June 2020 - Sherman Wealth Management

5 Ways to Manage Your Finances Under COVID-19

Managing your finances isn’t simple. Throw a global pandemic into the mix and you might be finding yourself overwhelmed and unprepared for the future. Now is the time to self-educate and start finding ways to manage your money for both the short and long-term.

Here are a few tips on how to manage and improve your financial situation during the coronavirus pandemic.

Focusing on building savings

While it is always important to invest and allow your money to compound, it is crucial to focus on building up your savings account to ensure you have a cash cushion for a rainy day, or in our case, the coronavirus pandemic. While you may be currently saving around 20-30% of your income, right now focus on investing 10% of your income towards a long-term goal, such as your retirement plan.

Spending money on take-out/delivery, and supporting local businesses

As we approach the beginning of July, finally entering country-wide re-opening stages, it is still important to be supporting local businesses who have suffered a beating these last few months. Ordering takeout/delivery is a great way to mix up your daily meals and give your kitchen a break, while also stimulating the economy.

Building a larger emergency fund

As mentioned earlier, it is crucial to have a cash emergency fund to be able to cover around 6 months of living expenses. No matter your job, we see how great of an impact unprecedented global events can have on our economy, so knowing you have a few dollars in your pocket is a great reassuring measure to take.

Buying Comfort

As we slowly begin to reacclimate into our daily routine, it is important to put our spending into perspective. While there is nothing wrong with retail therapy, there are ways to make online shopping less expensive. Make sure to use free browser extensions to get cash back on your purchases. Also, if you always pay your full credit card balance monthly, you can use your credit card to accumulate miles and points. Lastly, remember to ask yourself if your purchase is necessary and worth it before submitting your order.

Giving more

Now more than ever, it is important to give back to the community and help those who are less fortunate. If you are in a stable financial situation, remember to help those around you by directing your extra income towards donating to charities and organizations you strongly believe in.

By re-evaluating your financial situation and altering the ways you use your money, you can set yourself up for long-term financial success. Consider speaking to a financial advisor before making any big changes to your current financial plan. We offer a 30-minute complimentary financial consultation for those who have questions or concerns about their personal situation and how we may be able to assist you. If you have any questions on your current situation, please contact us and we will be happy to help you!

Did You Take A Required Minimum Distribution In 2020 From Your Retirement Account? If So, You May Be Able To Put It Back.

If you took a required minimum distribution from your retirement account this year and want to reverse it, you now may be able to. The IRS announced on 6/23/20 that anyone who already has taken an RMD in 2020 from certain retirement accounts has until Aug. 31 to put the money back. (https://www.irs.gov/pub/irs-drop/n-20-51.pdf) The announcement comes several months after the CARES Act eliminated those mandated distributions for the year — yet some people already had taken them before the law’s passage.

The CARES Act, signed into law in late March, enables any taxpayer facing an RMD in 2020 from their defined-contribution retirement plan — including a 401(k) or 403(b) plan — or their individual retirement account, to skip those withdrawals this year. This includes anyone who turned age 70½ in 2019 and would have had to take the first RMD by April 1, 2020. The waiver does not apply to defined-benefit plans (i.e., pensions.)

The IRS’s new relief applies to individuals who face RMDs either due to their age or because they inherited an account that comes with those mandated withdrawals. If you have any questions about these new rules, please contact your CPA for guidance. And, as always, please contact us if you have any questions relating to RMDs or other issues related to your finances.

Bullet Journaling Your Way Toward A Budget

Many of us have tried to create a budget and stick to it at least once. Some people choose apps on their phone or spreadsheets on the computer to help them complete this task. But, for those who prefer a more creative approach, a better option might be bullet journaling. Bullet journaling is an organized system that helps people kickstart their to-do lists, stay on track with goals and switch up their approach to keeping their personal finances in order.

How Does Bullet Journaling Work?

Bullet journals can look like basic line writing, or you can add color and design elements to make it fun and attractive. Regardless of what you want to create, it’s most important to make your journal exciting enough to stick with. Your bullet journal should be customized to your liking in order to help you meet your goals.

How Can Bullet Journaling Help You Reach Your Goals?

Bullet journals are an all-in-one way to keep track of your expenses and reach your goals. It allows you to keep a record of:

Your financial goals
Your spending habits
Miscellaneous observations you have made about your money habits

Being able to actually see everything in writing and holding yourself accountable makes it much easier to keep track of how much you’re spending, what types of items you’re buying and how other factors (like your mood) could be affecting your money habits.

How to Use Bullet Journaling For Finances

While bullet journaling can be used for anything from tracking sleep patterns to weight loss, dream journaling or tackling your daily to-do list, there are a few ways you can use a bullet journal to develop a better budget.

Plan for Upcoming Purchases or Trips

If you’ve been wanting to make a big purchase or splurge on an upcoming event, use your journal to keep track of how much you need to save. If you are planning for a vacation, find out the cost of flights, hotels, food, etc. and start putting aside money for that. If you are looking to purchase a new car, you can keep track of what your monthly payments would look like based on what the loan costs might be. Drawing a visual representation of what you’re saving for can help make your goals feel more tangible. As you set money aside, you might want to include something in your journal that you can color to visually show how much you have saved.

Track your Monthly Expenses

According to a recent survey, only 14 percent of respondents used cash to pay for everyday purchases.1 Using credit or debit cards for most of your purchases can add an extra challenge when it comes to budgeting since it is an easy way to lose track of how much is being spent.

If you still prefer to avoid cash for your purchases, use your bullet journal to track your credit/debit expenses at the end of each week or month. You should create a list of how much money was spent and what it was spent on. You can also get creative and draw graphs symbolizing certain categories (food, gas, eating out, entertainment, etc.). Having a visual tool to compare what you’re spending and what you’re saving can be an eye-opening way to reassess your budget.

Pair it With Your Favorite Financial App

If you’re interested in using a budget tracking app, you can always pair your bullet journal with an app like Mint or YNAB. Apps can be more useful in immediately alerting you to overspending and help you budget in real-time. While journaling is still great for reflecting on your spending, an app can help keep you more accountable upfront.

Bullet journaling is a simple way to get your finances in order and it can make staying on track much easier. It provides a way for you to outline what needs to be done in order to accomplish your goals and allows you to constantly remain mindful of your expenses. If you need any assistance in starting your own budget journal or have any questions relating to your future financial goals, please feel free to contact us – we are here to help!

4 Financial Red Flags When Dating Someone New

It might seem strange to talk about finances when you first start dating someone new. People often try to overlook financial issues when embarking on a new relationship as it can be uncomfortable and awkward to discuss. However, if you see a future with that special someone, it’s important to know what kind of financial baggage they might be bringing with them and to be aware of any potential financial red flags.

Red Flag #1: Having Different Approaches to Saving

If your partner is a spender and you are a saver, this could be your first major red flag. It is critical that you both discuss your savings plans and goals in detail. If you share accounts or credit cards, you don’t want one person spending more than their fair share since this would not only negatively affect your savings goals, but it can also create a power struggle over financial control. It’s important to discuss how much money you’re okay spending on certain items and creating a budget that will help you compromise to meet your financial goals. It may be best to keep your finances separate for now, however, if you’re still unable to reach an agreement.

Red Flag #2: Not Discussing Your Credit Scores

Disclosing your credit scores is a must. Depending on what your partner’s credit score is, it could diminish your chances of getting a house together or making any other big purchase in the future.

Red Flag #3: Neglecting To Address Debt

It is essential that you know what debts your partner may have accumulated and how they plan on handling them. If you’re still getting to know one another, they may not be comfortable divulging the actual amount. You should, however, have a good understanding of whether or not they’re paying it off responsibly and spending wisely.

Red Flag #4: Not Sharing the Same Financial Goals

While the relationship is still fairly new, you should outline what your end goals are. It is important to ensure your financial goals are aligned early enough in the relationship to avoid any future disappointment.

The excitement of any new relationship might cause you to overlook some major financial red flags. But when the time is right, it’s important to address these issues (preferably sooner rather than later) – especially if you’re both in it for the long haul. If you encounter any of these red flags in your relationship and have any questions regarding your finances, please contact us – we are here to help!

Recent Market Volatility

This past week marked another volatile one in the market. After a significant rally, stocks suffered a large drop Thursday, with the S&P 500 down 5.9%, its worst day since March 16. The market had previously rallied 45% from its late March lows, and was flat for the year to date and trending lower overall. The Dow rose 400 points on Friday, but Wall Street recorded its biggest weekly loss since bottoming on March 23.

After a downturn in March, momentum turned positive in April and continued into May, as stocks registered healthy gains, and investors looked to future economic hopes rather than current woes. As we look to June, many investors believe a sustained and complete economic recovery may rest on developing a vaccine for COVID-19.

In recent days, there have been growing concerns as coronavirus counts in a number of states are on the rise, including Texas and Arizona, which had been spared the worst of the first wave. The US has now seen over two million confirmed coronavirus cases and over 110,000 deaths.

There have also been concerns when it comes to policy response to the COVID-19 crisis. While the initial policy response was overwhelmingly supportive, the Fed released an outlook on Wednesday suggesting an extended recession while at the same time not increasing their monetary support. Many feel as though they should have stepped in further. Furthermore, Congress, which offered significant support for both Wall Street and Main Street in the early days of this crisis, is now torn about the next round of stimulus.

When you take a look around the country and the world, it is clear that we are in an awful recession as well as a humanitarian crisis. Policymakers will have to do more to get us through the challenges that lie ahead. There are valid reasons to be optimistic about possible treatments in the near future and about potential vaccines later on, but this pandemic will continue to grind on our economy and on our society.

As the market continues to assess the long-term value of these businesses, it will periodically become too optimistic, and periodically become too pessimistic. Due to the uncertainty surrounding our current circumstances, we should expect elevated volatility for a prolonged period, which is hard for many people (and the markets they form) to digest. This volatility will create opportunities—sometimes to buy undervalued assets and sometimes to sell overvalued ones. Days like Thursday are why we consistently recommend diversification—while stocks fell, bonds rose slightly.

The key to successful, long-term investing is a well-diversified, customized portfolio that focuses on tax-efficiency, cost-effectiveness and risk management. We create and manage investment models tailored to your goals, timeline and evolving life circumstances. This is a challenging time in the real world and in the financial markets. We are continuing to monitor the markets, re-assessing portfolios and assisting our clients in any way necessary during these uncertain times. Click here to find out if your investments match your risk tolerance. And, as always, please reach out with any questions you may have – we are here to help!

Launch Financial – We Stand In Support Of Racial Equality And All Those Who Search For It

The senseless killing of George Floyd at the hands of law enforcement has shaken this nation at its core. His death, along with countless others’ has once again brought these injustices to the forefront of our society. For far too long, Black Americans have suffered under systems of racism and oppression.

This time, there are no excuses – we have had enough.

We Stand In Support Of Racial Equality And All Those Who Search For It

This time, there are no excuses – we have had enough.

We will no longer stand silent as these issues continue to plague our citizens, neighbors and friends. We stand in solidarity with the black community and equal rights for all. We stand in support of racial equality, and all those who search for it.

There are many ways you can help:

Sign a petition;

Donate to one of these causes (www.naacpldf.org; www.policingequity.org/donate; www.wallstreetbound.org; www.eji.org) or another organization of your choice;

Watch this with your children – www.cnn.com/2020/06/06/app-news-section/cnn-sesame-street-race-town-hall-app-june-6-2020-app/index.html.

Has Your Employer Suspended Its 401(k) Matching During COVID-19?

According to a recent survey, 16.1 percent of organizations have suspended matching employer contributions due to financial hardships caused by COVID-19. Worse yet, 1.3 percent of businesses have terminated their 401(k) plans altogether.¹ 401(k) plans and their matching employer contributions are relied on by millions of Americans to bolster their savings for retirement. If your employer has recently made an adjustment to its 401(k) offerings, you may want to consider how this could impact your future retirement and the next steps you should be taking.

Why Are Employers Changing Their 401(k) Plans?

COVID-19 has had a tremendous impact on businesses throughout the globe. With most states implementing stay-at-home orders, businesses have been forced to reduce hours or cease operation altogether. As Americans were encouraged to stay home throughout March, April and May, foot traffic all but vanished across America for months.

Even though some states have begun relaxing measures and stores are starting to open back up, America remains suspended in a fairly volatile market. People are worried about what the future will look like. Many of them are strapped for cash and not willing to spend like they used to. In return, businesses are suffering and searching for ways to save. Unfortunately, one of the first things to go is often employer-sponsored benefits such as 401(k) plans or their matching contributions.

Is it Legal for an Employer to Suspend Matching Contributions?

In most cases, it is legal for an employer to suspend matching 401(k) contributions. While it may have been an enticing addition to your benefits package upon your hiring, employers do have the power to simply stop offering this benefit. The most important thing an employer can do in this instance is to effectively communicate with employees who will be affected by the change. For example, explaining that cutting these benefits is their solution to avoiding layoffs will likely make employees more understanding and receptive to the change.

If your employer doesn’t provide you with an explanation or any idea of if/when contributions will start up again, speak to your manager or HR department. If your employer offers contribution matches to a safe harbor 401(k) plan, they must offer notice to employees 30 to 90 days in advance of suspending contributions.²

What Should You Do if Your Matching Contributions Are Suspended?

In the case that your employer does suspend matching contributions, there are a few next steps you can take to help maintain and grow your retirement savings.

Having an employer suspend matching contributions, even if it’s only temporary, is a sign of the times. We’re facing a global pandemic, the stock market’s unpredictable and people are worried about money. If you have been personally impacted by the coronavirus, you can even withdraw up to $100,000 penalty-free as part of the recently passed CARES Act,³ although this should only be done if you are in dire need of financial assistance. Withdrawing any amount from your 401(k) now will only rob your future retirement.

If you have questions regarding your company 401(k), please reach out to your financial advisor. Your advisor’s sole responsibility is to help you make unbiased, educated and objective decisions about your money. Use him or her as a sounding board to voice your concerns and discuss potential paths forward. How will you make up for the missing contributions? What financial impact will this change have on your future retirement? The market is volatile and economic confidence is low amongst investors. If you haven’t already, use this as an opportunity to reevaluate your current asset allocations and investment strategies. You likely have plenty of questions regarding any changes to your 401(k) and other investments and your advisor may be able to help you identify potential areas for improvement based on your current tolerance for risk.

Even if your employer has slashed matching contributions, that doesn’t mean you still can’t contribute to your 401(k). If you have the means to do so, consider upping your contributions, for now at least, to help offset the loss of any missing contribution matches. The contribution limit for a 401(k) increased in 2020 to $19,500. If you’re over 50, you’re allowed to contribute an additional $6,500 in catch-up contributions.⁴

In these challenging times, you are not alone if you find yourself working for a company that has suspended its 401(k) matching contributions. Hopefully, these changes are just temporary, but it is necessary to plan accordingly for what is happening in the present. Every penny counts when it comes to preparing for retirement and it is important to know how these 401(k) changes will affect your future savings. If you have any questions about the impact this may have on your future retirement earnings and what you should be doing right now to make up for any lost funds, please contact us. We are here to help!