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.

 

What to Do If You Don’t Have a 401(k)

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As the coronavirus sweeps the world and people take a step back to look at their financial picture, they are realizing that they do not have a company 401(K). 

Even though some of these people work at a company where they offer a 401(k), they may not be eligible due to not meeting criteria, such as length of employment, or they are not a full-time employee.

So, as people are stressing more about the importance of having a hefty savings account, it’s a great time to discuss options for individuals who are not eligible for their company 401(k) or do not have one through their workplace.  Below we will share several options for people in this situation according to an article by MorningStar.

1) Invest in an IRA.

A good first step for someone without a 401(k) is setting up an IRA. An IRA is a great other step to save for retirement and seek tax benefits. You are eligible to contribute $6,000 a year to your IRA.

2) Look Into Self-employment accounts are an option.

For self-employed individuals, there are several options to consider. Some of them are similar to 401(k)s but are just set up a bit differently. Speak with a financial professional to see what options you can set up for yourself. 

3) Consider an HSA 

If you have a high-deductible health care plan you can consider setting up an HSA in order to save some of those dollars and grow your money tax deferred. 

4) Open a Taxable brokerage account.

While its always nice to grow your money tax deferred, investing in a regular taxable account is always a great option. You can speak with a tax professional to see how to do so in a tax efficient manner. 

5) Be part of the solution.

Lastly, if you work for a small employer without a 401(k), maybe ask them to see if it’s something they are interested in starting. Never hurts to ask! 

As always, if you have any questions about your current 401(k) or need help investing money in order to supplement a lack of one, please reach out to us and we would be happy to discuss your future financial goals.  

Money Mistakes You Might Make in a Recession

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It’s very common to make mistakes when it comes to your finances and managing your money. We read a Wall Street Journal article discussing the biggest money mistakes people tend to make during an economic downturn and we want to bring light to a few of them and talk about ways to avoid them.

By reading and addressing financial mistakes people make, hopefully you can avoid them in the future. Below we will discuss some common financial mistakes people often times make. 

  • Refusing to Tap the Emergency Fund
  • Avoiding Credit Score
  • Avoiding Savings For Retirement
  • Ignoring Money Conversations

As mentioned above, an economic recession is the perfect opportunity to take a step back and discuss and organize your finances. Saving for the future, talking to someone about your investments, and organizing your portfolio are all smart moves when setting yourself up for financial success and the ability to navigate an economic recession. If you have any questions or want to talk about your personal finances, please reach out to us at info@shermanwealth.com. To read some of our other blogs, check it out here

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! 

 

The Best Credit Cards For Grocery Shopping In 2020

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As the corona-virus pandemic has put a halt on restaurant dining, Americans have found themselves cooking at home more and in turn, spending more money on grocery shopping. When increasing your spend in a certain category, it’s important to think about how you can maximize these purchases and your budget by building rewards. You may want to consider a rewards credit card that can help you earn over $100 a year on your groceries. 

We read an interesting article from CNBC select that discussed the best credit cards to apply for if your grocery spending has increased or is a large chunk of your monthly budget. The average American spends about $5,174 a year, or roughly $431 a month, on groceries, according to a sample budget based on the latest spending data available from the location intelligence firm Esri. That’s more than Americans spend on dining out, which comes to about $3,675 annually. 

The best grocery rewards cards offer up to 6% cash back at supermarkets. While they usually exclude wholesale clubs such as Costco and BJ’s, and big box stores like Target and Walmart, you can still take advantage of these rates at Whole Foods, Krogers and other big name grocers.

CNBC Select analyzed 26 popular rewards cards using an average American’s annual budget and digging into each card’s perks and drawbacks to find the best grocery store rewards cards based on your spending habits. 

Here are CNBC Select’s top picks for credit cards offering supermarket rewards

If you find that your grocery bill takes up a large portion of your monthly budget, take a look at these credit cards, to see if you could capitalize on your spending. Additionally, no matter where you spend the majority of your money, whether it’s travel or dining, make sure you look into credit cards that are the best fit for you. If you have any questions on your portfolio or credit cards to maximize your spending, please reach out to us at info@shermanwealth.com

Here’s How The Pandemic Has Upended The Financial Lives Of Average Americans: CNBC + Acorns Survey

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The coronavirus pandemic has upended many Americans’ financial lives. While millions are unemployed and sufferings, there is actually more positive financial data than you would think. 

According to CNBC and an Acorns Survey, many are saving more and spending less. In fact, 46% of the respondents said they are “more of a saver now” compared to before the pandemic. Additionally, 60% consider themselves “savers,” up from 54% last year. The poll, conducted by SurveyMonkey Aug. 13-20, surveyed 5,401 U.S. adults and has a margin of error of +/-2%.

 

About half, or 49%, said their monthly spending has decreased, compared to 33% last year. Some of those savings can be attributed to the fact that people stayed home and didn’t do things like dining out, said personal finance expert Jean Chatzky, co-founder of HerMoney.

While many have been struggling these last few months, others have picked up on some financial skills, learning how to save dollars here and there, cutting out old subscriptions, and being smarter spenders. By prioritizing wants versus needs and taking a look at how much money is going out each month, people have picked up better spending habits that will help them navigate these bumpy waters ahead. 

With extra cash and savings in the bank, it’s important to talk with an advisor about options and investing that makes the most sense for you, whether it be saving for retirement, college tuition, or something else. If you have any questions for us, please reach out at info@shermanwealth.com and we would be happy to set up a time to discuss a financial plan for your future.

 

New Fed Strategy Means Cheaper Loans For A Long time — Here’s How You Can Benefit

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As we’ve all been waiting to hear about the outcome and policy changes from the Jackson Hole symposium, there’ve been some updates that you should know. The Federal Reserve has said that it will let inflation run “hotter than normal” to help the economy bounce back from the coronavirus crisis, according to a CNBC article. According to some commentary, it seems as though this policy change is meant as a stimulus, to get people to spend more. 

Since the central bank lowered its benchmark rate to near zero in March, credit card rates have hit a low of 16.03%, on average, according to Bankrate.com. The average interest rate on personal loans is currently about 12.07% and home equity lines of credit are as low as 4.79%, according to Bankrate, both notably less than the APR on a credit card.

On the flipside, “Low inflation has helped suppress mortgage rates,” said Tendayi Kapfidze, chief economist at LendingTree, an online loan marketplace. “If you let inflation go up, mortgage rates will also go higher.”

Given this new economic data, and with these cheaper loans for a longer period of time, it’s important to take a look at where you can lock in those lower rates, such as through credit card balance transfers or refinancing your mortgage. If you have any questions about this new policy, and want to see how this could be an advantage for your portfolio, please reach out to us at info@shermanwealth.com and we would be happy to discuss with you. 

How Much Longer Until The US Economy Is Back To Normal? This New Index Shows We Have A Long Way To Go

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As we approach the six month mark from when COVID-19 turned our world upside down, we are beginning to adjust our lives to this new “normal”. As we continue to adapt to this different way of life, some things are seeming back to the way they were before, but much remains new and strange. We are going about our days wearing masks and social distancing, watching our favorite sports teams play in “bubbles”, empty stadiums and arenas, and spending our work day in sweats and from the comfort of our homes. 

As we begin to normalize some of these news ways of living, it raises the question of how far we really are from our old way of life? How much progress are we making towards this new “normal” that will be our future? As of right now, we’re seeing what’s called a “K” shape recovery, which is that the stock market is recovered, but the economy and mainstreet remains suffering. People are wondering if there will be a double dip recession potentially in the fall and winter months if the virus comes back. 

We’ve been thinking about how to tackle these difficult and unknown questions and found an interesting article by CNN Business and Moody’s Analytics, which raises some of these questions as they relate to the economy.

According to their analytics team, the U.S. economy remains far from normal. Based on the back-to-normal Index that they constructed, which takes into account 37 indicators, including traditional government stats and metrics from a host of private firms to capture economic trends in real time, the U.S. economy was operating at only 78% of normal as of August 19th. They are using the economic data from prior to when the pandemic struck in early March as a baseline as “normal”. They are saying that the “economic activity nationwide is down by almost one-fourth from its pre-pandemic level-far from normal”. 

Even though that data is not so promising, it’s important to note that it is substantially better than the darkest days of the pandemic in mid-April, when we were unsure of how dangerous this virus could be. As business re-opened between mid-April and mid-June, according to their back-to-normal index, the economy opened too quickly, with many surges in coronavirus cases throughout the summer leading to states halting their reopening plans. 

While our country is recovering slowly but surely from this deadly pandemic that has swept our world, we still have ways to go to reach our pre-pandemic “normal”. While the economy still needs time to recover, it’s the best time to think about your finances and how to manage your money to make sure you come out of these unprecedented times strong. Find out how much risk you are taking on, what investments you have and where you want to be given the circumstances and with the all time highs in the markets. If you have any questions about your portfolio or ways you can manage your money during these rocky times, please reach out to us and we’d be happy to help. 

Millennials Slammed by Second Financial Crisis Fall Even Further Behind

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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 looking pretty bad to millennials. We’ve been reading many articles discussing how unemployment seems to be looking the worst for their generation in contract to others. 

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

Millennials have found it fundamentally more difficult to start a career  and find jobs in comparison to other generations who are now married 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. 

For millennials who have been impacted 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. 

How Much Does it Take to Be Wealthy?

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The coronavirus pandemic has certainly shaken almost every aspect of the lives of Americans.  The stay at home orders, high unemployment rate and volatile market have many people thinking differently about the value of their money than they did before COVID-19 erupted in the country.

A survey conducted by Charles Schwab in January of 2020 regarding financial stability asked participants what it took to be financially comfortable, and survey participants cited an average of $934,000 in net worth. This number shifted down by 30% in June, to $655,000.

What is considered to be wealthy changed exponentially as well.  Respondents stated that $2 million in net worth today is considered wealthy, down by 23% from $2.6 million in January. In 2019, respondents said it took $2.3 million to be wealthy, down slightly from $2.4 million in the two prior years.

Americans’ attitudes about money play a role in their overall happiness, but when asked about the most important factor to their overall happiness today, survey respondents regarded those drivers in the same order as before the coronavirus outbreak:

  • Relationships – 39%
  • Health – 27%
  • Money – 17%
  • Lifestyle – 14%
  • Career – 3%

After months of stay-at-home orders and a change of lifestyle, the coronavirus pandemic has vastly impacted the way we think about the value of money. 57% percent of respondents said the coronavirus has financially affected them or a close family member.

At the same time, many respondents mentioned that they are more likely to start saving in general than they did before the pandemics onset. The need for an emergency fund is now more important to many than ever before.  Others said they are much more likely to consider hiring a financial advisor to set up a strong financial plan. 

If the coronavirus pandemic has impacted your finances or you are uncertain about your financial plan, please reach out and we would be happy to help you find a plan that works for you. If you have any questions, contact us at info@shermanwealth.com and we will answer any questions you might have.