Millennials Top $10 Trillion in Assets for First Time

Despite the pandemic-induced recession of 2020, new data from the Federal Reserve shows that America’s young adults have doubled their assets over the past four years.

This marks the first time the assets for so-called millennials have exceeded $10 trillion. But, according to the report which tracks American wealth through the third quarter of 2020, this generation, the oldest of whom turn 40 this year, also has a massive debt burden. Millennials, born between 1981 and 1996, hold $4.3 trillion in debt compared to $10.3 trillion in assets. And, much of this debt is held in higher-interest consumer loans as opposed to asset-secured obligations such as mortgages. Older adults who own hard assets such as real estate might be “at an unfair advantage” compared with younger people who continue to struggle to make similar purchases. However, millennials are seeing rapid gains in net worth. 

Stock market gains pushed millennial wealth to the highest share of their overall assets in six years, surpassing $5.4 trillion. Real estate and consumer durables in the third quarter also reached record levels. Millennials holdings of corporate equities also rose as well as entrepreneurial millennials in corporate America. While millennials are holding more assets than in the past, it is also true that they are holding onto more cash than investing it, which could be a response to the pandemic. 

It is interesting to note the shift in assets from generation to generation. The covid-19 pandemic has definitely had a large impact on millennials as there has been a great deal of layoffs amongst this demographic. Overall, the percentage gains seen by millennials in 2020 far exceed advances by Gen X and the baby boomers, but younger Americans still only hold a small fraction of the wealth of older adults. 

Further, the wealth of many younger Americans is also quite rocky at the current time.  A recent survey found that people 40 and younger saw the lowest likelihood of finding a job in the next three months than at any time since 2013. As with other financial metrics, there is also a wide ethnic disparity when it comes to affluence with Blacks and Hispanics having much lower levels of accumulated wealth than Whites.

While millennials have certainly made great strides when it comes to accumulating assets, there are still some areas where improvement is needed. Whether you are just starting out and need someone to help you establish a budget or financial plan, or are questioning what to do with any extra cash you may have laying around, book a complimentary 30-minute consultation on our site. 

How to Maximize Tax Savings From Workplace Benefits

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When preparing your finances for 2021, make sure to review your workplace benefits for next year before the open enrollment period comes to a close. Your household finances for next year could depend on it. An interesting CNBC article discussed the benefits you can unravel within your workplace health-care and ways to maximize it. 

After one of the most difficult and financially stressful years for many Americans, digging back into the details of workplace benefits like health savings accounts, or HSAs, and flexible spending accounts (FSAs) is probably the last thing you want to do.

Overcome that fatigue and get to it.

Every year, we take a brief look at these options and plans, but COVID-19 has greatly changed the optics of these plans. For some, the coronavirus pandemic had led to much higher medical expenses than expected this year. For others, it has prevented them from accessing health care they expected to use, due to community lockdowns and overburdened health-care facilities. 

Workplace health-care plans require a fresh look going forward, especially after COVID-19. Talk to your HR rep and discuss the details of options open to you. Below we will touch on a few potential options and benefits you should consider. 

The Tax Benefits of HSA’s

First part of your workplace benefits to analyze is HSAs. HSAs, available to savers with a high-deductible plan — that is, one with a deductible of at least $1,400 for self-only health coverage — have three key tax benefits.

First, they allow participants to contribute money to the account either pre-tax or on a tax-deductible basis.

Second, the investable funds accumulate free of taxes. Finally, you can withdraw the money tax-free if it’s used for eligible health-care expenses. You don’t need to spend the balance down each year, as unused funds in the account roll forward, regardless of how much you spend. Employers can also boost your savings with a matching contribution.

The Ins and Outs of Medical FSAs

Medical FSAs share some commonalities with HSAs.Both allow for pre-tax contributions. Balances can also be used on tax-free basis if it’s for qualified medical expenses. In 2020 and 2021, you can contribute up to $2,750 to a medical FSA.

You generally can’t contribute to both an HSA and a medical FSA at the same time.

The major difference between the two accounts is that FSAs have a  “use it or lose it” stipulation that requires participants either spend the money they save or forfeit the funds to their employer at year-end. Firms may choose to let employees roll over some of the money — that is, up to $550 for funds from the 2020 plan year — or they may give them a grace period up until March 15 of the following year to use the funding.

Dependent care FSAs

Another area to analyze within your workplace benefits are Dependent Care FSAs. Dependent care FSAs, which help employees offset dependent and childcare costs, have been dramatically affected by the pandemic and resulting community shutdowns. Generally, a worker can save up to $5,000 in one of these accounts on a pre-tax basis, but again, the funds must be used up by the end of the year or they’re forfeited.

Due to Covid-19, daycare centers in many parts of the country have been closed for much of the year. What’s more, many employees found themselves working from home and taking care of their children themselves, which means they could have hefty balances in these dependent care FSAs.

The IRS addressed this situation by allowing employers to give workers the option of changing the amount they’d normally defer in the middle of the year.

That option may not be available next year, so be thoughtful about the money you commit to these dependent care FSAs as you decide how to proceed in 2021.

Given the crazy year we’ve had, it’s important to take a deeper look at all your options when it comes to your workplace benefits. The coronavirus pandemic has shown us what unprecedented circumstances can cause and the importance of taking advantage of all the benefits that are available to you. If you have any questions, please reach out at info@shermanwealth.com and make sure to also take a look at other tips and advice written in our blogs.  

Top 5 Pieces of Financial Advice

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As we are all adjusting to the new norm that the coronavirus pandemic has created in our world, we are also learning pieces of advice that we could share from this experience. When going through an economic crisis, it’s important to keep some tips at top-of-mind to help you navigate the bumpy waters. In a CNBC Select Article, we found 5 great pieces of financial advice that we want to share with you to put in your financial repertoire.

First and foremost, try not to accumulate credit card debt. Racking up credit card debt can have very negative long term consequences, so it’s important that you pay the full balance on time. When you do not pay the full balance on time, your card will quickly accumulate interest, which often can get so high that it’s hard to pay off. 

According to recent Federal Reserve data released in September, the average interest rate for all credit card accounts is 14.87%. Among accounts assessed interest, or accounts with outstanding finance charges, the average interest rate rises to 16.88%. But for consumers with credit scores below 670, interest rates can near 30%, CNBC Select reports.

Next, make sure you don’t buy things you can’t afford. Although this one seems obvious, it’s much more common than you think. Avoid overspending and spending on things you can live without. Start putting that extra money into savings accounts where you can be accruing interest and earning money. 

Third, invest the year’s expenses or anything saved after you have the year’s expenses saved? Before the pandemic, many people were saying how you should have several months of rent and expenses in a savings account for a rainy day, but as we have seen the economic hardships the coronavirus has inflicted upon our society, we are suggesting to save about a year’s worth of expenses before investing it elsewhere. 

Fourth, start to think like a savvy businessman or woman. Learn to negotiate. Especially in the world we are living in today, make sure you are constantly looking for deals and inquiring about credit card versus cash options. Oftentimes, places will charge you less if you pay in cash. So, before swiping that card, make sure you think about all your options. 

Lastly, buy in bulk. With Amazon becoming increasingly popular and making it possible to get what you need in a matter of hours, take advantage of deals and places you can buy in bulk. If you can save a few dollars here and there, take advantage of it. It’s important to be a smart shopper, especially when buying something pricey, such as groceries for a large family. 

By implementing some of these basic money management tips into your daily routine, you will find yourself becoming a more savvy shopper and saving more money. It is especially important during an economic recession to take these concepts into consideration and make the most of your finances. If you have any questions on other ways you can maximize your financial portfolio and find places in your budget where you can save money, please reach out to us at info@shermanwealth.com or visit our site at www.shermanwealth.com. Check out our other blog posts for more financial advice and tips! 

 

Millennials Slammed by Second Financial Crisis Fall Even Further Behind

millennials

If one economic recession wasn’t enough for millennials to grapple with, why not throw another their way? 

The economic hit of the coronavirus pandemic is emerging as particularly bad for millennials, those born between 1981 and 1996.  This generational group that entered the workforce during the previous financial crisis is already behind on their career path and is currently struggling during the pandemic.  Most millennials face bigger obstacles of accruing the wealth of older generations.

The 12.5% unemployment rate among millennials is higher than that of Generation X (born between 1965 and 1980), and baby boomers (1946 to 1964), according to May figures from the Pew Research Center. One main reason for this high unemployment rate amongst millennials is that some of the hardest hit industries, including leisure and hospitality, typically have a younger workforce.

Millennials have found it fundamentally more difficult to start a career and achieve the financial independence that allowed previous generations to get married, buy a home and have children. Research shows that even the most educated millennials are employed at lower rates than older college graduates and millennials’ tendency to work at lower-paying firms has caused them to lag behind in earnings.

As a result, the millennial generation has less wealth than their predecessors had at the same age, and about one-quarter of millennial households have more debt than assets, according to the St. Louis Fed. 

Between February and May, millennials got hit the hardest in terms of unemployment, according to the chart below by St. Louis Fed. Millennials are now at risk of falling further behind because they entered the pandemic in a weaker position than older Americans. 

However, it is important to keep in mind that millennials do have some advantages on their side as they fight this second recession. A larger percentage have college degrees than previous generations, which could pay dividends over time. They will also help fill gaps in the workforce as the large baby boomer cohort retires. The young workers behind them, members of Generation Z, who this year are 23 and younger, have even higher rates of unemployment and less experience to buffer them from the economic fallout of the pandemic.

For millennials who have been rocked by this second economic recession, it is important to take a step back and start re-evaluating their careers and financial lives. It is also crucial to start early, set up a plan, and stick to it to see it through in the long run. Building up your wealth is crucial, especially while you are stuck at home during the pandemic and economic recession. Putting aside even just a little bit of money each week or month will grow over time due to compound interest.  Think about investing some of the money you might have spent on going to the movies or out to eat or having some of your paycheck put directly into a different account that is solely for saving.  However, make sure you still treat yourself to a morning latte or favorite takeout from time to time – you CAN save for your future without sacrificing all the little extra things that make you happy.  

 Now is the time for millennials to consider seeking financial help and guidance to navigate these bumpy waters and prepare a plan to help them succeed financially in the long term. If you have any questions or concerns, please reach out and we would be happy to help create a financial plan to suit your individual needs. 

Recently Graduated? How to Establish A Good Credit Score

credit score

Are you a recent college graduate? Are you starting your first job? While it’s extremely important to save money when you are first starting out, it’s also quite important to know how to spend money and understand the concepts behind your credit score and establishing good credit. 

Many consumers, especially those just joining the workforce, oftentimes don’t understand basic credit score concepts. Here are some tips on understanding credit and ways to establish a good credit score. 

As your first paycheck starts rolling in, make sure you are opening multiple lines of credit, including opening credit cards, putting your name on your school apartment lease, and signing your name on the comcast bill. However, when you open these lines of credit and sign your name, make sure you are paying your bills in full each month. If your roommate hasn’t paid your cable bill, make sure to stay on top of them so it doesn’t impact you down the road. However, if you have been impacted by the coronavirus pandemic and can’t pay the full bill, make sure you understand to pay the minimum and reach to your creditor to figure out a reasonable solution or game plan. 

Here are five important credit concepts that you should be aware of:

  1. Low credit scores can cost car buyers thousands more

According to the CFA and VantageScore Solutions survey, only 22% of consumers reported knowing that a low credit score borrower, when compared to a high credit score borrower, would likely pay over $5,000 in interest on a $20,000, 60-month car loan. With a low credit score, you are likely to only qualify for subprime auto loans whose annual interest rates often exceed 20%, the study says. 

Having a good credit score matters since not only will your interest on credit cards be less than those with worse-off credit, but so will the interest you pay on loans. Having healthy credit can earn you a lower interest rate on new loans and make it easier to qualify for financial milestones in life, like a first apartment or a new car.

  1. Your credit score actually measures your risk of not paying

Only 33% of those surveyed said that they know a credit score measures the borrower’s risk of not repaying a loan, while 14% thought it measures the borrower’s knowledge or attitude toward consumer credit.

You could have a good attitude about credit, but still have a bad credit score. The point is that your score illustrates to lenders how you would use the credit they extend to you. If you’re just beginning your credit journey, know that you need credit to build credit. Once you start using your credit card, lenders and card issuers like to see that you can use credit responsibly, which means using less than 30% of your available credit and paying your monthly bills on time and in full.

  1. Credit repair companies charge for services you can sometimes do yourself

Before you sign up for a credit repair service advertised to you, know what it will cost. While over two-fifths (42%) of consumers surveyed may be right that credit repair companies are usually helpful in correcting any credit report errors or helping to improve one’s credit score, these companies tend to charge relatively high fees to do what you could do on your own for free.

  1. Your age has nothing to do with your credit score, except for how long you’ve been borrowing credit

Nearly half (48%) of the survey respondents reported thinking that age is a factor used to calculate a credit score. The truth is that your age doesn’t matter in calculating your credit score, only your use of credit matters. In fact, the five components that make up your credit score include your payment history, utilization rate, length of credit history, new credit, and credit mix.

  1. Utility companies can check your credit score

Your credit score is a good picture of how likely you are to pay your bills on time, but the survey found that only 50% of consumers know that an electric company can use credit scores to determine the amount of deposit you make.

Unless you have a perfect credit score, there is always room for improvement. The bottom line is that when you are just starting out, it’s easy to overlook the small steps needed in establishing a good score. However, having a good credit score is something that should be maintained and will impact many financial decisions you are able to make in your lifetime. If you have any questions about your credit score, how to obtain credit or how to fix a bad credit score, please contact us for a free 30 minute consultation.

 

Inheriting Money Attitudes – Are Financial Habits Learned?

teaching kids about money

Whom we become as adults is largely influenced by how and by whom we are raised. Our parents shape us in many ways. If you are given chores as a child, you are more than likely to become an independent worker as an adult. If you live in a house where there are lots of arguments, you are more likely to struggle to form healthy relationships on your own.  As we consider that these types of characteristics are often learned as we grow up, does how we are raised also impact our finances?  A recent survey gives us a better understanding of how certain financial upbringings can shape our money attitudes as adults.

EARLY INFLUENCE

According to over three-quarters of those surveyed, parents influenced their financial habits as adults and those in good current financial standing were the most likely to have had some parental influence at an early age.  Those with bad financial standing also claimed that their parents influenced their financial habits.

For some reason, many parents shy away from money conversations with their children, even though it could have a positive influence on their financial habits. Over half of those surveyed said their parents never talked to them about the value of their financial accounts or life insurance or whether they had investments or debt. If these topics were discussed, it typically wasn’t until the children were adults themselves. Of the parents who did talk to their children about money, it was most commonly about their general financial standing and occurred around age 15.

FINANCIAL EMERGENCY DISCUSSIONS

Research suggests that talking to your children about the scarier side of money can be quite impactful. Respondents whose parents talked to them about the possibility of financial crises or recessions as children were more likely to be in good financial standing as adults. A key component of financial security is having cash resources you can tap in case of a financial emergency. This is why it’s important to talk to your children about financial crises or recessions, like the “dot-com bubble” that changed the way many baby boomers viewed investing, or the Great Recession that scarred millennials. Now, the COVID-19 global pandemic is likely to have a similar impact on Generation Z. Discussing these worst-case scenarios increases the likelihood that your children will plan ahead with an emergency fund as adults. 

PRINCIPLES FOR FINANCIAL STABILITY

Teaching your children financial life lessons could reduce the possibility of entering into credit card debt. According to our respondents, people whose parents taught them basic financial life lessons had less credit card debt than those whose parents didn’t teach them anything about money. The most common financial lesson parents taught their millennial children was the difference between a need and a want.  Despite having received the most financial education from their parents, millennials reported the highest instance of being worse off financially than their parents.  However, the majority of millennials thought they would eventually be better off than their parents. Their financial optimism may be due to the fact that nearly one-third of millennials received a pay raise in the past 12 months. 

The least commonly imparted financial lesson for all generations was how to invest, which is unfortunate given those whose parents did teach them how to invest typically reported having the highest income and estimated net worth. When it comes to gender, parents were especially negligent in discussing investing where their daughters were concerned; men were 35% more likely than women to have been taught to invest. Men were also more likely to have been taught about financial goal setting. One reason for the discrepancy could be that mothers are more likely to teach their daughters about finance, thus causing traditional gender roles to get passed down from generation to generation. However, when it comes to generational changes, many millennial women have made strides in income and now earn more than their mothers.

SPENDING STYLES

The survey results suggested a connection between parents’ spending style and their children’s style. The more responsible a parent is with his or her spending, the more likely their children are to be responsible spenders themselves. Over half of respondents whose parents only spent money when they could afford it reported being debt-free today, compared to only 42% of respondents whose parents often spent beyond their means. Children whose parents were conservative spenders, often choosing to forgo luxuries even when they could afford it, were the most likely to have an emergency fund as an adult and children whose parents only spent when they could afford it were slightly less likely to have emergency funds as adults. Having a parent who often spent beyond their means can lead to more debt and less in emergency funds, but the majority of children brought up in such households said they’ve done better for themselves as adults. Children of responsible and conservative spenders were far more likely to emulate their parents’ spending habits as adults. 

CREATING A BETTER FINANCIAL FUTURE

How we raise our children has a formative impact on who they become as adults. If you teach them how to save and invest, they are more likely to become financially responsible adults. A financial education should be a key aspect of any child’s upbringing. It is important to facilitate healthy conversations about money with our children so they are prepared for the important financial life lessons as they grow up.  Teaching key financial tools to our children will enable them to budget, manage their finances and plan for their futures as adults.  If you have any questions relating to teaching your children about early financial habits, please contact us – we are here to help!

8 Financial Mistakes to Avoid in Your 20s and 30s

8 financial mistakes to avoid in your 20s and 30s

Your 20s and 30s are an exciting time. You’re starting to build the life you envision for yourself, or perhaps you’re still seeking out new experiences to learn more about yourself and your goals.

These are years when we expect to learn and grow by exploring jobs and careers, cultural experiences, social experiences and other educational opportunities. But too many of us forget to explore and master one of the most critical parts of building the future we want: financial literacy and financial planning.

The result is that many people enjoy their 20s and make important life changes in their 30s (or vice versa) without understanding how best to support their career and personal goals with a rock-solid financial plan. You could end up flying high, but forget to build a safety net!

Here are some key mistakes to avoid as you’re getting started:

1. Letting the Chips Fall Where They May: No Budget

A first job—or second, or third—is a great feeling. You’re earning money and it’s yours to spend. And too often, we spend it until it’s gone. While a budget may sound restrictive, it actually gives you more freedom because it keeps you from overspending in areas you don’t care about so you have the money you need for what’s important. A budget helps you understand where to splurge—on quality that lasts longer, for instance—and where it’s best to economize, such as buying a used car instead of a new one.

2. Keeping Too Low of a Profile: No Credit Rating

Many people just starting out have low credit ratings, or worse, no credit rating at all (if you’ve always used your parents credit cards, for instance). With a low credit score, your costs will be higher for things like insurance, car financing and mortgage rates. Building good credit now, by getting your own credit card and paying it diligently, or even getting a credit-building loan, will establish a good rating that will help you down the road.

3. Putting It off Until Tomorrow: Living on Credit Cards

Credit cards can be a godsend, particularly the ones with loyalty points. But those points pale in value beside the damage that finance charges can do. Do treat your credit cards like a smart way to keep track of your spending, but don’t spend more than you actually have. Paying credit cards off in full each month not only keeps you within your budget and keeps you from accruing finance charges, it also helps you build a great credit rating for when you do need to borrow money. (For related reading, see: 10 Reasons to Use Your Credit Card.)

4. Living on Perks Instead of Salary: Not Paying Yourself First

We’ve all been to that job interview where they say that the salary is low but they have a great exercise room, volleyball team and popcorn machine. That popcorn won’t pay the rent and it won’t pay a down payment when you find that great condo. Create a savings plan and pay yourself first before you splurge on lifestyle perks like vacations and expensive shoes. That plan should include saving for short-term goals, saving for an emergency fund, and starting to save for retirement. While retirement may seem a long way off, the earlier you start, the more you harness the power of compound interest. Make sure your budget includes saving and contributing, on a regular basis no matter how small the amount, to an IRA or 401(k) before you start spending.

5. Living on the Edge: No Emergency Fund

While it’s hard to imagine needing emergency funds when you’re young and just starting out, you never know what the future can bring. Crises like Hurricane Sandy and the 2008 crash left a lot of people struggling without a safety net, but even something as simple as a pet’s sudden illness can present a huge challenge when you’re on a tight budget. Try to start contributing to an emergency fund that you keep in highly liquid funds for when the unexpected happens. (For related reading, see: Building an Emergency Fund.)

6. Playing the Odds: No Health Insurance

Many young people who are in peak health think that they can skip—or skimp—on health insurance. While you may indeed be fit and healthy, that doesn’t protect you from potential sports injuries, appendicitis, bouts with the flu or—perish the thought—a car accident. High medical bills are the biggest cause of personal bankruptcy. Get the best coverage you can afford: you’ll be amazed how quickly it pays for itself.

7. Going With the Flow: Not Setting Financial Goals

“If you do not change direction, you may end up where you’re heading,” goes the famous quote attributed to Lao Tzu. That means it’s a good idea to think about where you’d like to be—in a year, in five years, in 20 years—and make sure that’s the path you’re on. Simple goals like “I want to save $20.00 a week,” or more elaborate ones, like “I’d like to work for myself from a house on the beach,” all begin with awareness and taking the first small steps. Set a few goals; you can always change them later, but if you don’t, you’re drifting without being mindful of where the currents are taking you.

8. Taking Your Eye off the Ball: Using a Non-Fiduciary Advisor or Commission-Based Investment Site

It’s never too late to become financially literate. The internet is full of great tips (like these) and sites that can help you organize your finances, and it provides access to a range of advisories. Having a financial advisor guide you is an excellent idea but blindly trusting just anyone can be dangerous. Many non-fiduciary advisors are compensated by the financial products they recommend, products that may not be the best ones for you. Make sure the advisor you consult is a fiduciary, i.e. someone who is legally obligated to only recommend options that are in your best interest.

Be sure to check out our next post: 5 More Financial Mistakes to Avoid. You’ll enjoy your 20s and 30s even more knowing that you’re also building a solid future.

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions, please Contact Us.

Your Financial Plan Depends on More Than Your Age

financial plan

Your Financial Plan

We live in a time of great personal freedom when we have the opportunity to choose our own life goals and paths.

While it’s true that very few 26-year-olds are likely to be retiring, you might be that lucky one who just sold an app to Facebook and is considering philanthropy. While most people start families in their 20s or 30s, you might be that 40-year-old who’s just about to adopt a first child. And while most 60-year-olds have hopefully accumulated some retirement savings, you might be that entrepreneurial baby boomer who is moving to Detroit to launch a startup or open a coffee bar.

In spite of this brave, and exciting, new world of personal choices, what’s the first question a financial advisor or online financial site generally asks you? Chances are it’s your age. Then that answer determines the next question, and the next.

Too many financial planners and investment sites, unfortunately, use age to make assumptions that then dictate investment recommendations.

The internet, too, is filled with articles like “Financial Planning Tips Every 30-year-old should know” and “The best financial goals for every age.” There are books and studies that break your life down into age-based phases like “early career phase” and “peak accumulation phase” then make generalization based on those neat buckets.

What’s more important than age?

We’re all individuals, with different dreams, goals, and life situations and when it comes to financial planning, age is not as important as it used to be.

Your goals and your risk tolerance should be the factors to consider first in devising a personalized financial plan or investment plan that works for you.

Is your primary goal buying a house, is it wealth creation for early retirement, is it having income so you can bike around the world for a year? Those answers are more important than the fact that you are 32.

Does a volatile stock market make you anxious? Do you prefer slow and steady to winner takes all? While it’s generally assumed that young people can afford greater risk and volatility because they have time on their side, you may be that 24 year old that wants or needs to preserve savings first and foremost.

Goals differ and investment always involves a certain amount of risk. That’s why a fee-only fiduciary financial advisor works with each client individually to manage goals and risk in a way that works for them. It is vital for success to determine the level of risk each client can afford to take, how much risk is necessary to help them achieve their personal goals, and how much risk and volatility they can comfortably live with emotionally.

You Are Unique

Each of us is unique and that means that no two people will have the exact same goals + risk profile, in spite of being the same age. Yes, living off retirement savings is different than living off a first salary, but the amount may be the same. And paying off student loans is really not all that different from paying off a mortgage.

What’s important is that you find a good fee-only fiduciary financial advisor who looks beyond pre-programmed, one-size-fits all recommendations for 20-30 year-olds or 60+ year-olds and focuses to your goals, your risk preferences, and your uniqueness to create a personalized plan that works for you and evolves as you evolve, not one designed for an entire generation.

 

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

 

 

 

 

3 Ways to Make Budgeting a Success in the New Year

developing a financial budget

At the end of each year – and the beginning of the new one – most of us think about things we’d like to accomplish in the coming year. It’s a time we engage in self-reflection, ideas for self-improvement, and new – or ongoing – resolutions and goals.

One of the most common resolutions is losing weight, but we all know how that goes: crowded gyms in early January, inevitable drop-off when February rolls around. In fact, a study done by the University of Scranton shows that only about 8% of people actually achieve their resolutions.

Financial resolutions often include starting – or finally sticking to – a budget. Unfortunately, that resolution is all-too-often hard to stick to as well. (For related reading, see Financial New Year’s Resolutions You Can Keep.)

Why do so many people have trouble sticking to their resolutions? One of the main reasons is having unrealistic expectations. Overconfidence doesn’t just affect fitness goals, it affects investors’ behavior as well.

How can you make this the year you stick to your goals?

Take Baby Steps

Be reasonable in assessing where you are with your finances and don’t try to tackle everything at once. Start by listing all the areas of your financial situation you would like to improve. Then prioritize the individual elements in order of importance to you, and start by taking on one or two at a time. (For related reading, see: Achieve Your Financial Goals With a Financial Plan.)

If one of your goals is to start – and stick to – budgeting, don’t give yourself super-strict boundaries. Instead, start by creating good habits one at a time. If you want to pay off all of your credit card debt, for instance, take a look at how much debt you have and create a realistic weekly or monthly plan to start paying it off. If you want to buy a house in five years, you could decide to spend less now on something that you currently enjoy. (For related reading, see: Got a Raise? Here’s How to Avoid Lifestyle Creep.)

Focus on one or two goals at a time, see how it goes, and make progress – and adjustments – to stay on track.

Be Specific

Instead of saying “I am going to save more this year,” or “I am going to save $5,000 this year,” try to specify exactly how you plan to do it. Start with something like: “I will take $100 from each paycheck and put it into a savings account.” By giving yourself a tangible – achievable – steps, you’ll be better able to track how well you are sticking to it.

In addition, try to think about what it is that you are trying to accomplish. Why do you want to save an extra $100 each paycheck? Are you saving up for a car? Trying to pay off debt? Building up an emergency fund? When you add purpose to your goals, it makes it more compelling and easier to accomplish. (For related reading, see: Why Investors Can Be Their Own Worst Enemy.)

Stay Accountable

Know yourself: accept who you are and what that means. Are you someone who might let things build up then feel too overwhelmed to jump back on track? Think about sharing your goals with a friend or family member and set times to check in with them and go over your progress. If you want to go to the gym three days a week, think about getting a workout partner. If you want to save an extra $100 from each paycheck, see if there is a friend that has the same goal and you can do it together, comparing how it’s going throughout the journey.

Most importantly, understand that this is a process. Some weeks will be better than others, but, if you can follow these three steps – set realistic goals, set specific goals, be accountable – hopefully you will be part of the 8% that gets it done this year. (For related reading, see: The Importance of Personal Finance Knowledge.)

To read more about budgeting:

Financial Budgeting and Saving

Should You Start to Save… or Pay Down Debt?

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Got a Raise? Here’s How to Avoid Lifestyle Creep

lifestyle creep

We work with a lot of young professionals and because of that, we get the pleasure of seeing many of our clients progress up the ladder in their career. With this often comes more responsibility but also more money. A raise is something you should be proud of as it represents the payoff from the sacrifices you have made and the hard work you put in. This calls for a celebration, as it should!

At the same time, it is crucial to make sure you don’t fall victim to the dreaded lifestyle creep, famously coined by financial planner Michael Kitces. The basic concept of lifestyle creep is that as your discretionary income goes up (you get a raise), your standard of living goes up with it. For example, before you stuck to a dining budget where you only ate out on weekends, but now you are doing so two times a week.

We recently wrote about how a former NBA star filed for bankruptcy after earning more than $100 million on the court. Read below on some tips to help you avoid some of these mistakes.

Why Lifestyle Creep Is a Problem

Living above your means is a recipe for financial trouble. We constantly preach that it’s not about how much you make, but how much you save. By earning more money, you have the opportunity to save more. Take advantage of these opportunities by really thinking about what is a necessity vs. what is a luxury.

Read below on some tips to help you avoid some of these mistakes.

  • Write down and revisit your goals
  • Maybe your goals have changed, maybe they haven’t. By revisiting them, remind yourself what is important to you and you can then make sure that is what you are spending your money on.
  • One additional suggestion is to not make any purchases with the money you are receiving from your raise for the first month after receiving it. This gives you time to digest the news and will give you the ability to make more rational purchase decisions. If you still want to buy it after a month, then go for it.
  • Create and update your budget
  • If you don’t already have a budget, now is the perfect time to create one. If your boss gives you a $10,000 raise, that comes out to about $830 per month before taxes. With your goals in mind from tip No. 1, lay out all of your expenses and determine where the money should go each month. By having a set schedule, you reduce the urge to make impulse purchases because you see a large number in your checking account. (For related reading, see: The Conflicts of Interest Around 401(k)s.)
  • Set up automatic saving account deductions
  • Now that you have a defined list of goals and a budget to help you achieve them, it is time to put the plan into action. There are numerous banks that we recommend to our clients that give you the ability to create multiple savings accounts to bucket your savings based on your goals. Create accounts for each of your goals and set up automatic transfers to these accounts from each paycheck you receive.
  • In addition to your emergency fund account and other savings goals, make sure to give yourself a fun account that can be used to spend on celebrations such as getting a raise!
  • Increase or max out your retirement contribution
  • As part of your budget, look at how much you are contributing to your retirement account each month. If you have the opportunity to increase your contribution, that is a great option to consider. If you have an employer-sponsored retirement plan such as a 401(k), not only are you saving more for retirement, but you are also lowering your taxable income that just increased because of your raise. You may even qualify for an employer match, which makes these savings even greater!

After working so hard to get to where you are now, you should give yourself a chance to enjoy that success and celebrate. The important part is keeping an eye on the big picture and not letting your short-term emotions get in the way of achieving your true financial goals. By creating a plan that is realistic and one that you feel you can stick to, you dramatically increase your chances of success. (For related reading, see: How to Cut Back on Spending Like a Billionaire.)
This article was originally published on Investopedia.com

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.