What Are Your Short and Long-Term Goals?

Do you have financial goals? If so, are they short-term or long-term, or both? Maybe you don’t know the difference. That’s okay because we are going to discuss the difference between short and long-term goals and how to strategize for them. 

So, what is the difference between a short and long-term goal? We like to think a short term goal is something that you need liquid cash for in the foreseeable future, maybe within around 12-18 months. A longer term goal is something that you want to save for over a duration of time, maybe achievable within 3+ years or so. 

Now that you know the differences between the two, you may ask yourself, how do I create these goals I have for myself? First and foremost, you want to think about your priorities in life. Do you have upcoming expenses, do you need to save for retirement, do you have enough money in your emergency fund and checking account for your monthly expenses? 

When thinking about your goals, it’s also important to think about your risk tolerance. For example, are you willing to risk your money on investments? Or do you want it to be safe in a FDIC insured account? These are all questions you should ask yourself when designing your goals and thinking about how you want to use your money.

Setting goals can oftentimes get tricky because it’s hard to find a balance between wants vs. needs. Is your goal a necessity? Or a Want? Ask yourself some questions about the importance of your goals and think about how reasonable each one is given your financial situation and lifestyle. Deciphering wants vs. needs is a great starting point when creating goals.  When creating shorter-term goals, be sure to ask yourself when you will need the money you are reaching for so you know exactly how to strategize and save. 

Once you’ve clearly identified a realistic goal and determined the amount, timeline, and urgency of the goal, it’s time to start working towards it. Be slow and steady and stick to your plan once you make it. Goals and the methods of savings will be different for every individual, so it’s important to drown out the noise and do what is best for your personal situation. With the help of a financial advisor, you can easily put your priorities and strategies in place to reach your goals.  If you find yourself needing clarity on goal-setting and achieving your milestones, email us at info@shermanwealth.com or schedule a 30-minute consultation here.

Why You Should Open A High Yields Savings Account 

​​Are you utilizing a high-yields savings account? If not, let’s explore why you should.  With much higher interest rates, high-yield savings account can help you build your wealth much faster than a regular savings account would. Here’s why you should open a high-yields savings account. 

You can make more money

The average yield on a traditional savings account is just around 0.09% or less per year. However, high-yield accounts have much higher interest rates, closer to 1%. 

There are options with no fees and minimum balance requirements

We know everyone hates accounts with fees and minimum balance requirements, so we want to let you know that there are accounts out there where this is not the case. 

Monthly fees, minimum balance requirements, and interest rates can all vary widely from one bank to another, so make sure to do your research before picking one that is best for you. Below you will find some of CNBC’s top picks for high-yield savings accounts. 

Your money will be better protected

Most major banks and credit unions are insured by the FDIC or National Credit Union, meaning your money is protected and will still be there if something happens. 

Many people don’t think twice before putting their money into a savings account. But when doing so, it’s crucial to consider and find a high yield savings account to maximize your savings and build your wealth. The big banks pay close to zero, so there’s no point in keeping your money at that type of  institution.  If you have any questions about opening a high yield savings account, reach out to us at info@shermanwealth.com or schedule a complimentary 30-minute intro-call here.  

 

What You Need To Know About the Third Stimulus Package

On Wednesday March 10th, Congress approved the American Rescue Plan, the third stimulus relief package since the pandemic started a year ago. The $1.9 trillion American Rescue Plan Act includes measures ranging from stimulus checks to child tax credits, jobless benefits to vaccine-distribution funds, healthcare subsidies to restaurant aid. The legislation is the largest aid package to pass since widespread restrictions tied to the coronavirus pandemic began in March 2020.

Here’s what to know: 

  • Federal unemployment benefits of $300 per week have been extended until early September.
  • If you collected unemployment in 2020 or do so in 2021, you do not owe taxes on the first $10,200 in assistance. 
  • Lots of people will receive $1,400 stimulus checks in the coming weeks. Individuals with an adjusted gross income of $75,000 or less and married couples earning $150,000 or less qualify. 
  • Most Americans with kids will qualify for a new child tax credit: $3,600 per year for every child under 6 and $3,000 for each kid ages 6-17. 

Aside from these stimulus bill changes, tax day, April 15th, remains the same. Make sure to file your return on or before that date to avoid penalties. Check out our definitive guide to your 2021 tax return with detailed information on this year’s tax season. In addition, make sure to fund your retirement accounts by this year’s deadline. We will continue to monitor any changes to 2021 filing dates, but we recommend to check with your CPA with any questions on your situation. 

If you have any questions on the third stimulus package and what it entails, please reach out to us at info@shermanwealth.com or schedule a complimentary 30-minute introductory call here.

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

In response to recent studies and data, we have found that women are contributing more and more to their family’s finances, and that the younger generation is increasingly claiming the title of breadwinner, according to a recent study by Wells Fargo. 

The study, released in conjunction with International Women’s Day, included 2,195 women. It found that more than half  of all partnered women reported greater or equal earnings to their spouse. And nearly one-third of millennial and Gen X women reported being the primary breadwinner, versus the 20% rate reported by baby boomers and traditionalists. 

Despite these gains in financial contributions to their households, the study also revealed that many women are intimidated by financial concepts and many did not learn enough about finances in school or growing up. With International Women’s Day just passing and financial literacy month upcoming, we want to use this new data as an opportunity to encourage and motivate women to take control of their finances and better educate themselves to become financially independent. 

As a financial advisor who works to empower women to become confident to make their own financial decisions, we have found that many women are often met with anxiety when it comes to having to make financial decisions on their own. For that reason, it is extremely important to start educating yourself about financial concepts from a young age, along with passing that on to the next generation, such as your children or grandchildren. At Sherman Wealth, we strive to educate all of our clients, no matter gender, age, or background, to become financially independent and feel confident to make their own decisions. If you have any questions or would like to talk to us about ways to educate others about financial concepts, please reach out to us at info@shermanwealth.com or schedule a 30-minute complimentary introductory call here. 

 

Here’s How to Track your Expenses in 2021

Staying on top of your finances and tracking your expenses can seem like a daunting task. When your life continues to get busier, it’s often easier to push aside your finances. However, due to the great technological advances in society, you now have access to simpler and immediate tools that will help you manage your overall finances. 

Luckily, there are various ways you can track your own expenses, depending on what works best for your lifestyle. Some consumers like a more hands-on approach in which you log each transaction as it happens, while others prefer creating a spreadsheet to capture a big-picture look at their monthly expenses overall. There are even budgeting apps that automate the process, making it easy to keep tabs on your cash. In one of our previous blogs, we touched on the technologies we provide our clients with that help them see their overall net worth and all the pieces in between in one snapshot. 

Our biggest recommendation in managing your expenses and finances is automation. As mentioned earlier, our world today has made it so simple to have access to your finances at the click of a button. Using software and automating your bank statements and payment schedule, credit cards, and more can not only save you time, but help keep you more organized and on top of your spending. It’s easy to swipe your credit card without thinking twice, but with new features such as purchase notifications, you can see in real time how much you are spending and where your credit card balance lies at all times. 

How you manage your money is a personal decision that only you can make. While some may prefer logging each of their transactions manually, others may like an app that syncs to their accounts and tracks expenses for them. No matter what route you choose, make sure you are setting aside routine time to check on your spending and evaluate your financial progress as you go. If you have any questions on how to better manage and automate your finances or would like a free trial to our technological software, please reach out to us at info@shermanwealth.com or schedule a complimentary 30-minute consultation on our site. 

 

How to Take Advantage of the Student Loan Relief Extension

Are you stressed about your federal student loan bill? Well, you’re in luck. The government has allowed another federal student loan extension through Sept. 30 The original pause for federal student loan payments had originally been set to end Jan. 31 for more than 42 million borrowers. This extension means that interest rates for student loans remains at 0% for almost another year. However, remember to keep in mind that this relief does not apply towards all student loans, especially private ones. 

This loan deferral gives you and your family a chance to slow down and catch up on your other bills and expenses. Or, if you are in the position to do so, you can use this relief as a way to keep building up your emergency fund. Also make sure to use this time to think about your future repayment plan as this relief will not continue forever.

Moving forward, Biden has said he is forgiving up to $10,000 in federal student loans for borrowers. But borrowers have no guarantees that such a change will take place or when. So, right now it’s important to take a realistic look at your overall financial situation and try to use the next eight months to your advantage. There is pending legislation to forgive student loans, so make sure to stay tuned for updates to come. If you have any questions related to your student loans and your strategy to repay them, please contact us at info@shermanwealth.com or schedule a complimentary 30-minute consultation here. 

Avoid These Mistakes when Rolling Over a 401(k) to an IRA

As we kick off 2021 and you begin thinking about money moves you want to make this year, we want to provide you with some insights on a common rollover and some costly mistakes associated with it. 

A good place to start is by distinguishing the difference between 401k plans and IRAs. You may be subject to penalties and taxation if you break any of the rules associated with a rollover, so it’s important to do your research first or consult with a financial professional. Both types of retirement accounts, 401(k)s and IRAs let you save tax-advantaged money.

Let’s discuss a few things you should look out for if you or your spouse rolls over a 401(k).

“Once you’ve decided to move your retirement money to an IRA, it’s best to avoid receiving a check made out directly to you from the 401(k) plan, even if it is sent to you,” according to a CNBC article. You do this so that there is no tax withholding that occurs. 

When conducting a rollover, make it clear that you want a direct rollover so that the process is easier for yourself and you can avoid any withholdings. With a direct rollover, funds are transferred directly from one trustee to another automatically, whereas with a indirect rollover, a check is paid directly to the participant, less a 20% with holding, along with a time window to get it transferred. 

Always remember to keep the rule of 55 in mind. Well what is the rule of 55 you may ask? The rule of 55 is an IRS guideline that allows you to avoid paying the 10% early withdrawal penalty on 401(k) and 403(b) retirement accounts if you leave your job during or after the calendar year you turn 55.

If your significant other is rolling over their 401(K) to an IRA, you could lose the right to be the heir of those funds. Once the money moves into rollover IRA, that account owner has the right to name any beneficiary they want without your consent. Things also tend to get tricky when a divorce occurs, so make sure to consult with your financial professional before making any financial moves or assuming any money. 

When rolling over money to an IRA, there are many steps and factors to think about and things can certainly get complicated. It may be best to consider seeking the guidance of a financial professional. If you find yourself in this situation, we would be happy to help and walk you through your rollover. To inquire more, schedule a free 30-minute consultation on our site. 

 

Sitting on Cash? Here’s What To Do with It:

In our previous blog, we wrote about how a great deal of American’s households ‘ finances are in surprisingly good shape eight months into the pandemic. While this certainly is not the case for all households, we wanted to discuss options for those who may be sitting on an abundance of cash or have too much money in their checking accounts. 

It’s important to note that if you have more than you need to pay your bills in your checking account, you should consider putting away some of the cash in taxable investment accounts or savings accounts that accrue compounding interest. When choosing a savings account, consider banks that have higher interest rates than your standard bank, which currently have interest rates close to zero. Utilize FDIC-insured accounts such as Max My Interest or Capital One 360. With these record-low interest rates, it’s crucial to get your money into accounts that are maximizing and compounding your dollars overtime. 

Additionally, as the end of the year is just around the corner, think about checking off your financial planning to-do list, which may consist of funding your HSA and/or maxing out your 401(k) and IRA’s for the year. As mentioned earlier, if you have additional cash laying around, make sure to direct those funds into a taxable account.  If you are saving for your children or grandchildren’s college tuition, make sure to contribute to your 529 plans and inquire about all of your options there. Also, if you are considering end of the year charitable giving, make sure to contribute those funds as well. If you have any questions about your financial portfolio or end of the year planning, please contact us at info@shermanwealth.com and we are happy to set up a free 30-minute consultation with you. Lastly, check out our other blogs for more resources.  

 

Why Now May Be a Good Time to Consider a Roth IRA Conversion

The coronavirus pandemic and the upcoming election has created a great deal of uncertainty for investors. Income tax, furloughs, and job loss are lingering over the heads of many. As people are navigating these unprecedented times, they are becoming more and more unsure about where to and how much to invest. But it’s important to keep in mind that regardless of uncertainty in the market, it’s always a good time to invest for your future. 

The recent stock market meltdown may have dented Americans’ retirement savings, but there’s a silver lining: The downturn made one common retirement strategy less costly for investors.

The strategy, known as a Roth IRA conversion, involves changing a traditional, pre-tax retirement account — such as a 401(k) plan or a qualified individual retirement account — to an after-tax Roth fund. This strategy has some unique benefits when compared with its traditional cousin.

To do the conversion, savers would opt to pay income tax now, while markets are down and tax rates are lower under the Tax Cuts and Jobs Act. Investors who own traditional accounts defer income tax on their savings until withdrawing the money in retirement. Roth savers pay tax up front and don’t pay later. Having at least some Roth funds is beneficial for a few reasons, according to financial advisors. Retirees don’t have to take mandatory withdrawals from Roth accounts, unlike traditional IRA investors, who have to beginning at age 72. Taking Roth distributions could also decrease Social Security taxes and Medicare premiums, which are pegged to one’s taxable income.

In addition, there’s the benefit of tax diversification. Like the concept of investment diversification, tax diversification is important because it reduces the risk associated with unknown future tax rates, advisors said. Data suggest investors aren’t greatly diversifying their retirement accounts from a tax standpoint.

Traditional IRAs held around $7.5 trillion at the end of 2018 — almost 10 times as much as Roth accounts, which had $800 billion, according to the Investment Company Institute. Ultimately, investors should peg a conversion primarily to tax rates — if savers believe their tax rate is lower now than it will be in retirement, a conversion makes sense because it will cost less in the long run, according to tax experts. And, contrary to popular opinion, one’s tax rate doesn’t always fall in retirement, they said.

Tax rates are currently low by historical standards and are likely to increase (rather than fall further) in the future, experts said, given the eventual need to raise federal revenue to reduce the U.S. budget deficit, which is larger as a share of its economy than most other developed countries.

If you are considering a Roth IRA Conversion, please consult with your financial advisor  and your EA/CPA or tax preparer to ensure that this decision is the best for your financial situation. If you would like to discuss the potential of a Roth Conversion, please reach out to us and schedule a free 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.