Master the Art of Saving: Smart Strategies for Building Your Wealth

In today’s ever-evolving economic environment, mastering the art of saving is essential for achieving financial stability and building your wealth. Whether you’re saving for a rainy day, a dream vacation, or retirement, implementing an effective savings strategy can make all the difference. As financial advisors, we work with clients on automating their savings to seamlessly grow their wealth and get one step closer towards their goals. In this blog post, we’ll share some valuable tips for savers on savings strategies and the prudence of creating an automated savings plan.

Before diving into savings strategies, let’s emphasize why automating savings is crucial. Automating the process of saving money towards your various goals each month or pay period makes the process more seamless and essentially “out of sight, out of mind”.

One of the most effective ways to save consistently is by automating your savings. Setting up automatic transfers from your checking account to your savings account each pay period or month ensures that you prioritize savings without the need for constant manual intervention. This “out of sight, out of mind” approach eliminates the temptation to spend money earmarked for savings, making it easier to stick to your financial goals.

Consistency is also the cornerstone of successful saving. By automating your savings, you establish a routine that becomes “automatic” in your financial habits. Whether you’re saving a fixed amount or a percentage of your income, committing to regular contributions reinforces responsible financial behavior and accelerates wealth accumulation over time.

In addition to automated savings, consider implementing dollar-cost averaging (DCA) as a strategy for investing in your taxable brokerage account. DCA involves investing a fixed amount of money at regular intervals, regardless of market fluctuations. This approach mitigates the risk of timing the market and allows you to benefit from market volatility by purchasing more shares when prices are low and fewer shares when prices are high.

So, given the savings strategies we just mentioned above, here are some practical tips to optimize your savings strategy:

Set Clear Goals: Define your short-term and long-term financial goals to guide your saving efforts. Whether it’s building an emergency fund, saving for a down payment on a house, or funding your retirement, having specific goals keeps you motivated and focused.

Track Your Expenses: Monitor your spending habits to identify areas where you can cut back and allocate more funds towards savings. Budgeting apps and expense tracking tools can help you gain insight into your financial behavior and make informed decisions.

Establish Emergency Fund: Prioritize building an emergency fund to cover unforeseen expenses that may arise in an emergency. Aim to save enough to cover a comfortable amount of months worth of living expenses to provide a financial cushion during challenging times.

Maximize Retirement and Tax Advantageous Accounts: Take advantage of retirement accounts such as 401(k)s, IRAs, and Health Savings Accounts (HSAs) as a way to complement cash savings and build your wealth.

Review and Adjust Regularly: Periodically review your savings goals, investment performance, and overall financial situation. Adjust your savings strategy as needed to stay on track and adapt to changes in your life circumstances or financial markets.

In all, your savings strategy will probably require discipline, consistency, and strategic planning. By automating your savings and following these tips, you can set yourself accountable in reaching your financial goals. If you have any questions on how to increase or enhance your savings strategy, email info@shermanwealth.com or schedule a complimentary meeting here.

Are You Being Smart with Your Debt?

Do you know the difference between good and bad debt? Are you able to maintain and afford the debt you take on? Many individuals are not. In fact, we’ve been reading tons of articles and studies that are finding that Americans, in particular millennials, are piling on debt during this time. Given the inflationary and high interest rate environment we are living in, talking about debt is more prudent than ever.

Are higher interest rates and prices changing your spending habits? If you are feeling the heat of inflation, re-evaluate your budget and cash flows, ensuring you are only purchasing what you can truly afford. Spending more than you make can slowly pile up your bills overtime, making it hard to pay your debt each month.

While taking on “good debt”, such as opening lines of credit to prove to creditors you are responsible with your money, is a great way to build your personal credit, taking on too much debt can eventually harm your credit score. So, obviously there is a happy medium when it comes to taking on debt and building your credit.

As we’ve discussed before, your credit score is oftentimes considered the lifeline of your financial life. Having a strong credit score allows you to not only take on more debt, but lets you do it a better price. For example, with a high credit score, lenders are more willing to approve your application and provide you with a lower interest rate. Given the high interest rate environment we are in with the Federal Reserve hiking interest rates to combat inflation, receiving a competitive and lower interest rate is huge to your financial situation.

Furthermore, with interest rates still going up, you want to make sure you are aware of the type of debt you have and are taking on, whether it’s tied to a variable interest rate or its fixed. Many individuals aren’t aware they have variable interest rate debt and understand their finaical obligation to it as rates rise. We know the difference between good and bad debt can be overwhelming to understand, which is why we recommend working with a financial professional to ensure you know everything you have, what your financial obligations actually are, and how to make the best decisions surrounding them. If you have any questions on your personal financial situation or debt, email us at info@shermanwealth.com.

Why Maintaining a Healthy Credit Score and Lines of Credit Matters

In the ever-evolving world of personal finance, few things carry as much weight as your credit score and the health of your lines of credit. These numbers that appear on your credit report, though may seem insignificant, have great influence over your financial well-being, impacting everything from the interest rates you pay on loans to your ability to secure housing or even employment. In this blog, we’ll delve into why maintaining a healthy credit score and lines of credit is crucial for your financial stability.

Your credit score is a numerical representation of your creditworthiness. It’s calculated based on various factors such as your payment history, amounts owed, length of credit history, new credit, and types of credit used. Generally, credit scores range from 300 to 850, with higher scores indicating better creditworthiness.

A healthy credit score opens doors to various credit opportunities, including credit cards, mortgages, auto loans, and personal loans. Lenders use your credit score to assess the risk of lending to you. Higher scores typically result in better terms and lower interest rates. Maintaining a good credit score can save you significant money in interest payments. Lenders offer lower interest rates to borrowers with higher credit scores because they pose less risk of default. Over time, even a small difference in interest rates can translate into substantial savings.

So now that we have discussed the pros that having a strong credit score can provide, let’s take a look at how to maintain healthy lines of credit.

First, diversification-Having a mix of credit accounts, such as credit cards, installment loans, and a mortgage, demonstrates your ability to manage different types of credit responsibly. This diversity can positively impact your credit score.

Second is payment history. This is one of the most significant factors in determining your credit score. Paying bills on time, every time, helps maintain or improve your credit score and demonstrates reliability to lenders.

Next is utilization ratio. This ratio compares your total credit card balances to your total available credit. Keeping this ratio low, ideally below 30%, shows that you’re not overly reliant on credit and can manage your debts responsibly.

Lastly, regularly monitoring your credit report allows you to spot errors, identity theft, or fraudulent activity early on. Promptly addressing any discrepancies can prevent long-term damage to your credit score.

Your credit score and lines of credit play integral roles in your financial life. They impact your ability to access credit, the cost of borrowing, and even non-financial aspects like insurance premiums and job opportunities. By understanding the importance of maintaining a healthy credit score and managing your lines of credit wisely, you can build a solid foundation for your financial future. So, make it a priority to monitor your credit, make timely payments, and use credit responsibly to keep your financial situation on the right track. If you have any further questions on credit or credit scores, email info@shermanwealth.com or schedule a complimentary intro call here.

How To Teach Your Children About Finances

Financial empowerment, literacy, and education are so important not just amongst adults, but children too. So, as we kick start 2024 and think about financial goals for the year, many clients and prospects have been asking us how to think about finances for their kids and the best ways to teach their children about money from an early age. So while you start your spring financial cleaning, think about some ways to incorporate finance into your childrens’ lives. While there are many different routes to save money for children and teach them about personal finance, we wanted share a few with you, especially some you can implement this summer. 

First and foremost, we want to stress the importance of teaching children personal finance topics and smart financial decisions from an early age. Knowing what money means to you is an important concept whether you’re a child or an adult. One savings vehicle we always recommend to parents when saving for their children is 529s plans. For further details on 529 plans, you can check out our blog, but this savings vehicle is a great way to get ahead of college and education savings for your kids. 

For those who want to educate their children about money and finances, setting up a donor-advised fund is a great way to get the kids involved in not only charitable giving, but the importance of budgeting and setting money aside for different buckets and priorities. Another question we’ve been getting from clients is where to save “birthday” or “gift” money for their kids? Parents can open a minor high yield savings account for their children to earn maximum interest while still being FDIC insured. As their money grows overtime, you can explain to them how interest works and how money can grow overtime. 

Some other ways to teach your young children about money is to talk about it. Make sure you are having conversations with your children about money, for example, how much things cost and how people earn money so that they can spend it. Teach them the difference between wants and needs. Exposing them to concepts such as these will help them learn about personal finance topics as they mature and enter adulthood. 

It is never too late to start learning personal finance concepts. If you have children that are approaching college and you want them to learn and prepare how to manage and budget their finances on their own, let us know and we are happy to help. We offer financial literacy meetings to children and young adults to educate them on personal finance and answer any questions that they have. If you are interested in educating your children, email us at info@shermanwealth.com and we are happy to set up some time to connect and share our resources. 

How Spending Habits Have Evolved in a High-Interest Rate Environment

Over the last few years individuals worldwide have found themselves needing to adapt to a rapidly ever changing economic landscape. In recent months, the consumer has needed to adjust to a higher interest rate environment due to inflation and a higher cost of living, prompting a significant shift in spending habits. One noteworthy transformation seen in more recent months is the decline in demand on home buying, as mortgage rates reach unprecedented highs. Let’s explore the impact inflation and rising interest rates is having on consumer spending.

As mentioned above, one of the large reconsiderations we have seen in consumer spending is homeownership. “With mortgage rates near 8% and average home prices hitting record highs, sales of existing homes were down 15.4% year-over-year in September”, according to the National Association of Realtors. Typical home buyers are now straying away from the real estate market and allocating those funds towards different goals, such as rent and education. For example, according to data firm ISS Market Intelligence, “There was a 15% increase in the number of new 529 college savings accounts opened in the third quarter from a year ago”. Homebuyers who either purchased or refinanced during the COVID-19 low interest rate era are now also realizing how expensive it would be to move or relocate rather than undergo a home improvement or renovation.

As the economic landscape continues to change, so do the goals of the consumer. While your goals may remain the same, many individuals are revisiting the importance and timeline of their goals, to better align with the current environment. So, one goal the consumer is starting to redirect their spending to in this environment is travel. Whether individuals missed out on travel during the pandemic or are now putting off their future home purchase, studied are showing that the consumer is redirecting their funds towards experiences rather than assets. The concept of “experiential spending” is gaining traction, with people allocating money towards travel, education, and enriching activities.

With interest rates at elevated levels, individuals are also becoming more strategic in managing their debt, becoming more conscious about variable interest rate debt, while maximizing interest earned on savings. Student loan payments came back online in October, adding another payment that was gone for quite some time back into the budget. These changes to the budget are having an impact on where the next incremental dollar is going.

In the face of higher interest rates, inflation, and an increased cost of living, individuals are reshaping their spending habits and financial strategies. The traditional notion of homeownership is being reevaluated, with a shift towards experiential spending, prudent debt management, and tighter budgets. As the economic landscape continues to evolve, adaptability will be crucial for individuals seeking to navigate these ever-changing environments successfully. If you have any questions on your spending habits or budget or would like to set up complimentary intro call, email info@shermanwealth.com or click here.

The Importance Of Goals Based Financial Planning

In the realm of personal finance, goals-based financial planning is a strategy that helps shape your financial future and roadmap by aligning your short, medium, and long-term goals. Given the time of year, you may be thinking about establishing a “top to bottom” full financial tune up. By aligning one’s financial strategy with specific objectives, such as retirement, education, or homeownership, goals-based planning provides a structured framework that not only shapes financial plans but also helps align other factors of your financial life such as asset allocation, risk tolerance, and overall wealth management.

The foundation of goals-based planning lies in identifying and prioritizing personal and financial achievements and aspirations. Whether short-term, medium or long-term, these goals serve as the compass, directing individuals towards better informed decision-making. A goals-based approach prompts reflection on your wants versus your needs, allowing you to create buckets and strategies to reach all your different goals.

One of the primary advantages of goals-based planning is to create a strategic asset allocation that aligns comfortably with your goals. Rather than adopting a one-size-fits-all investment strategy, individuals can tailor their portfolios to align with their own specific goals. Goals-based planning also encourages a strong understanding of risk tolerance. Different goals may call for different risk levels and comfortability during times of volatility and investor behavior during times such as recent, with all time highs in the stock market. By utilizing goals based planning and working with a financial advisor to sift thru your priorities and portfolio, you can strike a delicate balance that aligns with both your comfort level and financial goals.

Life is dynamic, and circumstances evolve. So, it’s important to remember that as your life evolves and your priorities shift, your financial plan can be revisited and tweaked to accommodate new goals, unexpected challenges, or changes in risk tolerance. This adaptability is crucial in ensuring that the financial roadmap remains relevant and effective throughout life’s different stages.

So in conclusion, when thinking about where to get started on your financial plan, goals based planning can help you define and prioritize your objectives, shape your financial plan, optimize asset allocation, and navigate your personal financial roadmap with greater precision. If you are seeking a spring cleaning financial tune-up or are interested in learning more about how we incorporate goals-based and and top to bottom planning in our process, email info@shermanwealth.com or schedule a complimentary 30-minute call here.

Here’s Why Women Need to Take Control of Their Finances

Finances can be overwhelming, especially when you feel lost or uneducated on the “right” decisions to make. Over the last few years, we have found that women are contributing more and more to their family’s finances and are making strides towards further financial independence. 

Despite women playing a larger role in their family finances, they still feel a lesser sense of confidence than they should as it relates to larger financial tasks. We saw a survey conducted by the Achieve Center for Consumer Insights, that asked both women and men about their current financial situations, key pain points and future goals. It found that 68% of women are either “not very” or “not at all” confident in their outlook for the economy in 2024, compared to 57% of men.” This data reinforces the importance for women to ask questions, seek advice and education surrounding their finances, and not take the back seat when making big financial decisions. 

Here at Sherman Wealth, we are large proponents of financial education and confidence, especially amongst women. We want to use this new data as an opportunity to encourage and motivate women to take control of their finances and better educate themselves to become financially independent. We know that a lack of financial education in schooling systems impacts the confidence level of financial literacy for both men and women and we are here to advocate for change. 

As a financial advisor who works to empower women to become confident to make their own financial decisions, we have found that many women are often met with anxiety when it comes to having to make financial decisions on their own. For that reason, it is extremely important to start educating yourself about financial concepts from a young age, along with passing that on to the next generation, such as your children or grandchildren. Take it upon yourself to set up a budget, understand your cash flows, your benefits at work, and your whole financial picture. Leaving the big decisions to another family member or spouse can impact your understanding and confidence level down the road. In the event your spouse or family member passes away, you want to ensure you are financially equipped to handle your finances on your own. 

At Sherman Wealth, we strive to educate all of our clients, no matter gender, age, or background, to become financially independent and feel confident to make their own decisions. If you have any questions or would like to talk to us about ways to educate others about financial concepts, please reach out to us at info@shermanwealth.com or schedule a 30-minute complimentary introductory call here. 

 

Are You A HENRY? Here’s How HENRYs Can Save and Grow Their Wealth

In today’s dynamic economic landscape, an emerging demographic has emerged: HENRYs, or High Earners Not Rich Yet. These individuals, typically professionals in their prime earning and accumulating years, are not yet High Net Worth individuals. HENRYs possess a unique opportunity to not only save but also grow their wealth substantially. Let’s explore how HENRYs can leverage their financial situation to secure a promising financial future.

HENRYs are characterized by their robust incomes, often exceeding national averages, yet their wealth accumulation is not where they might want it to be. These individuals, typically in their 20s to 40s often times despite the high income, face obstacles such as student debt, lifestyle inflation, and delayed financial planning, hindering their wealth-building efforts. So it’s extremely important that they implement smart financial habits early on, build a financial plan, and automate the process to accumulate their wealth and make smart financial decisions.

So, let’s take a look at some places where HENRYs can improve their financial habits. First, budgeting. HENRYs can harness their considerable incomes by implementing strategic budgeting and expense management techniques. By setting up an accountable and accurate budget, they can redirect resources towards savings and investment. For those with student loan debt or other debt, creating a strategic debt repayment strategy is prudent. Given the higher interest rate environment we have been living in, there are tactical moves debt goers can make to keep their financial plan in line.

Next, let’s discuss investing. HENRYs have the perfect opportunity to leverage their wealth by investing wisely and early. By allocating funds to diversified portfolios, including retirement accounts, taxable accounts, and other diversified assets, they can grow their wealth overtime to achieve their short, medium, and long-term goals.

If you’re a HENRY, but are not quite sure where to get started on your financial journey, consider seeking advice from a financial advisors or professional who can provide you with customized strategies to optimize your financial situation. Here at Sherman Wealth, we build out personalized solutions and financial plans to help all clients, including HENRYs make smarter financial decisions and strategically grow their wealth. Professional guidance helps navigate complex investment decisions, minimize tax liabilities, and plan for future milestones.

As discussed in this blog, HENRYs have a vast opportunity to maximize and optimize their financial future. Building a solid foundation early in their careers lays the groundwork for long-term growth and financial security. If you are a HENRY and are seeking financial guidance, email info@shermanwealth.com or schedule a complimentary intro call here.

Spring Financial Planning and Clean-Up: March Madness Edition

As the air warms up and spring is arriving, it’s the perfect time to shake off the winter weather and give your finances a thorough cleaning. From revisiting your financial goals to tidying up your budget, here’s a consolidated guide to March financial planning and spring financial clean-up.

Spring is an excellent time to reassess your financial goals. Whether you’re saving for a vacation, planning for retirement, or aiming to pay off debt, take a moment to review your objectives. Are they still relevant and achievable? Have your priorities shifted? Adjust your goals accordingly to ensure they align with your current cash flows, timeline, and financial situation.

Spring cleaning your finances begins with a thorough evaluation of your budget. Review your income and expenses over the past few months to identify any trends or areas for improvement. Are there any unnecessary expenses you can cut back on? Can you reallocate funds to prioritize your financial goals? Adjust your budget accordingly and periodically.

March presents an excellent opportunity to review your investment portfolio. Evaluate the performance of your investments and assess whether they still align with your risk tolerance and long-term objectives from when they were set. While we don’t recommend jumping in and out of the market, it’s important to find a proper asset allocation you can stick to for the long term so you might consider rebalancing your portfolio if necessary, or having a financial professional take a second look.   Additionally, take advantage of any tax-efficient strategies, such as maximizing contributions to retirement accounts or harvesting tax losses.

Your credit report plays a crucial role in your financial health. Check out your credit score and look for any errors or discrepancies that could negatively impact your credit score and take steps to address them promptly. Monitoring your credit report regularly is an essential part of maintaining good financial health. Conversely, ensuring you make the right decisions daily to keep your credit on the right path to improvement is key.

Given the time of year and tax filing season in full swing, spring is the perfect time to declutter and organize your financial documents. Gather all your important paperwork, such as bank statements, tax documents, insurance policies, and investment statements, and create a system for storing and organizing them. Consider digitizing your documents for easy access and backup. Having your financial documents organized will make it easier to track your finances and help you during tax time. Tax season is also a great opportunity to review your whole financial plan as your documents are gathered and you may be identifying tax advantageous strategies to improve on.

Next, automating your savings is one of the most effective ways to build wealth over time. Take advantage of automatic transfers to your savings or investment accounts to ensure consistent contributions. Set specific savings goals, whether it’s an emergency fund, a down payment on a home, or a college fund for your children, and automate your contributions accordingly. By making saving a habit, you’ll steadily progress towards your financial goals without even thinking about it.

March is not only a time for spring cleaning your home but also an opportunity to refresh and revitalize your finances. By revisiting your financial goals, evaluating your budget, reviewing your investments, checking and improving your credit, organizing your financial documents, planning for taxes, and setting up automatic savings, you can set yourself up for financial success in the months and years ahead. So why wait? If you have any questions on the topics discussed in this blog or are looking for your spring financial clean up, email info@shermanwealth.com or schedule a complimentary 30-minute call here.

Why A Roth IRA and 401(K) Are Smart Retirement Vehicles For You

While saving for retirement is a great way to build your financial wealth and pile away money for the future, many individuals are unclear on the best vehicles to use when saving for retirement. Furthermore, we have been reading articles and hearing remarks from individuals, especially those of younger generations, that they do not want to tuck away money now for retirement, funds that they can’t touch for many, many years. So, for those of you who resonate with this feeling, but still want to optimize your retirement savings, let’s explore why a Roth IRA might be the right savings vehicle for you.

So, for starters, let’s explore what a Roth IRA (individual retirement account) is. For those who don’t know, a Roth IRA is a retirement vehicle that allows individuals who fall under a certain AGI limit to contribute after-tax dollars to a retirement account, meaning you pay taxes on the money upon contribution so your future withdrawals are tax free. Some benefits of a Roth IRA are that your earnings can grow tax free, there are no mandatory withdrawals, unlike a Traditional IRA, and that withdrawals can be taken out tax-free and penalty free, given you’re age 59½ or older and you have met the minimum account holding period, which is 5 years.
Another benefit of a Roth IRA that many young savers find attractive and comforting is the fact that they you can always access the money you contributed without penalty, no matter your age, unlike a traditional IRA. Of course, any gains in the account may be subject to taxes and penalties is withdrawn before age 59½, unless you qualify for an exception. So, while we don’t recommend withdrawing from your account, for those worried about totally locking up their money until retirement, a Roth IRA provides piece of mind that you do have access to those funds in case of an emergency. In fact, studies show that many young individuals don’t end up withdrawing from their accounts, but feel comfort knowing that they can. So if you get weary about your retirement savings, a Roth IRA and its flexibility might be right for you.
While there are many benefits of contributing to a Roth IRA, if you or your combined household has too high of a AGI, you may not be able to contribute. However, if you still want to take advantage of the Roth option within part of your retirement picture, see if your workplace 401(K) has a Roth component. Unlike a Roth IRA, the Roth 401(K) has no income limit and follows the same contribution limit as the traditional 401(K). If you are a small business owner or self-employed, but make too much to contribute to a Roth IRA, consider setting up a 401(K) for your business and adding a Roth component. This is a great way to take advantage of the benefits a Roth account offers, and also save for retirement. If you are looking to implement a 401(K) for your small business or the Roth component to your existing retirement plan, email us at info@shermanwealth.com and we are happy to help!
Given all the market volatility and economic uncertainty we’ve seen over the last few years, having a good grasp on your financial picture is important. While saving for retirement is a key piece of your financial plan, its only one piece of many, which is why we encourage working with an advisor on a holistic financial plan to analyze the larger scope. If you have any questions about your particular financial situation or a Roth IRA, email us at info@shermanwealth.com or schedule a complimentary intro-call here.