The Extended Tax Deadline Is Approaching. Here’s What To Know

For those of you who have yet to file your 2021 tax return, there is a little under one month until the October 17th tax deadline extension. If you are utilizing the tax extension this year, now is the time to prepare and make sure you have everything you need in order, which includes getting organized, communicating with your financial advisor and tax preparer, or CPA. 

For those of you working with a CPA or tax professional, make sure you are promptly providing them with all the information necessary to file your return. Surprisingly, according to the IRS, an estimated all-time high of 19 million American taxpayers filed an extension for their 2021 returns. With these shockingly high numbers, think about filing your return as quickly as possible to try to avoid any complications or hiccups. 

Before filing this year, make sure you are accounting for all COVID-19 reliefs, such as the stimulus checks and the child tax credits. Make sure all your deductions and withholdings are in order and that you are aware of and prepared for any tax payments due or returns. In all, when dealing with your tax return, whether you file it on time or on the extension, it’s important you are prepared and aren’t waiting til the last minute to get your documents in order.

If you have any questions about your tax return or are looking for tax advice, email us at info@shermanwealth.com and we are happy to help or refer you to a tax professional. If you would like to schedule a complimentary 30-minute intro call, schedule it here. 

 

Why To Start Early When Saving and Investing

You always hear people talking about saving for the future and for retirement. But you may be wondering why is it so important? Well, saving for your future and building your wealth can be quite simple if you go about it in the right way. One of these “right ways” includes STARTING EARLY. 

Starting early is a great savings philosophy and strategy when it comes to building your wealth. When you’re just starting your career, it’s very important to save as much as you can as early as you can. When you’re young, you might not have as many expenses or financial burdens than you will later on as your life becomes more complicated.

However, with sky-high inflation data and the Federal Reserve continually rising interest rates to combat this inflation, many individuals, especially millennials and Gen Zers are finding it more difficult to save money given the high cost of living. In fact, The Deloitte Global 2022 Gen Z & Millennial Survey found that over 23,000 millennials and Gen Zers internationally are living paycheck to paycheck and that cost of living is listed as one of their top concerns. This statistic reinforces the urgency of financial planning as a whole, utilizing financial strategies such as budgeting to save more, and the importance of saving early. Despite inflation and a higher cost of living, starting to save sooner will allow your money more time to grow, which brings us to the importance of compound interest.

As mentioned above, another reason to start saving early is because of the power of compound interest. Compound interest is when you earn interest on both the money you’ve saved and the interest you earn. Increasing the compounding frequency or your interest rate, or adding to your principal, can all help your money grow faster. Also, money invested earlier in time will grow faster than money invested later in time. So if you save as much as you can as early as you can, you will be better off as you near retirement.

 

The graph above from JP Morgan shows account growth of $200 invested/saved monthly among 4 individuals starting at different times. As you can see, with the same rate of return of 5.75%, Consistent Chloe, who consistently invested her money starting at age 25 to age 65, ended up with the greatest ending portfolio.

Finding a balance between saving, investing, and also enjoying your life is not an easy task, but it tends to be easiest when you start early. Starting when your career is jumpstarting is a great way to get yourself consistently saving and investing and will benefit you in the long run. If you have any questions on how to work this strategy into your financial plan and life, email us at info@shermanwealth.com or schedule a 30-minute complimentary consultation here.

Do You Have A Financial Plan? Many Americans Do Not

With rising inflation and cost of living, rising interest rates, and recent market volatility, the need for a financial plan has become more urgent. Interestingly enough, however, during this time, it has been revealed that many Americans do not have a financial plan or are letting the current economic uncertainty derail their original plan. In fact, “nearly 70 percent of Americans at or near retirement age have less than $250,000 in savings, according to a recent survey by Schroders, the London-based asset manager.” We found this statistic quite startling, as we believe that financial planning for the long-game is extremely important in order to achieve financial success throughout your lifetime and in retirement. 

While some may not understand the underlying purpose of financial planning, a financial plan and working with a financial professional allows individuals to take both a macro and micro view of their whole financial picture, assess both their life and monetary goals and qualitative and quantitative risk tolerances, and set strategies to achieve long and short- term financial success. They are also able to uncover hidden investor and behavioral underlying biases that may be impacting their financial decision making process. 

According to a February survey of 1,000 investors across the U.S. between the ages of 45 and 75 by Schroders and 8 Acre Perspective, “76 percent of Americans say they feel overwhelmed by the thought of creating one and 56 percent say life is too uncertain for a plan to have any value”. At Sherman Wealth, we believe that life is complicated, but your finances don’t have to be. We are here to simplify the financial planning process and relieve our clients of some financial stressors they may feel on the day-to-day. Given the rollercoaster the markets have taken us on so far this year, many of the “do-it-yourselfers” might be realizing that their life is becoming too hectic to also be navigating their financial picture which is why we are here to help. We believe that it is never to early nor too late to create a financial roadmap for yourself and your family, and that you never need a certain amount of investable assets to get started. 

For those of you who do not have a financial plan in place or would like to revisit your old plan that may be outdated given the current market conditions, please reach out to us and we are happy to help. Email us with questions at info@shermanwealth.com or schedule a complimentary 30-minute consultation here. 

Financial Literacy Scores In The U.S Are Declining

Financial literacy and empowerment stands as a core value of Sherman Wealth. We have long been strong advocates of improving financial education in our country and within the school system to educate our youth on financial concepts throughout their development. Understanding personal finance and feeling confident enough to make your own financial decisions is crucial in the society we live in and a predecessor to financial success. 

Despite thought leaders efforts to improve financial literacy in our country, it has still steadily decreased over the last 12 years. A FINRA Foundation National Financial Capability Study found that of 30,000 U.S. adults surveyed, the average respondent of the study only answered 2.6/5 financial literacy questions correctly, down from 3 of 5 questions in 2009. These findings are quite alarming and pose a warning that financial education and literacy needs to improve.

In the world we live in today, with constant change and unprecedented events such as the COVID-19 pandemic, it’s important to know the full scope of your finances, from the location of your various accounts, to your risk tolerance and asset allocation, your planning opportunities and tax consequences, your workplace benefits and more. Many individuals who lack financial knowledge are missing out on prudent opportunities in their young careers and life that could lead to long-term financial success. 

If you are feeling discouraged about your financial knowledge and confidence, now is a great time to think about working with a financial advisor such as Sherman Wealth, that will not only help you create a customized financial plan, but teach you everything you need to know in the process. If you have a child or grandchild in high school or college and want them to learn more personal financial tools before they embark in the real world, email us at info@shermanwealth.com to learn more about what financial literacy courses and tools we provide.  For more financial literacy content, check out our Q&A blog. To sign up for a complimentary introductory call, click here. 

Are You Taking Advantage Of Your 401(k) Employer Match?

Does your job offer workplace benefits? If so, are you aware of the benefits available to you and are you taking advantage of them all? We’ve been working with many individuals who are not only unaware of the extent of their benefits but are also not utilizing some great opportunities for them, especially their 401(k) employer match. Let’s take a look at why individuals are not taking advantage of this benefit and why it’s prudent to.

We’ve found that many employees are not educated on their benefits and therefore do not know how some of these added comps can benefit them. If your employer offers a 401(k) match, they are basically offering you free money. So, why wouldn’t you take it? Even if you are not able to/or want to max out your 401(k), contributing at least the employer match will help you make the most out of your retirement savings and take advantage of a really great company perk. Let’s break down how it works. Say your employer match is 4%. So, if you contribute 4% (or more) of your salary towards your retirement account, each pay period your employer will also contribute 4% on your behalf. 

Keep in mind, if you are starting a new job,  it’s important to speak with your employer or HR to determine when you are eligible to contribute to your company retirement plan and if the employer match is immediate or there is a waiting period. Additionally, many people are unaware that in 2022 they can contribute up to $20,500 of pretax income to a 401(k), so there’s a real opportunity to save throughout the year and getting closer to the limit quicker. 

Another issue we have seen as it relates to workplace benefits and retirement accounts is misplacing or forgetting about old 401(k)s. We know starting a new job can be a stressful time with many moving parts; however, it’s important that you don’t forget about your old 401(K) account. When switching jobs, you have a few options. First, you can roll the old retirement plan into your new 401(k). Other options are to leave the retirement plan where it is, roll it into an individual retirement account (IRA), or cash it out (however, depending on your age early withdrawal fees may apply). Oftentimes, it’s very helpful to analyze your old 401(K) and new workplace benefits to see which option is best for you. If you have questions about an old 401(K) or retirement account and would like our help analyzing your options, please let us know. Additionally, If you are an employer and are looking for a workplace benefit education course, email us at info@shermanwealth.com as we are happy to work with your employees to educate them on all the options available to them. Click here to schedule a complimentary intro call. 

 

President Biden’s Federal Student Loan Forgiveness Plan

For those of you who have been taking advantage of the federal student loan relief since 2020, we know you have been anticipating this week’s announcement from President Biden on the Federal Student Loan Re-Payment/Forgiveness plan as you have been preparing to begin your student loan payments again. This payment pause included a suspension of loan payments, a 0% interest rate, and a stopped collection on defaulted loans since the COVID-19 pandemic.

However, earlier this week, President Biden finally announced a three-part plan to aid American’s with federal student loan debt as they continue to recover from the economic strains of the COVID-19 pandemic. Within his three-part plan, he announced that he would be extending the pause on federal student loan repayment “one final time” through December 31, 2022, with resuming payments starting January 2023. He also announced that the Department of Education will provide up to $20,000 in debt cancellation to individuals who received Pell Grants in college from the Dept. Of Education and $10,000 in canceled debt to non-Pell Grant borrowers. In order to qualify for the debt cancellation, borrowers individual income must be less that $125,000 or $250,000 for married couples/head of household. For more granular details on Pell Grants and other items in Biden’s three-part plan, visit the White House fact sheet here.

We know there are many unsure details and unanswered questions from President Biden’s announcement; however, we will continue to monitor more detailed clues and announcements on eligibility, rollout, and claiming relief in the coming weeks. If you have been taking advantage of this federal student loan relief for the last two years and believe that this new forgiveness plan applies to you, let us know and we are happy to help you figure out what your situation will look life. Email us at info@shermanwealth.com with questions or comments.

Cash Management In a Rising Interest Environment

With the Federal Reserve raising interest rates to combat inflation, we have been seeing a huge spike in short-term rates, CD’s, and money market accounts. At the same time, many clients and prospects we’ve been talking with are actually holding onto a ton of cash at large institutional money center banks that are paying close to 0%, so there’s a large opportunity for those of you in this position to better manage your cash in this type of increased savings rate environment. Let’s take a look.

Many of you might be weary right now about your financial picture given extreme market volatility, 4-decade high inflation data, and rising rates from the Federal Reserve. The interest rate market is all over the place with the Federal Reserve projecting and telegraphing future hikes in the coming months. Because of this uncertainty, a lot of people might want to hold on to extra cash in the case of a potential recession or future large purchases. However, because of these rising rates, there’s an opportunity to earn more money on cash sitting in your savings or checking accounts. 

You can now get FDIC insured savings above 1%, so make sure you are looking at high-yield savings accounts instead of your traditional ones and are shopping around for the highest rates. If you feel like taking on further time risk, we have also been seeing individuals purchase CDs and Treasury Bills approaching the 3% range, which was unheard of just a few weeks back. Additionally, for those of you looking for other higher interest rate vehicles, check out our blog on I-bonds as well. 

With this changing economic environment, it’s super important to stay on top of your financial plan and make sure you are updating/altering it accordingly. If you are interested in re-visiting your financial plan or have questions about your cash management needs, email us at info@shermanwealth.com or schedule a complimentary intro call here. 

Are You HSA Eligible? If So, Check This Out

Are You HSA eligible? If so, here’s how to take advantage of it during this time of year. As open enrollment is underway, you might have some questions about what benefits you are eligible for, and what those benefits truly mean. Retirement savings and medical coverage are typically a large part of your workplace benefits, which is why it’s so important to take advantage of what’s available to you, such as an HSA.

So, what are HSA’s? An HSA is a tax-advantaged health savings account that allows you to save money to use to pay medical and health care expenses. If you get your insurance coverage through high-deductible health plans, you can qualify for an HSA. Your contributions within the account will grow on a tax-free basis, and any untouched dollars can be rolled over year to year. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs.

For 2022, employees and employers can contribute a total of up to $3,650 for individual coverage and up to $7,300 for family coverage. Be sure to contribute by the end-of-the-year December 31st deadline, so that you can make the most of your yearly contribution. Keep in mind that HSAs are just one of the many benefits that you can take advantage of. Check out our open-enrollment blog to see what else you may be eligible for! For other end of the year tips, check out our financial checklist blog here. If you have any questions about funding your various accounts, email us at info@shermanwealth.com or schedule a complimentary 30-minute consultation here. 

 

Women Feel Less Prepared For Retirement

Building your wealth and saving for retirement is such a prudent part of your life and career. Many individuals often times overlook the importance of starting early and learning ways to maximize their savings. While both men and women show a lack of financial literacy as it relates to their finances,  we saw some research from the TIAA Institute that found that “women have 30% less retirement savings than men”, as well as research from AARP that found “that a quarter of women nearing retirement age don’t feel confident they’ll have enough money to support themselves”. We find this statistic shocking and a wake up call for employers and individuals to help spread and teach financial literacy to their employees. In fact, further research from the TIAA Institute Personal Finance Index found that “women have lower rates of financial literacy than men, which makes them more ‘financially fragile’. Individuals who are financially illiterate have great trouble making sound financial decisions that ultimately may lead to them derailing their financial plan and harming their financial future.

So, now that we know financial literacy is lacking in many women across the globe, what are some retirement tips and facts they should know? Well first and foremost, for those who may not know, a 401(K) is a retirement vehicle often available within your workplace that allows you to save a portion of your paycheck towards your retirement savings. It is a great way to set aside money each month and build your wealth. Starting early and often is something that we always share with prospects and clients, as time in the market is more beneficial than trying to time the market, as you can take advantage of letting your money compound for the long haul. Next, it’s important to analyze your risk tolerance. Given the extreme market volatility we’ve seen since the beginning of the year, we’ve noticed that many individuals are actually inaccurately allocated in their investments, which can cause anxiety for folks. If you are interested in learning what your risk tolerance is, email us at info@shermanwealth.com to take our customized risk tolerance questionnaire. 

Some more about workplace 401(k)s, many companies offer a company match up to a certain percentage, which is essentially free money to take advantage of from your employer. Check out our blog for more information on why company matches are so crucial to take advantage of. Another great tip when it comes to your 401(K) and retirement savings is setting up automatic contributions. This way you are able to set aside the same amount of money per month, having it become automatic and consistent in nature. In conclusion, educating yourself on your workplace benefits, becoming financially literate about financial topics, and starting early on your retirement savings are all great ways to advance your financial future. If you have questions about your workplace benefits or how to maximize your retirement savings, email us at info@shermanwealth.com and we are happy to help. 

 

Do You Know What Interest Rates You Are Paying On Your Credit Cards?

As inflation continues to rise and be top of mind for the average household, we want to continue discussing how it is affecting our daily life and how to navigate this adjustment. Prices of nearly everything have been skyrocketing over the last few months, and a recent CPI report announced a 8.5% year over year increase in March. This is the highest inflation levels have been in four decades, so it’s certainly making an impact on the wallets of individuals. In fact, according to Moody’s Analytics analysis, inflation is costing the average American household an additional $327 per month. 

So, as Americans face new and higher costs that impact their monthly and yearly budget, it is likely many will begin to cut back on their typical spending habits. The following tweet from Liz Ann Sonders shows that ~84% of Americans are expecting to slash their spending to account for inflation. How will you be adjusting your budget this spring and what strategies are you going to impose on your current spending habits to adjust to the higher cost of living? Maybe you’ll curb some travel and dine out less? Or, maybe you’ll cut back on “extras” that you might typically enjoy? If you are already changing some aspects of your spending, you are certainly not alone.

While we are discussing the strains inflation is inflicting on the households of many, we want to touch on another interesting tweet we saw  – this one about credit card rates. Do you know what the current rates are on your credit cards and lines of credit? So many individuals are carrying credit card debt and do not make it their number one priority to pay it down. As you can see in the tweet below, the average credit card rate rose to a 2-year high of 16.43%, and is only going to rise more as the Fed plans to continually hike rates in order to combat inflation.

If you are carrying credit card debt, make sure you are aware of the interest rates each of these debts incur. You should be attempting to pay your debt with the highest interest rates down first so that you aren’t continuing to pay an excess amount in interest each month.

With rates only continuing to rise, you should start thinking more about the interest rates you are currently tied to and your finances as a whole. If you happen to carry a balance or want to protect against future rate increases if you have an unforeseen big purchase, take advantage of those 0% interest rate credit cards offers if you can. However, only spend what you can afford within your budget. Setting up a plan to pay off your debts in a timely manner will be extremely advantageous to you and your finances in the long run. If you would like to discuss budgeting strategies or have questions about your interest rates, email us at info@shermanwealth.com or schedule a complimentary intro call here.