Inflation Hits a 4-Decade High. Are You Feeling The Impacts?

New inflation data was released that reported a CPI increase of 8.6%, marking a 4-decade high. According to the WSJ, prices for energy jumped 34.6% from a year earlier and groceries increased 11.9% on the year. This rise was largely attributed to rising energy and food prices, which we have been tracking for a few months now. So are you feeling the impacts of inflation and rising prices? We certainly are. Have you altered your spending and summer plans? Restaurants have even begun adding additional fees on the bottom of bills for a “non-cash adjustment,” “fuel surcharge,” or “kitchen appreciation”. Have you noticed this?

As you can see from the tweets above, CPI numbers are skyrocketing. We will continue to watch inflation data and its impact on the economy and markets. If you are feeling the impacts of rising prices, now might be a good time to revisit your budget and financial plan as a whole. If you have any questions for us, email at info@shermanawealth.com or schedule a complimentary intro call 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 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. 

What To Do With Money You Need In The Short Term

There are always lots of money management questions when it comes to investing and saving. Both of these actions are crucial in building your wealth and are stepping stones to reaching your financial goals. One common question we typically get asked by prospects and clients is, “What should I do with money that I will need in the near future?”. This is a great question, because while there is no one right answer due to the fact that everyone’s financial situation differs, there are a few financial tips we can discuss.

Typically, money you will need in the near future is for a large purchase or goal, or an emergency fund you like to keep at arm’s length. Regardless of the reason, for dollars you don’t want to invest for the long-term, think about opening a high-yield savings account. 

High-yield saving accounts differ from traditional saving accounts as they provide significantly higher interest rates, allowing you to earn more money and keep pace with inflation. Your traditional savings account is probably earning you close to zero each month, whereas some high-yield savings accounts are offering rates close to 1%.

The process of opening this type of account is extremely simple, and will only require a few clicks on your computer. So why not make this easy change and take advantage of this great opportunity? While there are other options available when thinking about investing your money for the short-term, high-yield savings accounts are a great start. Click here for CNBC’s top pick’s for high-yield savings accounts and let us know if you have any questions about your particular financial situation. As mentioned earlier, since everyone’s financial goals, priorities, and backgrounds are different, it’s always a good idea to speak with a financial professional about how to make the best decisions for you and your family. If you have any questions for us or want to schedule a complimentary 30-minute consultation, book some time now! 

Potential Implications of the Tax Change Proposal

As we head into November, with only two months left in the year, the Democrats have just edited the Tax Proposal we have been discussing since March. Back door Roths were one of the few things that survived the new tax change proposal, even though they were in talks to be eliminated. Check out the vlog below for more details on what survived and what was eliminated in the tax change proposal. While there is no bill in place officially, listed in the video below are just a few of the major changes on the financial planning side we want you to be aware of.  While we are on the topic of end of the year financial planning, be sure to check out our end-of-year checklist that will provide you with some useful financial tips before the new year.  If you have any questions about the proposed tax changes or financial planning, please email us at info@shermanwealth.com or schedule a 30-minute complimentary intro call here.

https://www.youtube.com/watch?v=HKgAuTA9Qmghttps://youtu.be/HKgAuTA9Qmg 

What Happens If You Try To Spend More Than Your Credit Limit?

credit cards

When you sign up for a credit card, you are often assigned a credit limit when that account is opened.  These limits typically start at $200 and go up to tens of thousands of dollars.  With so many people out of jobs and finding it hard to make ends meet these days, credit cards have become a necessary resource to pay for things that we might not have the money for right now. However, the more you charge on your cards, the closer you may come to hitting that max limit.  If you do hit that amount, you are likely to get hit with over-the-limit fees. Before you decide to use your credit card to pay for necessities, there are alternatives to going over your max before risking having your credit limit cut or incurring unnecessary fees.  

Can You Go Over Your Credit Limit?

Yes, you can go over your credit limit, but there’s no surefire way to know how much you can spend in excess of your limit. Card issuers may consider a variety of factors, such as your past payment history, when deciding the risk of approving an over-the-limit transaction. Any approved transactions above your credit limit are subject to over-the-limit (or over-limit) fees. This credit card fee is typically up to $35, but it can’t be greater than the amount you spend over your limit. So if you spend $20 over your limit, the fee can’t exceed $20.

Due to the CARD Act of 2009, over-limit fees can’t be charged without your consent. As a result of these regulations, most card issuers have done away with over-limit fees and the default for any transactions over your credit limit may be that the transaction is simply denied.

If you do consent to a one-time over-limit fee, you can change your mind and opt-out at any time. However, in doing so, your card issuer will likely decline any purchases you attempt to make over your limit. Even if you opt-in to over-limit fees, transactions exceeding your credit limit may still be denied.

Should You Go Over Your Credit Limit?

While spending over your credit limit might relieve some short-term problems, it can also cause long-term financial issues, including fees, debt and damage to your credit score. The best practice is to try to maintain a low credit utilization rate – avoid maxing out your card and spending anywhere near your credit limit.  If you do go over your limit, you should sit down and consider why it happened in the first place and review your budget. You should figure out what purchases caused you to spend more and whether you can make any changes to your spending habits.

Alternatives If Your Credit Limit Is Low

For those that may have a low credit limit or if your credit limit recently got cut, there are some options to ensure you don’t max out your spending. If you’ve had a low credit limit for a while and currently have a stable job, you may want to request a credit limit increase. This can be a good idea if you have good credit (scores 670 to 739) or excellent credit (scores 740 and greater) or if you haven’t updated your income in a while and make more money than what’s listed. Your card issuer may pull your credit report for this request, which may cause a small, temporary ding to your credit score.

However, if your credit limit was reduced, you may want to consider other options. Cardholders with good payment history and a stable job should call their card issuer and ask for reconsideration.  You should ask why your credit limit was cut, explain that your account is in good standing and that you have a stable source of income to pay off your bill. This may shed light on why your limit was lowered and potentially result in your credit limit increasing — though there is no guarantee. Rather than asking for a credit limit increase on the card that had a reduction, you may want to consider any other cards you have instead. If you have three credit cards and one got the limit cut, see if you can get an increase on one or both of the other two,

If you have a history of missed payments or maxing out your cards, you are likely not a good candidate for reconsideration and don’t want to draw attention to yourself. Therefore, if you fall into one of these categories, it’s best to not try to request a higher limit.

When To Apply For A New Credit Card

Cardholders with only one credit card and a low credit limit may want to consider opening a new credit card, but should be aware of any potential risks. For starters, if you were recently laid off or faced a reduction in income, you may not be in the best position to be approved for a new card, and there’s no sense in adding a new credit inquiry to your credit report if your chances are low. Also, if you have a history of maxing out your card, you should be aware that more credit can lead to more debt. An additional credit limit can be helpful for affording your expenses, but it can also be harmful if you overspend.

Before opening a new card, give yourself clear guidelines on how you’ll use the card and stick to keeping a low credit utilization rate. When it comes time to pay your bill, make on-time payments of at least the minimum every month for all of your cards.  If you are able to do so, pay in full so that your credit score will  improve and your debt will be minimized. When applying for a new card, check your credit score first to narrow down your options. Then consider cards based on your credit score. 

In these tough times, we need to be responsible when it comes to spending and not see going over your credit limit as a choice. If you do need to use your credit cards to pay for utilities, groceries and other necessities right now, make sure you are aware of your max and other options you might be able to work out with the credit card companies before going over your limit. When you do receive those credit card statements, make sure to pay at least the minimum amount each month to maintain a positive credit score. And, make sure you are paying the bills on time to ensure you won’t incur any late fees either.  If you have any questions about credit, credit cards or other issues concerning your finances, please contact us.  We are all in this together and we’re here to help! 

Have Your Finances Changed Since The Pandemic’s Lockdown?

We’ve been talking a lot about budgeting, spending, and saving money, but what we have yet to touch on is how the pandemic has affected these things and how you may be feeling. While everyone’s financial situation differs and the coronavirus pandemic had a different financial impact on just about everyone, take a second to think back to your financial habits when we were in lockdown. 

Were you saving tons of money since you weren’t going out and spending on things such as dining, travel, and clothing? Were your paychecks going right to your savings account and towards other investment vehicles?  We saw an interesting article in the Wall Street Journal regarding a young man who felt he was in the best financial position he has ever been during lockdown. Since he retained his stable income through the unprecedented times, naturally his expenses were lower as there was not nearly as much to do and spend on. Can you relate? If so, has this feeling of financial power and abundance of cash flow changed in the last few months? 

As we head into the last quarter of the year and the world is starting to resume to a sense of normalcy, with many individuals dining and traveling again, are your expenses starting to creep up? Most likely they are. Despite these changes and fluctuating expenses, keep in mind that it’s okay to adjust and find a new balance in your spending. If you feel that you are not able to save as much money as you were, make sure that you take a step back, think about your wants versus your needs and create purpose for each and every bank account you have. Life gets complicated and things change, but adaptability and making a financial plan will help you navigate these changes. If you have any questions about creating a financial budget or plan for your situation, let us know at info@shermanwealth.com or schedule a complimentary 30-minute consultation here. 

 

Are you a Buy Now-Pay Later Fan?

You might notice that the ease of swiping your credit card often allows you to make impulse purchases. Have you ever purchased something you probably shouldn’t have because you mindlessly swiped your card? That’s okay! We all splurge on items that we want, but it’s important to discuss the consequences of building up debt on your cards and learning how to make smart decisions when doing so. 

“Buy now-pay later” apps and options on credit cards are all the craze right now, which allows individuals to split up their payments into installments instead of paying the lump sum in full. You may have seen companies like Klarna, Affirm, or AfterPay pop up while you were checking out at your favorite online store and decided to break up the price of your new favorite shoes over the course of 3 months. Many of you have probably used a payment plan when purchasing your peloton or new furniture for your house. I took advantage of Affirm when purchasing furniture for my new apartment, which helped lower the initial cost of my big move. While there is nothing wrong with choosing this option, it’s important to remember to pay your total minimum balance in full AND on time to avoid being hit with interest rates, a declining credit score, and late fees. Be cautious and make sure that you read the fine print of these buy now pay later options and ensure that participating will not negatively impact your financial health.  Only take on what you can afford! 

While discussing spending, it’s also important to touch on budgeting and how it is such a crucial part of your financial life in order to build your net worth and also avoid spending mistakes and consequences as you saw listed above. We’ve mentioned this in other blogs before, but creating clear goals for your future and listing out your wants versus your needs is a great way to get started on your personal budget. Check out our other blog for more tips on how to effectively and strategically build financial goals and a budget that is best for you. If you have any questions for us, email us at info@shermnwealth.com or schedule a complimentary 30-minute consultation here. 

In The Market For A New Car? Check This Data Out

In the market for a new car? Read this first. As you may already know this but the car industry has had quite the year, with used and new car prices shooting through the roof. Used cars have especially skyrocketed to record high prices and are actually hard to find as we’ve been following tons of pandemic-related chip shortages across the world. This shortage is leading to a decrease in supply during a time in which there is such great demand. 

Is it just cars that are more expensive? No it is not, the price of everything you want to buy is rising, and consumers are certainly feeling the impact of it first hand. Take a look at the chart below. 

So, knowing that inflation is real, demand is high, and supplies are limited, what should you do if you are in the search for the car of your dreams? Well, there’s a good chance that the car you are searching for won’t be available, so when going into your search, be flexible and have a few cars in mind that you are interested in. You may also want to expand your geographic search since we are in such a competitive market and the dealership up the street might not have what you are looking for. Put some time into researching and you may actually find another car out there that you like better. 

You may also want to consider some other options as well, such as leasing a car. With the demand of purchasing a car being so high, it could be a good idea to see what offers and specials dealerships are giving on leases. While leasing a car may not be the best option for you, it doesn’t hurt to check it out and see what deals there are. You may be able to swing a great deal if a certain dealership is behind on meeting their amount of leases for the year. If you are in the middle of a lease for your car, inquire about the purchase price of that vehicle after your lease is up. 

A bright-side to the skyrocketing car market right now is the amount of money you can get for your current car, as I can contest first hand. A month ago, I was offered such a great deal on my used car, more than I would ever usually get, due to this crazy demand for used cars. So, if you are willing to part ways with your car, now is a great time to sell and get the most for your vehicle. However, if you are selling your car now, keep in mind that your next dream car may not be available for immediate purchase, so make sure to have a back up plan in the meantime. 

It will be interesting to see how the surging COVID-19 delta variant impacts the car market and when the demand will start declining. If you have questions on what the best financial option for you is when purchasing your next car, send us an email at info@shermanwealth.com or schedule a 30-minute consultation here.  

How Much Retirement Savings Is Enough? Why Couples May Disagree

As couples combine their finances and think about their financial future, its common for the conversation to be uncomfortable or tricky. While one individual in the relationship might think about money one way, the other party could think about it completely different. Just know, it’s normal and okay to have different background and approaches to money, but that communication is key in coming to a solid compromise and understanding. 

The first step is communication. When discussing your finances, it’s important to communicate and feel open about discussing an often uncomfortable topic such as money. 

The Wall Street Journal highlighted an issue that can get overlooked in retirement planning: the financial burdens that women, in particular, face late in life.

A survey last year by the National Council on Aging and Ipsos, a polling and data firm, found that fully half (51%) of women age 60 and older are worried about outliving their savings. In the same survey, almost six in 10 women (59%) said they are worried about losing their independence.

According to the survey, women, of course, typically live longer than men—about five years, on average—and are more likely to live their final years alone. In 2019, almost half (44%) of women age 75 and older in the U.S. lived alone, according to the Administration on Aging. 

As you can see from the survey data reference above, both men and women often have different expectations on how much money they need for their future, which is normal. Again, make sure to communicate and research with your partner to insure both individuals are comfortable with their finances and savings. Of course, a good financial adviser also can make a difference. But the most important step is to talk about retirement and how your finances might play out before you get there. If you have any questions, or want to discuss retirement with us, please schedule a complimentary 30-minute consultation.

 

Financial Advice For Parents

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Raising a child in today’s world can cost hundreds of thousands of dollars. As a parent of four children ranging from ages 5 to 16, I can attest to just how expensive kids can be. Besides just the essentials like food and clothes, there are club teams, tutors, dance lessons and so much more. With each additional family member comes new financial considerations and expenses. The importance of planning for these costs before they arise is a key reason why many financial advisors are targeting young families and helping them successfully navigate how to cover their children’s expenses without compromising their own financial security. Here are a few top takeaways from some of these advisors:

SAVING FOR COLLEGE

With a high school junior in our house, it won’t be long before we are paying that dreaded college tuition bill. And, due to the ballooning costs of higher education, this bill is not likely to be a small one! If possible, new parents should try to start saving as soon as they can for their child’s college tuition.The earlier you start saving, the better prepared you’ll be. If you save $500 a month at birth, you should have around $190,000 saved by the time that child reaches 18 (assuming an annual return of 6%). However, if you don’t start until your son or daughter is 10, you’ll only have around $60,000 by the time they graduate high school. Setting up a state-sponsored 529 college savings plan, allows parents to invest money and then withdraw it tax-free, so long as the funds are used for certain education expenses. However, as you prepare for your children’s future, make sure that you remain focused on your retirement saving as well. There are lots of ways to pay for college, but you can only use the resources you’ve accumulated for your own retirement.   

CHILDCARE AND HEALTH CARE

When our first child was born, my husband and I were both working, and trying to find affordable childcare was not easy. Childcare is one of the biggest expenses new parents will face, especially if both parents work. In some cases, one parent will decide to leave their job and take care of the child themselves, especially if the cost of childcare is more than one parent is making. This is exactly what happened when our second child was born, since it was no longer cost effective to pay for childcare for two children with my salary.   

Meanwhile, childbirth and adoption count as qualifying events that allow parents to make changes to their employee benefits outside of the open enrollment period at work. For example, new parents can expect to see their medical expenses rise and those who have access to a flexible savings account and health savings account at work should use them since the money put into an FSA or HSA avoids federal taxation. In some cases, employers offer a Dependent Care FSA, which can be used for costs picked up from a nanny, babysitter or childcare center.

When it comes to health insurance, if both parents work, you should examine which plan will cost less to add the child to. Most doctor visits in the first couple of years are considered wellness visits, which are typically free or very low-cost in most health-care plans today. But, you should look into which plan is most cost-effective in the event of a trip to the emergency room or having to see a specialist – even with good insurance, the price tag of a broken bone is a lot more than you might think!

LIFE INSURANCE

Even though it’s not something most people like to think about, preparing for death is of utmost importance when becoming a parent. Your financial advisor should be able to run various calculations to figure out the amount of protection you would need. Many families make the mistake of only getting life insurance for the main earner, experts say, but both parents should be covered. Many people think that since stay-at-home parent isn’t actually earning anything, they don’t need insurance. However, when it comes to life insurance, you need to evaluate what it would cost to have someone else take care of your children if something were to happen to that parent.  

It is also extremely important to put together estate planning documents, including a will and health-care directives, as well as discussing appointing a guardian in the event of an unexpected life event. When we found out we were expecting our first child, it forced us to have some difficult conversations about who we would want to take of our child and how our assets would be distributed if something happened to us. It’s also important to revisit those questions each time you add another child to your family or if there is another major change to your assets. The guardians you might have written in your will when you were 25 might not be the same guardians you would choose when you are 45. None of these decisions are easy ones, but they are vital to preparing for your life as a parent.

EMERGENCY SAVINGS

With all the additional expenses new parents can face, from diapers to a larger home and mortgage, it’s more important than ever to have a safety net for those unexpected costs. Having children is a good reason to have a bigger emergency fund, simply because there are now more people who are dependent on you financially. Aside from the random home and car repairs that always seem to pop up when you least expect them, now add braces, sports equipment and teenage social lives to the mix. Having some money from each paycheck deposited directly into an account that you don’t touch is an easy way to make sure you are creating an ample emergency fund should you need it.  

There are so many wonderful aspects of being a parent, but it is definitely a costly undertaking. Seeking some financial guidance before you become a parent is always a good idea, but it’s never too late to start planning for your future with a family. If you have any questions about saving for college, choosing the right health plan, putting together your estate documents or anything else related to your financial goals or plans, please contact us.  We offer a free 30-minute introductory consultation and would love to hear from you!  Check out our other blogs for more financial advice and tips.