Robo VS. Human Financial Advisors

The last few years have certainly changed the cadence in which many of us operate on a day to day basis. This is especially true with the emergence of technology and transition to remote work, telehealth, and curbside shopping. Another area that has shown significant change is in the use of robo-advisors. While robo-advisors can virtually help you with your finances on a daily basis, a Vanguard survey of 1,500 investors with at least $100,000 in investable assets found that “nearly 90% of robo-advised clients would switch to humans”. Given the current economic environment we are in, adjusting to a higher cost of living and rising interest rates, many individuals have more thoughts and feelings about their finances than ever. In these instances, having a human to vent to and talk through ideas with is so helpful and improves financial confidence. 

The survey also found that “more than 90% of human-advised clients say they would not consider switching to a digital advisor, while 88% of robo-advised clients would consider switching to a human advisor in the future.” While digital advice can get the job done, there is something to be said about the human connection that develops between an advisor and their client.

I would say it’s quite difficult to establish trust, loyalty, and a relationship with a digital robot, which is what differentiates the robo-advisor from working with a human advisor.  In fact, the survey discovered that loyalty within those who work with a human advisor is unmatched to those who are currently utilizing a robo-one. It is interesting to see that even though our society has transitioned a huge chunk of our lives online, human interaction within the financial industry is still the trusted and preferred method. 

At Sherman Wealth, we specialize in behavioral finance, which goes beyond just the quantitative aspect of investing that a robot can properly assist with. We customize each and every financial plan to fit the needs of each client. No one client is the same so their advice should not be generalized, rather tailored to fit their specific needs. In a world where the economy is ever-changing, having a pro-active and trusted professional to hold you accountable and constantly update your financial roadmap far outweighs an online robot. Studying the behavioral aspects of our clients allows us to build connections with them, uncover hidden complexities, and truly understand their biases and relationship with money and investing. We take pride in our 24/7 accessibility and being a “financial concierge”.

Given the rollercoaster we saw in the markets last year and the extreme volatility we’ve experienced, personalized advice is more prudent now than ever. With rising interest rates and this inflationary economy, having a financial roadmap and guidance can help you navigate this climate. If you haven’t done so, think about re-visiting your financial plan, whether its adjusting your budget for inflation, checking in with your asset and risk allocation, or just an overall check-in. If you haven’t done so already and we head into February, set some financial goals for yourself to achieve before the end of the year. If you need help or even just a sounding board to bounce ideas off of, we’re here to help! If you have any questions about your financial situation or current method of advice, email us at info@shermanwealth.com or schedule a complimentary intro call here. 

Here’s How To Craft Your Family Budget

There are several key components that make up a comprehensive financial plan. One topic we’ve been helping many clients navigate within this economic environment is faimly budgeting. Your budget is a crucial and everyday tool in your financial toolkit. It’s the tool that can help you get and stay organized, enabling you to reach your goals and reduce the stress often associated with money. We always say, crafting the perfect budget is both an art and a science, one that requires refining and ongoing effort. In this blog, we will explore some tips and a few vital steps involved in creating a budget that’s not only effective but also adaptable to your personal financial journey.

1. Research: Track Your Spending for a Few Months To Confirm Accuracy  

One of the most common issues we see with familys’ budget’s is accuracy. While putting together a budget is great in any circumstance, making sure that it actually reflects your spending is extremely important. So, understanding your financial habits and spending is the first step in creating a budget that works. Over a few months, meticulously track every expenditure, categorizing them into necessities and discretionary spending. This process reveals where your money is going and provides the foundation for your budget

2. Calculate Your Income and Cash Inflows/Outflows

Once your spending is successfully tracked, it’s time to create your financial baseline by calculating your total monthly income, incorporating all sources of cash inflow, whether from your regular job, side hustles, or investments. Create a detailed list of your monthly expenses, encompassing both fixed costs (e.g., rent/mortgage, utilities, insurance) and variable expenses (e.g., groceries, dining out, entertainment). This step should allow you to see everything in one page and help you pinpoint where your budget needs help.

3. Set Realistic Goals 

As part of any financial plan, establish clear financial goals so you can utilize your budget as a roadmap to achieve them. Whether you’re saving for a major life event, paying down debt, or building an emergency fund, your goals will drive your budget. Allocate a specific percentage of your income to each spending category in a way that prioritizes your goals but also most importantly comfortably provides for your essential needs.

4. Adjust Your Spending to Stay on Budget

As time goes on, make sure you’re regularly assessing your spending patterns and referring back to your budget. Adjust your spending to align with your cash inflows and income. If you pinpoint an area that is not working in the budget and leaving you with no money at the end of each month, be proactive and make a plan to eliminate or tweak costs within the budget. Ensure that your needs take precedence over your wants to maintain financial stability.

5. Review Your Budget Regularly for Continuous Improvement

A budget is a living spreadsheet that should evolve and grow with your life’s changing circumstances. Consistently review your budget to ensure its current and most importantly, accurate. Track your expenses, compare them to your budget, and make conscious spending decisions. Accountability is the key to achieving the financial goals you are setting out to achieve.

We know that creating a budget can be overwhelming, time consuming, and maybe even stressful. It’s not a one-time task but an ongoing process that can significantly improve your financial well-being. By tracking your spending, calculating your income, setting achievable goals, and regularly reviewing your budget, you’ll build a financial roadmap that will allow you to live your life comfortable, get organized, and reduce some stress that often is related to finances.

As we said, given the current economic environment with higher interest rates, inflation, and a rising cost of living, now more than ever it’s crucial to work on your budget. If you need help tweaking and making adjustments to your budget, we are here and happy to help. Email info@shermanwealth.com or schedule a complimentary intro call here.

Earning More Money With Less Risk In a Rising Interest Environment

Do you want to earn more money without taking on more risk? If so, keep reading! With the Federal Reserve raising interest rates to combat inflation over the last few months, and set to raise them about .25% in a few weeks at the February meeting,  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 we saw last year, 4-decade high inflation, and rising rates from the Federal Reserve. The interest rate market has sky rocketed over the last year with the Federal Reserve projecting and telegraphing future hikes in the coming months. With recent inflation data slowing, the Federal Reserve may be slowing the rate in which they increase future hikes, but interest rates are still quite high from the lows we saw in 2020 and beyond. 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 risk-free on cash sitting in your savings or checking accounts. 

You can now get FDIC insured savings above 3%, with some even in the 3.25% range now, 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 in the 4% range, which was unheard of just a year back. Additionally, for those of you looking for other higher interest rate vehicles, check out our blog on I-bonds as well which have been increasingly popular for many looking to take advantage of higher rates. 

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. As we kick start 2023, it’s important you are making sure you are taking advantage of all the interest you can earn and that you money is in the right places. 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. 

Do You Have A Financial Plan? Many Americans Do Not

As we reflect on 2022 and digest the economic volatility we saw last year, the need for having and financial plan seems more urgent. With high inflation levels, an increased cost of living, and rising interest rates, we’ve been hearing from many individuals that they do not feel financially confident or secure. Interestingly enough, 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 as well as 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. Another benefit that comes from creating a financial plan is organization. When creating a financial plan, you are taking inventory of everything that you have, figuring out where it all is, and where it needs to go. Just being organized can immensely improve your feeling of financial confidence and ease. 

According to a 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 took us on last 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. 

Building Smart and Positive Financial Habits

Financial habits play a pivotal role in shaping our financial future. Whether you’re striving for financial stability, planning for retirement, or aiming for financial freedom, cultivating smart and positive financial habits is essential. In this blog, we’ll explore practical steps to help you develop these habits and set yourself on a path to financial success.

  1. Create a Budget

The cornerstone of any solid financial plan is a well-defined budget. Start by tracking your income and expenses. Knowing exactly where your money goes allows you to make informed decisions. Allocate a portion of your income for essentials like housing, groceries, and bills, and set aside some for savings and discretionary spending. Stick to your budget to avoid overspending and accumulate savings over time.

  1. Build an Emergency Fund

Life is unpredictable, and unexpected expenses can throw your finances off balance. To prepare for such situations, establish an emergency fund that is comfortable in the event of an emergency. Having this cushion ensures you won’t need to rely on credit cards or loans when emergencies arise.

  1. Set Financial Goals

Setting clear financial goals gives you a sense of direction. Whether it’s buying a home, paying off debt, or saving for a dream vacation, having specific goals helps you stay motivated and focused. Break these goals into smaller, manageable milestones, and celebrate your achievements along the way.

  1. Automate Savings and Investments

Make saving and investing a habit by automating the process. Set up automatic transfers from your checking account to your savings or investment accounts. This “pay yourself first” approach ensures that you prioritize saving before spending, making it easier to stick to your financial goals.

  1. Pay Off Debt Strategically

High-interest debt can be a significant drain on your finances. Develop a plan to pay off your debts strategically. Start by paying down debts with the highest interest rates while making minimum payments on others. As you eliminate each debt, redirect those payments to the next one.

6. Educate Yourself

Financial literacy is a powerful tool for making informed decisions. Take the time to educate yourself about personal finance. Read books, follow reputable financial blogs, and consider taking courses or seeking advice from financial professionals. The more you know, the better equipped you’ll be to manage your money wisely.

7. Review and Adjust Regularly

Your financial situation is likely to change over time. Make it a habit to review your budget, goals, and financial plans regularly. Adjust your strategies as needed to accommodate life changes, such as a new job, marriage, or the birth of a child.

Developing smart and positive financial habits is a journey that can lead to financial security and peace of mind. By creating a budget, building an emergency fund, setting clear goals, automating savings, paying off debt, educating yourself, and regularly reviewing your finances, you can take control of your financial future. If you have any questions or are seeking an accountability partner, email info@shermanwealth.com or schedule a complimentary introductory call here.

Here Are The Estate & Gift Tax Exclusions for 2023

The IRS has increased many contribution limits for 2023, including retirement savings, but also recently just adjusted the tax exclusions and exemptions for inflation. We want to mention a few that often times impact or apply to our clients, which involves estate planning.

For 2023, the IRS increase the annual gift tax exclusion $1,000 from $16,000 in 2022 to $17,000 for this year. So, that means that the $17,000 is the amount that a taxpayer may gift to another individual without setting off the gift tax or tapping into the taxpayer’s lifetime gift and estate tax exemption. Additionally, if the gift remains under the limit, the taxpayer does not have to report it on their tax return.  This annual exclusion is applied to each donee or receiver per year and a married couple can both utilize this exemption, donating up to $34,000 per calendar year.

Other exemptions and exclusions that may apply to your situation are the unified credit along with the generation-skipping transfer tax credit (GSTT). The unified credit which provides the limit that an individual can gift in their lifetime before setting off taxes. For 2023, the unified credit will be increased to $12.92 million and can be shared with your spouse. The GSTT exemption is an amount that can be transferred down to two or more generations younger without setting off a tax, which is also $12.92 million for this year.

Whether you or someone in your family intends on gifting money to others, it’s important to know the limits so that you can avoid setting off unnecessary taxes or penalties. Of course, consult with a tax professional with any specific tax questions you may have, or let us know your questions at info@shermanwealth.com and we are happy to point you in the right direction.

How The Secure 2.0 Act Might Impact You!

Happy New Year everyone, we hope you had a wonderful holiday season and wish you a healthy, happy, and prosperous New Year. Before the start of 2023, on December 29th, Congress passed the Secure 2.0 Act that was promised to provide changes to help many Americans’ retirement plans, including over 90 updated retirement plan provisions.

The provisions are set to encourage more employers to create retirement plans and automatically enroll employees to stimulate retirement savings growth, change the age individuals must take RMDs, make it easier to take cash out of retirement and more. We wanted to share a few of the updates that may have an impact on your financial plan and will report back with additional information and changes: 

“Mandatory Retirement Auto-Enrollment 

Required Minimum Distribution (RMD) 

Effective on January 1, 2023, the RMD age has been raised for some individuals based on the following criteria:

  • Born in 1950 or earlier: RMD begins at age 72
  • Born between 1951-1959: RMD begins at age 73
  • Born in 1960 or later: RMD begins at age 75 

Roth 401(k) RMD

Beginning in 2024, RMDs are no longer required from Roth 401(k) accounts. RMDs are still required from Roth 401(k) accounts in 2023. 

Qualified Charitable Distribution (QCD) Indexed for Inflation

Beginning in 2024, the maximum annual QCD of $100,000 will be adjusted for inflation. 

401(k) / SIMPLE IRA Catch-Up Contributions

Starting in 2025, some individuals can increase their employer-sponsored retirement plan catch-up contributions.

  • 401(k): Individuals whose age is 60-63 in 2025 and later will see their catch-up contribution limit increased to a greater of $10,000 or 150% of the regular catch-up contribution amount. RightCapital will default to $10,000 at this time.
  • SIMPLE IRA: Individuals whose age is 60-63 in 2025 and later will see their catch-up contribution limit increased to a greater of $5,000 or 150% of the regular catch-up contribution amount. RightCapital will default to $5,000 at this time.”

While these are only just a few of the many changes made in the Secure 2.0 Act, we know that these updates and information may be overwhelming, which is why it is important to defer to a trusted source such as your financial advisor to ensure you are understanding all and any changes. As we embark on 2023, it is a great time to get organized and review your budget and overall financial plan for the year to come. If you have any questions for us on the Secure Act 2.0 or your personal financial situation, email info@shermanwealth.com or schedule a complimentary intro call here. 

Financial Secrets and Money Mistakes Within A Relationship

One mistake we often see overlooked by individuals is the discussion of money with their partner. We know that money conversations with your partner, whether new or old, can get messy and feel uncomfortable; however, having those discussions is so incredibly important to the wellbeing of your financial life.  It has become so common that people let secrecy and financial infidelity get in the way of their relationships that they ultimately derail their financial future as a whole. We have long been discussing the intersection of love and money and how to incorporate communication into your relationship to avoid some of these mistakes. 

Let’s take a look at how common financial secrets within a relationship actually are.  TD Stories’ seventh annual Love and Money Survey released a survey that noted despite what couples may share about their relationship and comfortability with money, money secrets are at an all time high. This year’s survey polled over 1,400 U.S. individuals who were either married, divorced, or in a serious relationship. The survey found that “In fact, nearly one-third of Americans (32%) are keeping a financial secret from their partner, an 11% increase from 2021. With individuals keeping secrets from their partners, we have seen scenarios in which individuals have pulled loans from their 401(k)’s and unraveled their retirement plan, lived in a house they truly cannot afford, and built up unnecessary and hidden debt. As you can see, these secrets are not worth the financial consequences and sacrificing your financial security and future. 

In a previous podcast episode with Music City Pysch’s David Pearl, we discussed how to have transparent, honest, judgment-free, conversations with your partner. These conversations are crucial in establishing a strong and honest foundation for the relationship as a whole. It’s very fascinating that even though most of these respondents answered that they feel comfortable discussing finances with their partner, many of them have no intention of sharing their money secret(s). The survey also found that respondents are prone to “letting things slide” and pushing off these financial conversations instead of having these tensioned conversations. 

Given the somewhat shocking data listed above, it seems obvious to state the importance of communication and honesty within a relationship. Whether it’s a big purchase you may be hiding, old student debt you’re embarrassed about, or a secret bank account you are keeping, take a step back to uncover why you feel you need to be secretive about your finances and attempt to find a way to bring it up to your partner. If you find yourself in this position, start small and work towards establishing an open and truthful line of communication with the person you are sharing your life with. For more resources and tips on how to facilitate these conversations, check out our podcast episodes with David Pearl or email us at info@shermanwealth.com with more questions. If you would like to discuss your personal or family financial situation, schedule a complimentary intro-meeting here.

 

What Are Your Financial Resolutions for 2023?

Happy Holiday Season! We hope you all have a wonderful holiday season and New Years celebration. It’s certainly been a rollercoaster of a year, with inflation at a 40-year high and the Federal Reserve rising interest rates. When a new year rolls around, we often think about the year just behind us and set financial resolutions and goals for the year to come. So, let’s discuss a few great 2023 financial resolutions we’ve seen and recommend to ensure you are starting your new year off on the right foot. 

Prior to setting your financial resolutions, it’s a good idea to think about goal setting and how to set challenging, yet realistic and attainable objectives for the coming year. We often talk about the framework of goal-setting, distinguishing between short and long-term financial goals, and sticking to your strategy in order to reach those goals. So, now that we discussed how to set those goals, what are some good resolutions to put in place?

Pay Off Debt 

Paying off debt seems to be a common financial resolution as we head into 2023. If you have loans or credit card debt, think about making a plan to pay it off and sticking to it. In this rising interest rate environment, if you have variable interest rate debt, make sure you know your rates and are setting a plan to attack your debt. If you need assistance in setting up a strategy to tackle your debt, we are here to help! 

Set a Realistic Budget 

When it comes to finances, we see that individuals oftentimes are stressed or concerned about their budgeting and spending. We’ve seen many articles discussing how American’s are changing their budgets and re-thinking their spending this holiday season. Think about your cash flows, wants vs. your needs, along with long and short-term goals to reach a reasonable and realistic budget that works for you and your family.

Automate & Track Your Finances

If you aren’t already doing so, automating your finances is a crucial way to get organized. Aggregating all your accounts into one place that is accessible at the click of a few buttons on your smartphone can drastically change how you view your situation as a whole. If you are interested in utilizing our data aggregation software, let us know and we are happy to help you get started! 

Saving For Big Purchase/Goal

Whether it’s a new home, college, or a kitchen renovation, we know saving for a big purchase can be stressful. In our podcast episode with David Pearl, we discussed intentional and smart spending, and how there can sometimes be a psychological disconnect when saving for and actually spending money on a large goal. This disconnect and sense of stress is very common when saving for a big purchase, which is why it’s crucial to set up a savings plan and budget that works for you. 

Increase Your Retirement Savings

The contribution limits for 2023 have recently increased. If you are unaware of the retirement inflation-adjustments, check out our blog for a breakdown of those changes. This increase in contribution limits is a great opportunity to ramp up your retirement savings in 2023. Also, as we are only a few days into the New Year, make sure to review your company 401(k) match to ensure you are taking full advantage of your situation. 

While these are only a few financial resolutions that may help you improve your financial stability and situation in 2023, there are endless moves that can be made to better your overall financial outlook. If you have any questions about setting attainable goals and resolutions for 2023, email us at info@shermanwealth.com or schedule a complimentary 30-minute consultation here. 

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 the most recent November CPI report announced a 7.1% year over year increase. This year we have seen inflation levels the highest they’ve 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. Have you adjusted your budget for inflation? Many retailers have been reporting surpluses of inventory and less holiday shopping as well, so if you have changed 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 point that many individuals may overlook. Are you aware of the interest rates you are paying on your variable interest rate debt? With the Federal Reserve raising interest rates and set to announce their next hike this afternoon, it’s important that 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. According to Bankrate, on 12/07, variable credit interest rates were as high at 19.40%, which may only 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. 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.’

Additionally, as we just saw November’s inflation data come in lighter than expected, maybe that’s a sign that the Fed’s hikes have been effective and future interest rate hikes may begin to slow, in which case you can re-evaluate your rates as they begin to go back down. So, an important lesson is to pay attention to what debt you have, the interest rates you are paying, and how the economy applies to your financial situation. 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.