Today is Friday, May 29 which means it’s “529 Day” or “National 529 College Savings Plan Day”. Each year, National 529 College Savings Plan Day draws awareness to the tax-advantaged way of putting money away for education costs. To help ease the burden of student loans, some parents put money aside each year for their children’s education. 529 plans have grown in popularity over the years, however many people still remain unaware that 529 plans are even an option for education savings.
So, what exactly is a 529 plan? 529 plans, also referred to as “qualified tuition plans,” are tax-advantaged savings plans sponsored by states, state agencies or educational institutions. Earnings are federally tax-exempt and most states exempt earnings from state income tax.
There are two types of 529 plans: Prepaid tuition plans and education savings plans. Both can be used as a way to save for a child or beneficiary’s education, but differ in their methods.
Prepaid tuition plans allow people to purchase units or credits at higher education institutions at current prices to be used in the future by the beneficiary. The credits are purchased for participating colleges or universities, which are usually public and in-state. However, it may be able to be used for an equal payment to private or out-of-state institutions.
The second type of plan is an education savings plan. It serves as an investment account that can be used for future qualified higher education expenses. Similar to a Roth401(k) or Roth IRA, plans offer several investment options and funds will rise and fall based on the investment’s performance. Generally, the accumulated funds can be used at any participating college or university, regardless of its location. You can also use up to $10,000 to pay tuition at elementary or secondary schools.
The ways you can spend this saved money differs based on the plan. Prepaid tuition plans can be used for tuition and mandatory fees, but not room and board. Education savings plans, however, can be used for tuition, fees, books, supplies, equipment, computers and sometimes room and board. Technically, a person can use the funds accumulated in an education savings plan for any expense they choose, but if the funds are used for a non-qualified distribution, they are subject to income tax, a 10 percent penalty and any additional state penalties. If a beneficiary doesn’t need the funds, they can be withdrawn with the payment of income tax and penalties, although there are exceptions to the penalty fees.
529 Day is a great time to review your college savings progress and if you haven’t started saving for college yet, it’s not too late! Some states currently have different contests and incentives to try to boost interest and participation in their 529 savings programs. Click hereto see what your state might have to offer. If you have any questions about 529 plans or would like us to help set up a plan for your beneficiaries, please contact us – we’re here to help!
We’re all spending more time at home these days and it’s likely that money and finances are a stress for many during this pandemic. As the markets continue to be extra volatile, many people are feeling a lack of control when it comes to their money. Even though there isn’t much we can do about the state of the overall economy, there are some small-scale things you can do right now, from the comfort of your own home, to help you feel more in control of your finances. If it is all you can do right now to keep up with your bills, that should continue to be your main priority. However, if you’re in the fortunate position of having an income or some extra cash, the following tasks take 30 minutes or less and might just have you feeling a little better about the state of your finances.
REVIEW YOUR BUDGET
Every solid financial plan starts with a good budget, and now is a great time to go over yours. You should review your spending habits and try to determine which areas of your spending are relatively fixed — such as monthly rent and insurance coverage — and those that are discretionary, like your lattes, subscriptions and eating out.
Since you’ll likely be spending a lot of time at home this month, most of your convenience purchases will probably trail off. Comparing last month’s expenditures to this month, you will see where you are spending your money and you will be better positioned to make changes to your spending habits in order to prioritize saving money and spending on what you deem essential for your household.
GET SPECIFIC ABOUT YOUR FUTURE
Write down all the things that you want to do in your future – you can do this by yourself or with a significant other. Break it down into five-year segments. What do you want to do, where do you want to go, and what do you want to accomplish during each five-year segment? If you have career goals that include starting a business, making more money, or changing your job, you might need to learn some new skills to start down that path.
Being confined to our home offices gives us a great opportunity to focus on learning something new and developing plans for the next steps in life, whether it is signing up for an online class or doing some research on what it might take to take your career in another direction.
SET UP A 529 COLLEGE-SAVINGS PLAN FOR YOUR KID(S)
If you’ve been considering a college savings plan for your child, setting one up online is quick and easy. You should start by reviewing the 529 plan options where you live, since they often provide tax benefits while you save for your child’s college education. Just remember to keep your own future financial goals in mind, as well. Saving for your children’s education is very important, but should come second to saving for your own retirement.
REVIEW YOUR BENEFICIARY INFORMTION
You should make a list of your financial accounts that include beneficiary designations — like your IRA, 401(k), or life insurance — and make any necessary beneficiary information adjustments. Since these designations determine who will receive your account upon your passing, if they are left blank or not updated, your wishes could be ignored and assets could go to an ex-spouse, or state law could become applicable and decide how to split your accounts.
SET UP A NEW SAVINGS ACCOUNT
Now is the perfect time to set up a separate online high-yield savings account for your specific goals, whether it be for a vacation, saving for the holidays or possibly a new car. To make things even easier, you can also set up a direct deposit so that you put a little bit away from each paycheck towards that objective. However, remember that these “extras” should take a backseat to your emergency fund. Having three to six months of expenses set aside in a money market or high-yield savings account can provide peace of mind and can be a lifesaver in times of temporary job loss or medical costs.
DO SOME BOOKKEEPING
Now might be a good time to do some overall bookkeeping. This can include reviewing your insurance policies to see if you still have sufficient coverage for your needs, or working on your estate plan (are your medical directives all updated?). If your kids are old enough, this could even be a good opportunity to teach them how to balance a checkbook by showing them how you do yours.
EVALUATE YOUR INVESTMENT PORTFOLIOS
If you have money in the market that’s earmarked for retirement, you might be a little worried about how current events will impact your goals. Now is a good time to have a call with your financial planner to determine if your portfolio is still meeting your long-term goals, or if it needs to be adjusted based on current events.
Even though we may not have expected to be spending this much time in our homes over the past few months, it’s important to take advantage of the time while we can. These unprecedented times have given us the opportunity to slow down and focus on our families, as well as other important aspects of our lives like our finances. Taking just a half hour each day or week to go over these tasks can help us to feel more in control and less stressed about our money as we deal with the uncertainty of the times. As always, if you have any questions about any of the suggestions above or any other concerns about your finances, please contact us. We are here to help and we are all in this together!
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act was recently enacted to assist families, individuals, small business owners and medical facilities across America amidst the COVID-19 pandemic.1 As part of this legislation, many individuals and families became eligible to receive stimulus checks of up to $1,200 per person.1 Many Americans have received their checks already, while some are preparing to receive theirs shortly. If you or your household received a check, here are some things you may want to consider doing with it.
#1: Cover the Essentials
The stimulus checks are designed to help Americans who may be financially struggling due to COVID-19. Whether you’ve been furloughed, forced to reduce hours or dragging financially, you should use this money to cover any immediate, essential expenses like rent, utilities, groceries or internet.
This check should be looked at as a mini emergency fund. Look at your bills over the coming weeks and determine how you can best utilize these funds. If you’re currently receiving unemployment payments from the government, remember to account for this income when making your financial strategy as well. If you are still coming up short after the stimulus check has been used up, remember to check with companies (power companies, insurers, gyms, cable companies, etc.) regarding any relief efforts or forgiveness policies they may have enacted amidst the global pandemic.
#2: Fill Your Emergency Fund
Many adults say they don’t have enough saved to cover a $400 emergency.2 With so many people living paycheck to paycheck, this extra bump in funds could be the cushion needed to prepare for any potential financial surprises.
Even if your income remains unaffected by the pandemic or you find yourself with some additional dollars leftover, it’s never a bad idea to tuck some away for a rainy day. If you don’t have an emergency fund, saving any surplus from your stimulus check is a good way to start one. An ideal emergency fund should have three to six months’ salary to help cover unexpected expenses such as job loss, medical bills, home damage, car repairs, etc.
#3: Address High-Interest Debt
Total household debt in America was already quite high before the pandemic hit. Now, overall American debt is soaring. While some of these debts include lower-interest debts like auto loans or student loans, an extremely large portion of the overall amount is attributed to credit card debt.3
If you’re currently facing any amount of high-interest debt, such as credit cards or personal loans, paying this down should be a top financial priority. If your current financial situation allows it, use your stimulus check to make a dent in (or pay off completely) any high-interest debt your family may have.
#4: Support Local Businesses
It is extremely important to patronize local shops in your community if you are able to. Whether you order food from a local restaurant, purchase gift cards from your favorite boutique or frequent your local coffee shop or bakery for take-out, small business owners have been some of the hardest hit during these times. Many of these small businesses don’t have the backing of a larger corporation or franchise and are experiencing a severe drop in revenue that could jeopardize their ability to stay open after the pandemic. Your patronage could make a big difference in their ability to continue operation.
#5: Donate It
If you are fortunate enough to be financially comfortable during the COVID-19 pandemic, you may want to consider giving to those most affected – medical facilities, food banks, shelters, etc. The devastating impact of COVID-19 means assistance is needed now more than ever before.
While the ability to make physical donations (such as clothing, toys, pantry items, etc.) may be limited right now, you can still use your stimulus check to provide crucial monetary relief. You can search for charity organizations using tools such as Charity Navigator or The Better Business Bureau’s Giving Alliance or you may hear about local nonprofits that are in need through social media or word of mouth.
#6: Fund Your Future Retirement
Even if you are far off from retirement, putting any excess income into a retirement savings account can be a rewarding move. You may consider using your stimulus check to pad your IRA or 401(k) if you are able. The power of compounding interest means that $1,200 could turn into a couple thousand or more by the time retirement rolls around.
In these unprecedented times, many of us are left wondering what the best next move is when it comes to our stimulus checks. No matter what you choose to do, remember to be intentional with these additional dollars. If you have any questions regarding how to move forward when you receive your stimulus check, please contact us. We are here to help and we are all in this together!
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!
It was recently announced that the state of South Carolina was pushing to pass a bill that would require all high school students to take a course on financial literacy in order to graduate. Five states (Alabama, Missouri, Tennessee, Utah, and Virginia) are the only other states to have passed a similar law. As professionals who strive to preach the importance of this topic, we are very happy to see these developments. In fact, we think it’s particularly great that we, as a nation, are beginning to demand that children learn the basic of personal finance, before they step out into the real world.
But first off, let’s tackle what the actual definition of “financial literacy” is. Financial literacy is the combination of financial, credit and debt management and the overall knowledge that is required to make responsible decisions regarding financial matters. Really, we are talking about the impact of finances on the daily issues an average family may encounter.
Is the rate of financial literacy low in the US? Yep. (Actually, it’s low around the world.) Of course, the level of financial literacy varies according to education and income levels. However, there is a lot of evidence out there that shows that highly educated individuals with above-average incomes are almost equally as under-educated on these topics as those who may live a more modest lifestyle.
Given this information, it is becoming increasingly more important to ensure that we are preparing our children with this knowledge well before they are starting college, creating families, and living an “adult” life. Why? Because it’s about the “long game”. Financial literacy is critical in helping people plan for retirement and avoiding high levels of debt. Last year, a study from TIAA-CREF showed that those with high levels of financial literacy are more likely to make astute decisions and typically, over their lifetime, amass twice as much wealth as those without a plan.
If you can’t build a simple household budget, then you are likely financially illiterate. If you are oblivious to money-related decisions, are unsure of the consequences of these decisions, or you simply don’t care, then you’re financially illiterate. Most importantly, If you have learned the “hard way” over the years that not being up-to-date on financial matters has affected your life in a negative way, it is imperative that you do not allow your children to make the same mistakes. Important financial decisions are popping up earlier and earlier in life, as the world becomes more complex. You don’t “build” wealth and then figure out how to manage it properly. That ability to grow comes with managing it properly along the way.
The statistics mentioned above are some of main reasons we have created the “Beers with Brad” seminar series. We feel that increasing your financial literacy is incredibly important to your long term financial goals and obligations. If you are in the DC/Maryland/ Virginia area and would like to hear more, feel free to stop by our next event.
Many feel they don’t have the money they need to invest, so they forego savings altogether. Sound familiar?
If this is you, the time has come for you to stop shooting yourself in the foot, and start saving today. Consistency while saving is key, and can make all the difference over time. Each dollar that you contribute to your portfolio adds up. In the long run, your investments early on can make a real impact, and when the time comes to withdraw your hard earned savings, the interest you’ve earned on your investments will help to provide a comfortable retirement or any long term goal you might be saving towards.
Start Saving Now
Consider the difference of waiting to begin saving. At age 27 you will need to put away $214 a month to reach a goal of $1 million. When you start at age 37, you will need to put away $541 a month to reach your goal. If you wait until age 47, that number rises to $1,491 a month and if you wait until age 57, you’ll need to put away a hefty $5,168 a month. Waiting until the last minute (age 62) would mean having to stash $13,258 a month to reach $1 million by the age 67 – ouch!
When you factor in things like compound interest, the negative impact of delaying your retirement savings becomes increasingly obvious. Compound interest is often compared to a snowball. If a 2-inch snowball starts rolling, it picks up more snow, enough to cover its tiny surface.
As it keeps rolling, the snowball grows, so it picks up more snow with each revolution. If you invest $1,000 in a fund that pays 8% annual interest compounded yearly, in 10 years you’ll have $2,158.93, in 20 years that will be $4,660.96, in 30 years it will be $10,062.66, and in 40 years it will be $21,724.52. It takes patience, but with time you can turn $1,000 into $21,724.52. That sounds like a lot of money, but if we’re being realistic, $1,000 is often spent on:
• A weekend skiing with friends
• A few months of dining out with friends or your spouse
• A new piece of furniture, or tech that you may/may not need
By hitting “pause” on these non-essential goals, you can easily start saving today and take advantage of compound interest.
No matter where you are right now, the crucial point is to begin putting money aside immediately to achieve your long-term financial goals.
What are your future goals?
Travel? Education for your kids? Paying off your mortgage?
Even when you contribute a minimal amount annually, if you’re consistent with that contribution over many years, the growth your investment will make can maximize your wealth in the long ron.
The idea that you don’t have enough money right now to make your investment worthwhile is hurting you and your future. Resist the urge to overthink how much you are investing, and just act by giving what you can to your future savings today. Remember: every dollar counts, and the satisfaction of watching your investment grow over time will give you peace of mind and a freedom to plan for the future.
Don’t Jump Ship When Things Go South
Many investors view themselves as being rationally-minded individuals who don’t take sudden action when the markets become turbulent. Too often, though, people do try to time the markets, and wind up making a wrong decision as a result.
Derek Horstmeyer of the Wall Street Journal writes “Most investors think of themselves as rational and immune from the behavioral elements that periodically roil markets. Human factors, however, do continue to affect our personal portfolio decisions—usually to the detriment of our long-run returns.”
Thinking too much about the “perfect timing” when growing our portfolios is a strategy that will more often than not cause people to lose money in the long run. A far better investment plan is to focus on the big picture, and less on a perfect portfolio – where every decision is made at the exact right time.
Timing the market is less important than time in the market, and getting caught up in getting that “perfect timing” is almost certain to cost you money. Aiming toward a good, solid return on your investment is a smarter strategy than worrying about every detail affecting your portfolio. All too often, people panic as soon as things start to go south (pulling out when the market has already hit bottom and putting in more when at the top). As a result, they often don’t experience this stated return in full. By resisting this urge to make a rash decision, investors showing behavioral restraint may actually wind up saving 1-2 percentage points a year.
Starting early is a critical component to a successful portfolio. It is never too late (or too early) to start, so the sooner the better. Beginning in 2011, studies were conducted where participants were shown a computer generated rendering of what they might look like at their age of retirement. They were then asked to make financial decisions about whether to spend their money today or save that money for the future.
In each study, those individuals who were shown pictures of their future selves allocated more than twice as much money towards their retirement accounts than those who did not see the age-progressed images. Seeing the images gave the participants a connection with their future selves that they did not possess before. As a result, their saving behavior changed dramatically because, “saving is like a choice between spending money today or giving it to a stranger years from now.”
Picture Your Retirement
Instead of viewing your future self as a stranger, think of how you actually might look. Then think of the financial decisions you are making today and how they will affect you in the future.
Are your spending and saving habits today matching up with how well that future self is able to live tomorrow? Every delay you make toward saving for retirement, or investing wisely means a further burden you will place on yourself later on. In fact, starting your retirement saving early is actually more important than earning higher returns at a later date.
The importance of starting now can’t be stressed enough. Luckily, fee-only, fiduciary advisors exist to help everyday people in making wise choices and to lessen the anxiety associated with what can seem like an overwhelming task.
The good news is you don’t even have to be a millionaire to get this customized service. Working with a professional will enable you to maximize your return on investment and tailor a savings plan just for you. Don’t delay getting started. The benefits of starting early and often far outweigh how much you actually save.
Would it surprise you to know that students graduating from high school enter college with little to no knowledge about their finances, how to budget, or save for their futures? The problem has become so severe that 40% of these students wind up going into debt in order to fund their social lives and 70% of these students wind up damaging their credit ratings shortly after college graduation.
Unfortunately, it seems as though this debt will not be going away anytime soon. The average student loan debt for the class of 2016 increased by 6% from the previous year and the financial literacy rate in the U.S. has not improved over the past three years. While college enrollment and the number of college graduates has continued to increase, financial literacy lags among these young people at record lows. Where does this disconnect come from?
Few states offer personal finance or economics courses and even fewer states test students on the financial knowledge they have acquired. It therefore comes as no surprise that American students (and we can infer American adults) have one of the lowest levels of financial literacy when compared to other countries. While the number of student loans has increased,
44% of Americans don’t have enough cash to cover a $400 emergency
43% of student loan borrowers are not making payments
38% of U.S. households have credit card debt
33% of American adults have $0 saved for retirement
Why does it matter? How is it affecting the economy?
Students are graduating with loans they can’t afford to pay back and with minimal financial knowledge in planning for their futures. According to Student Loan Hero, Americans have over $1.48 trillion in student loan debt, which is more than double the total U.S. credit card debt of $620 billion. This debt is becoming a major barrier to home ownership. 43% of student loan borrowers are not making payments and most of these individuals do not have any savings. A lack of sound financial knowledge will affect the economy as these millennials enter the labor force burdened with student loans.
As parents, we play a vital role in educating our children about the importance of personal finances. In the Sherman household, we are teaching our children the importance of finances on a daily basis. Our 4 year old son is learning about savings by doing chores in return for an allowance, which he saves in his piggy bank. He is learning to save and spend his money wisely.
Parents can begin educating their children at home in order to increase the financial literacy of their kids. By demonstrating wise financial habits, parents can serve as role models for their kids. Talking in an age appropriate way to your children about the dangers of debt and the importance of saving a portion of any money they earn instills financial values and lessons your child can use throughout life. You may find that using an allowance is a way that you can teach your kids about saving and spending appropriately. Since it has been shown that kids who manage their own money have been found to demonstrate better financial habits in the future, giving your kids the opportunity to spend and save their own allowance or money earned is a good way to prepare them for later on. Even a simple trip to the store can be used as an opportunity to start the conversation about the danger of credit cards and how they should only be used in an emergency. Educating your kids at an early age will enable them to better learn and practice sound financial habits while under your watchful eye and cause them to be less likely to make irrational decisions once they are out on their own.
This issue is not only affecting students and young adults. Many professionals with advanced degrees have spent countless hours studying and researching information in their particular field. Despite all of the hours spent earning their degrees, many of these people have never taken a single course in financial education and are surprisingly not prepared to deal with the important financial decisions affecting their futures. As a result, many extremely smart and successful people are making critical financial errors which can negatively impact the amount of money they have saved upon retirement.
Beginning in 2011, studies were conducted where participants were shown a computer generated rendering of what they might look like at their age of retirement. They were then asked to make financial decisions about whether to spend their money today or save that money for the future. In each study, those individuals who were shown pictures of their future selves allocated more than twice as much money towards their retirement accounts than those who did not see the age-progressed images. Seeing the images gave the participants a connection with their future selves that they did not possess before. As a result, their spending/saving behavior changed dramatically because “saving is like a choice between spending money today or giving it to a stranger years from now.”
The benefits of educating your children about the importance of personal finances are undeniable, and you’ll be able to set them up for a promising future and help them prepare for retirement. Visit us online for more information about how we can help improve your financial life.
While the stock market has been steadily climbing for the past few years, a surprising number of people are keeping a surprising amount of money in cash. And while everyone is going to have a certain amount of cash allocation, what’s even more surprising is how many people are losing out on maximizing the interest rates for those assets.
Advisors typically recommend holding 3%-5% of your assets in cash – for emergencies, short term savings goals, a new home or a vacation, or simply as a hedge against volatility. Yet, according to the latest Capgemini World Wealth Report, high-net-worth Americans are currently holding more than 23% of their assets in cash.
Treasury yields are climbing
Why would investors prefer cash over a booming stock market? Studies, like this one, have shown that “cash on hand” – the balance of one’s checking and savings accounts – is a better predictor of happiness and life satisfaction than income or investments. Put simply, people like having “money in the bank.”
There’s no reason for that “money in the bank” to be earning zero though, particularly when there are many FDIC-insured, highly-rated, savings account options that may be yielding a higher interest rate on your savings than your current bank or investment firm’s savings options.
Short terms saving rates generally follow moves by the Federal Reserve and, as indicated by the chart to the right, short term interest rates, as reflected in short term Treasury yields, are rising. But is your bank raising your interest rates too or are they pocketing the difference and profiting? While the percentages seem small, there is actually a significant difference between earning .05% and 1.5%: the difference between earning $5 and $150 on a $10,000 savings account.
Put simply, if your cash is in a zero percent interest account, it’s no better than putting it under your mattress. You’re losing money, both in lost interest and because inflation can reduce the value of your savings.
Do you know if your own savings account’s interest is keeping pace with rising interest rates? If not, check with your advisor to make sure you are maximizing your money’s earning power. If you’re not, consider shopping for a higher rate. Cash should be an asset class, but it shouldn’t earn zero.
If you’re not sure, we’re always available for a free consultation to see if you’re getting the best rates and you’re maximizing the earning power of your cash reserves.
One of the most important elements of a good financial plan is regular saving. Unfortunately, it is one of the biggest stumbling blocks as well, with 57% of Americans reporting they had less than $1000 in savings in a 2017 survey. To make matters worse, 1 in 3 American has no retirement account, and only 1 in 4 Americans has over $100,000 in their retirement account.
These are concerning figures, particularly now. As interest rates keep rising – short term treasuries at their highest in nine years – and the market continues its climbing streak, you’re missing out if you are not putting savings to work for you.
Why aren’t more people saving when, according to a recent you.gov survey, “saving more money” was the 4th most popular New Year’s resolution for 2018?
One factor our clients have cited that kept them from saving in the past is discouragement due to past failures. The solution is to make sure your goals are SMART goals: goals that are Specific, Measurable, Attainable, Relevant, and linked to a Timetable.
It is important to set Specific and Relevant immediate, short, and long-term savings goals that you can visualize – like a beach vacation, a bigger home, or a child’s graduation ceremony. Tying savings goals to images that align with your life and your values can make them more emotionally compelling and easier to keep in mind.
Equally critical is to make your goals Measurable and set a Timetable: how much you are planning to save each month, or by a certain date. Don’t set figures or dates that are impossible; make sure they are Attainable as well.
Just like physical fitness, financial fitness is best achieved by setting specific, achievable, and measurable goals. A defined goal, whether it’s “save 5% of each paycheck” or “add extra hours to save for a vacation,” gives you a much better shot at success rather than a simple “I should be saving more.”
A huge part of good financial planning is goal setting. A good financial planner can help you calculate the long-term benefits of saving more and on a regular sustainable basis. It’s particularly important that your financial planner is a fee-only Fiduciary: that means there will be no “additional charges” or investment recommendations with commissions for the broker that could throw off your savings calculations.
And if you’d like help defining financial goals and evaluating whether you are saving enough to achieve them, please feel free to contact me for a free introductory call. We are always on call to help you realize your highest financial potential.
Last week, in response to confusion surrounding the 2018 tax law that was passed in December, the IRS released an updated online Withholding Calculator. The tool is designed to help taxpayers make sure they are not wildly underpaying or overpaying what they will owe.
The new law is highly complex and made changes that included increasing the standard deduction, removing personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions, and changing the tax rates and brackets.
The online calculator should go a long way to help employed taxpayers plan ahead, particularly those in middle-income and upper middle-income brackets.
This is important because you don’t want to be withholding too much –in effect giving the government a free loan of money you could be investing in your home, the market, educational savings funds, or just your day-to-day needs. On the other hand, you don’t want to be withholding to little and risk facing an unexpected tax bill or penalty at tax time in 2019
According to the IRS some of the groups who should check their withholding are:
Two-income families
People with two or more jobs or seasonal work
People with children who claim the Child Tax Credit (or other credits)
People who itemized deductions in 2017
People with higher incomes and more complex tax returns
According to Acting IRS Commissioner David Kautter, about 90 percent of taxpayers would have “some adjustment one way or the other” to the amount they are withholding. That’s most of us.
The changes do not affect 2017 tax returns due this April. Your completed 2017 tax return can, however, help you input data to the Withholding Calculator to determine what you should be withholding for 2018 to avoid issues when you file next year. And if you do need to change the amount you are withholding (remember- 90% of us might), there is also a new version of the W-4 form to download and submit to your employer.
