each person’s slush money. Remember, the slush fund meaning is their reserve of cash to spend or save as they deem fit.
In the Money Bliss Cents Plan, there are 3 lines dedicated to Slush Fund Money – His, Hers, and Kids.
Slush fund money is just as important for adults – probably more important than any age group.
Everyone in the household can have a little chump change to spend as they see fit. So many times, we hear of using pocket money for kids. However, very few people use it as adults.
2. Fun Spending Your Way – No Questions Asked
The biggest ground rule is no questions can be asked about how or why you spent your slush fund money in this or that way. Period.
Don’t test the boundaries. Respect the rule of no questions asked.
It is hard for a couple not to argue on every single line when they make a budget. So, agree on a slush fund amount and stop pestering the other party on how they spend their money.
3. Cash Only (Or Seperate Cashless Account)
Spending must be in cash. And cash only. At the very minimum, that chump change account is only used for your fun spending.
The temptation to overspend is way too great especially when it is spent on ourselves. Staying away from credit cards is necessary. Especially because it helps with #2 rule of no questions asked.
Here are great options to help you succeed:
4. No Judging
Human nature is quick to judge. Someone spent their money in a way you don’t agree with and you want to speak up to say something.
Not up to you to judge.
Slush money is meant for whatever you want to spend money on. This is not the time or place to be judging how to spend under $20-100 per month.
Plus – Don’t Be an Idiot
This isn’t the time or place to be sneaking behind your significant other’s back. If you are unable to honestly say how you spent the money, then you are on a slippery slope.
Honest and open communication is the key to success.
This isn’t an opportunity to start hiding your actions.
Bonus Tip for Kids –
***A side note on the Kid’s Slush Fund Money…this is how we introduce paying commissions to our kids for jobs done around the house.
That in itself is another post for another day. But, the same rule holds true, we can’t judge how they use their “spend” money.
Advantages of Slush Fund Money
There are many benefits of using a slush account when you are budgeting money. This is especially true at the beginning of your proper money management and budget journey.
You need freedom in your life if not you will be so constricted that you will not meet the smart financial goals you planned for yourself.
1. Agreed Upon Amount
First of all, the amount of money designated to each person’s slush fund money is set at the beginning of the month (or week). Everyone agreed to the budget, so no changing money in the funds.
Sit down and discuss what amount is doable based on your situation. This is based on yourbudget.
The key is to stick to the agreed amount of money. Use cash to stick to the agreed-upon amount.
2. No Arguments
Remember, no questions can be asked!
No judgments can be made!
A very simple way to steer clear of arguing. One person spends their money before the first week of the month is up – more power to them! Another person saves their slush fund money for a bigger purchase – high five!
There are bigger things to discuss in the journey to financial freedom than how someone spends their slush money.
Pick your battles.
Money is one of the leading causes of divorce. Save your marriage and use a slush fund account. That right there is one of the huge advantages of pocket money.
Related Post: How to Talk about Money with your Spouse
3. Breath of Fresh Air / Freedom
Many people find living in a budget or Cents Plan very constricting and overbearing.
This is why slush fund money is SO very important. It provides a breath of fresh air. A moment to spend money and not worry about the money spent.
Freedom to savor life’s little moments. Enjoy!
Especially if you are struggling to make ends meet, this is a big advantage of pocket money.
4. No Guilt
The last advantage of slush money is not carrying guilt. Regardless of how an adult decides to spend their pocket money, there is no guilty feeling about buying x, y, or z.
Remember rule #3 – no judging, you are free to purchase whatever your heart desires and not be overwhelmed by guilt.
Disadvantage of Slush Fund Money
After listing out all of the advantages of pocket money, you may be thinking there have to be disadvantages, right?
Honestly, the only disadvantage is it is one more category to track and separate out money.
However, that is menial given the advantages of slush money.
Related Post: Complete Guide to Sinking Funds; Why They are So Important?
Ready for Your Slush Account?
This is a key point to remember…
Regardless of where you are on your journey to Financial Freedom, slush fund money is utterly important.
The key to money is to build a strong foundation. That includes how you spend money, how you save money, and how you discuss money.
Even if you start at $5 or $10, you will begin to reap the benefits and advantages of pocket money. The small amount of money will change your perspective and how you relate to money.
As you get further in your journey, you can increase your slush amount to $100+ of fun money!
Just remember the rules of slush fund money in order to see the advantages in your household!
Further reading:
From all of the free and paid budgeting apps, here are our top budgeting apps to check out!
This section may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. Please read the full disclosure below.
Empower Personal Wealth, LLC (“EPW”) compensates Money Bliss for new leads. Money Bliss is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.
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