Introducing Beers with Brad

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We have hosted two very successful Beers with Brad financial literacy seminars in Gaithersburg, Maryland at Launch Workplaces.  We’ve had terrific beer from great local breweries around Maryland. I think when you’re able to relax and have a beer, hear what everyone else is thinking about financially and truly see that you are not alone and other people have the same fears around money it enables the conversation to expand and for questions to surface that you may not have asked before.

I created the idea of Beers with Brad because people are so hesitant to speak up about their financial anxieties and worries about how to save for retirement.  Many questions surround saving for kids college education and how to valuate the interest rate on your student loan debt versus what you could be potentially making in the diversified portfolio of stocks, bonds, cash, real estate, and other asset classes.  There is so much information available that it can be overwhelming and many people I’ve talked to are searching for clear answers.

As Morgan explains:

That’s because investing is not the study of finance. It’s the study of how people behave with money. And behavior is hard to teach, even to really smart people. You can’t sum up behavior with formulas to memorize or spreadsheet models to follow. Behavior is inborn, varies by person, is hard to measure, changes over time, and people are prone to deny its existence, especially when describing themselves. –Morgan Housel

Young families have so much going on in their lives that they don’t have the time to discuss personal finances and one of the greatest stresses in a marriage is finance.  We created this video to show exactly what Beers with Brad is, how relaxed it is and how engaging the conversations are.

Plus, who doesn’t like a good local craft beer?

https://youtu.be/msM_rkQYkpc

 

If you have any questions about the event contact us at info@shermanwealth.com we hope to see you there!

If you are unable to join this month, please let us know if you want to be added to the email list for the future events below:

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A New IRS Withholding Tax Calculator Eliminates the Guesswork

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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.

More information is available from the IRS here: Withholding Calculator Frequently Asked Questions.

And if you have questions about how these important changes may affect you, please call us for a free consult or reach out to your CPA.

How to Make “Cents” of the Changes to 529 Plans

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Are you saving for your child’s education with a 529 account?

If you are already contributing to a 529 plan, reduced deductions in the new 2018 tax law mean you may want to increase your contributions – or even create a second 529 account – to offset higher state taxes.

If you haven’t yet opened a 529 account, this year’s important changes in tax and 529 regulations have made 529 accounts an even more valuable option for parents of school-aged or college-aged children.

Here are the changes and why contributing to a 529 account is more important than ever:

K-12 Tuition is Now Covered by 529 Plans

529 plans were originally created to let you to save and invest for your child’s college education – while paying no federal tax on qualified withdrawals. The good news is that benefit has now been expanded: you’ll be able to withdraw up to $10,000 per year per student for elementary, middle, and high school tuition if your child attends or will attend a private or religious school. And, if you’ve already been saving for K-12 with a Coverdell ESA, you can also rollover that account to a 529 plan without tax consequences.

Saving by Off-Setting State Taxes

The new 2018 tax law limits deductions for your state income and property taxes to $10,000, so you might find yourself paying more state tax this year. But if you live in one of the 34 states that offers a state tax deduction for contributions to a 529 plan, you can lower your state taxes by contributing more to your 529. In most states you have to be enrolled in one of that state’s own plans to take the deduction, but several allow you to deduct contributions from any state plan. And, if you live in one of the several states whose 529 plans include state tax credits, you could also find yourself paying considerably less.

Turbo Charging the Benefits for Younger Children

529 plans allow “front-loading,” a term for making up to five years of contributions at once. This not only allows you to “catch up” for a child already in elementary or secondary school, it also allows you to maximize state tax deductions or credits. And anyone can make contributions to your child’s 529 plan. Friends and relatives can each contribute up to $15,000 per recipient, they can also “front-load” up to five years of contributions as well, maximizing their own tax savings. Additionally, if they make direct payments to services provided for beneficiaries’ tuition or medical expenses, these expenses would be tax-free, even though the costs surpass the annual gift tax exclusion.

New Benefits for Special Needs Students

The new tax law allows assets in 529 accounts to be transferred to ABLE accounts without any penalties as long as they are transferred by 2025. ABLE plans – named for the Achieving a Better Life Experience Act – are designed to provide tax-favored savings for people with disabilities without limiting their access to benefits such as Medicaid, Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). The annual contribution cap for ABLE plans is $15,000 and an account can reach $100,000 without affecting SSI benefits. You can also make tax-free withdrawals when paying for expenses such as housing, legal fees and employment trainings.

Plans Can Be Transferred to Another Child

If you no longer need the account for the child it was created for, you can change the plan’s beneficiary to another family member, saving you the income tax on 529 earnings and 10% federal penalty you pay if you withdraw money for non-educational purposes.

The Bottom Line

Every parent – and grandparent – should consider opening one or more 529 accounts for their children’s education. There is no limit to the number of plans you can contribute to, or the number of accounts that can be opened for any child, so study up to determine which plans make the most sense for you. But remember: each state’s rules are different so – like your kids – you’ll want to do your homework.

Then, as with all smart savings plans, contribute on a regular basis over time, through market ups and downs, to benefit from dollar cost averaging and watch your interest compound – and your child’s educational opportunities grow.

 

For how the new tax law affects the “Kiddie Tax” for Uniform Gifts and Transfers to Minors (UGMAs and UTMAs) please click here.

At Sherman Wealth Management we’re passionate about children’s education so please give us a call if you have any questions about your state’s 529 options.

A version of this article initially appeared on Investopedia.com

 

 

The “Kiddie Tax” is Changing: What You Need to Know Now

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Saving on taxes, while saving for your child or grandchild’s college education, just got a little trickier thanks to important changes in the “Kiddie Tax”.

The tax bill that was signed into law in December made some significant changes to how Uniform Gifts to Minors Accounts (UGMAs) and Uniform Transfers to Minors Accounts (UTMAs) are taxed.

What is the “Kiddie Tax”?

“The “Kiddie Tax” was first established in 1986 to keep parents from shielding income by placing investment accounts in the names of their children, who typically are in lower income tax brackets,” explains CPA Joshua Harris of Santos, Postal & Company. “The initial Kiddie Tax rules expired when a child turned 14. In 2008, this threshold increased to cover children through age 18 and full time students through age 23.”

How were Uniform Gifts and Transfers Taxed?

UGMAs and UTMAs have been a popular way to save money in a child’s or grandchild’s name precisely because of their significant tax advantages. A portion of the money earned – the first $1,050 of the child’s investment income (including interest, dividends and capital gains distributions) has been tax-free; the next $1,050 has taxed at the child’s rate; and investment income above $2,100 was taxed at the parent’s or grandparent’s “marginal” tax rate, ie the highest rate applied to the last dollar earned.

How is it Changing?

The 2017 Tax Cuts and Jobs Act made an important change to this graduated “Kiddie Tax.”

Instead of a child’s investment income above $2,100 being taxed at the parent or grandparent’s individual tax rate, it will be taxed at the 2018 trust and estate tax rates:

 

Investment Income Trust & Estate Tax Rate
Up to $2,550 10%
$2,551-$9,150 24%
$9,151-$12,500 35%
Over $12,500 37%

Will You Pay More or Less?

How much you will pay depends on the amount of investment income and your own marginal tax bracket. As a rule of thumb, the more you have the more you may be taxed this year.

While the Tax Code changed with this law, it unfortunately did not get simpler. And one alternative, if your rates are going up, may be to consider rolling the UTMA or UGMA into a 529 plan. Because of the complexity, it’s a good idea to speak with your Financial Planner about how the new law affects you, and what your best alternatives are now among the wide array of educational savings plans.

 

Please give us a call if you’d like to schedule a free consultation.

Sinking

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Imagine this: you are in a car and it is sinking.

You try pulling on the door handles but they won’t open because the pressure on the outside of the car is much greater than the pressure inside the car.  What do you do?  More likely than not, you are now panicking and you can’t think clearly.  If you were thinking clearly, you might remember the driver’s education 101 tip that says stay calm.  If you have patience and wait for the car to fully submerge, the pressure on the inside and outside of the car will be equal and you should be able to open the door.

A similar thing happens in the world of investing.  During times of crisis, our instincts cause us to panic and forget everything we have learned.  When a crisis arises, we tend to take the first action we can think of, even if it is not the best one.  It takes a lot of patience and mental discipline to be able to watch a market dropping without pulling out your cash, but there is a huge difference in your returns if you remain calm.  From November 1, 2015, through February 11, 2016, the global stock market fell about 15% before rallying 31% to today’s level.  If you had sold at this time out of fear, though, you would be up only 4% compared to the 20% cumulative you’d be up if you had remained steady.  

Source: data from Xignite, total returns data for ACWI ETF representing global stock markets, chart from Betterment

 

The best advice you can be given is: understand the level of risk that you are taking in your current portfolio and make sure that you are comfortable taking on that level of risk.  Your risk level is closely tied to your financial plan.  You should ask yourself if you are taking too much or too little risk to accomplish your goals.  Are you saving enough to achieve your goals?  Are you using unreasonable future growth assumptions to accomplish your goals?  If you are honest with yourself and realize you are taking on more risk than you are comfortable with, you should adjust your risk level and financial plan as soon as possible, not as a reactionary measure to a market downturn.  Additionally, regardless of your risk tolerance, everyone should have an emergency fund that is invested conservatively as a fallback.  

If you feel that you are taking a level of risk that you are comfortable with, but are still worried about your own panic getting in the way of your plans – draft a plan now for how you will deal with it.  If you can’t handle seeing the color red, logging into your portfolio every day is probably not recommended. Ask yourself where there is wiggle room in your financial plan.  Prioritizing your goals and figuring out what you would do differently if the need arose is a good way to feel more secure if things are not going well.  

If you think making changes to your portfolio is the right move, make sure get a second opinion from someone with a level-head.  At Sherman Wealth Management, we are committed to answering all of your questions, addressing your concerns and helping you to avoid common behavioral mistakes.  When you imagine yourself in a sinking car, rest assured that we are right there to coach you through it.

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

Real Life Financial Planning

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This past weekend my family has made the move into a new home, which needless to say, has been a chaotic process.  It really got me thinking, though, about real estate/home ownership and how it fits into client portfolios and their financial plans.

The mantra of the middle class is buy a home.  But is it always the best decision for your money?

Buying residential real estate certainly poses some undeniable advantages.  For many people, there is a certain pride in homeownership.  After all, it is the epitome of the American Dream.  Additionally, the interest and property tax portion of your mortgage is tax-deductible, and not unimportantly, homes tend to increase in value, build equity and provide a nest egg for the future.

But what is very often overlooked by the average American is the opportunity cost of their money and how their mortgages play a role in that.  A recent Wall Street Journal article highlights the important decision individuals face when they have excess cash.  It recommends taking a close look at what interest rates you pay on a mortgage and how those compare to the savings amount on your bank account as well as the rate of return on investments in equity and bonds.

When homeowners do this, they often are struck with a revelation: they are likely not getting as high of a return on their investment as they would have if they were invested more heavily in equity.  Ultimately, the opportunity cost of having your money tied up in your mortgage could actually hurt your long-term wealth.  Even worse, the tax breaks you are receiving do not cover the amount of loss incurred from your interest rate!  A recent Bloomberg article went so far to say that this simple understanding is one of the distinctions that separates the world’s wealthiest individuals from the middle class and one of the major contributing factors to income inequality.  Basically, it argues that a major difference between the middle class and the top 1% is that the middle class have too much of their portfolios tied in up residential real estate that is not providing adequate returns.

There is a theory out there that wealthy individuals are simply more skilled investors.  A recent study explains that this is not true. (In fact, they might be worse!)  Wealthy people just tend to own most of the equity in the economy, meaning that when business does well, they reap disproportionately large benefits.  Generally speaking, rich individuals own the upside of the economy in the form of stock, while the middle class’s gains are limited by the slow growth of housing wealth.  It is no surprise that the collapse of the housing bubble has exacerbated wealth inequality because stocks recovered more strongly than real estate did.  Maybe the difference between you and the 1% is just your perception of the options available to you.

Surely, shelter is one of the basic necessities of life.  Everyone has to live somewhere – but taking the time to consider all of your options before making any large financial decisions is something that every person should do.  At the very least, you should consider the opportunity costs of your cash and look into advantages of a less expensive housing option, renting, or investing more in equity to ensure that you are getting the most out of your money in the long run.

At Sherman Wealth Management, we believe that real life decisions call for real life financial planning.

These are the kinds of decisions we want to help you make, so don’t hesitate to contact us today to get started.

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

 

7 Fun Money Lessons to Teach Your Kids this Summer

Money Lessons for Kids

Summer is a great time for kids to catch fireflies, perfect their backstrokes, daydream, and learn some great lessons about money and financial literacy. Sound like a hard idea to sell to kids in vacation mode? Not if you make it a rewarding part of summer fun. Here are some tips to incorporate smart money lessons for kids from K-12 that will add to their summer fun and set a great foundation for making smart money choices later on.

SAVING

Ask your kids to set aside part their allowance for a special summer savings goal then sweeten the pot by telling them you’ll match whatever they save. For the little ones it could be as simple as setting up 2 jars, one for their summer goal (like a super-soaker, hula hoop, or the ingredients for s’mores) and one for the rest of their allowance. They’ll love seeing the jars fill up with coins and counting and re-counting their money. For older kids who are saving for a concert ticket or a tattoo (just kidding!), an app or a website that keeps track of their savings and your matching funds is a great way of getting them interested.

EARNING

Nothing like learning the satisfaction of having your “own” money! Even if your older children have an actual summer job, consider “hiring” them for extra chores like organizing your photo files, digitizing old cassettes and CDs, or washing the windows. For the little ones, watering plants, pulling up 20 weeds (counting skills!) or helping you rinse the car can help add their allowance jars.

INVESTING

There are fun games to teach kids of all ages about the stock market, investing, and the power of compound interest (like InvestQuest from the FTC.) The best way of course, though, is to follow the real stock market. Why not have every family member invest a virtual $1000 in 2 companies whose products they know at the beginning of the summer (Lego and Disney for the younger kids, for instance) and see who ends up with the most virtual profit by the end of the summer. Or, if you have the resources, open accounts for the kids with real investments, however small, so they can watch them go up and down, while earning interest, over the months and years ahead. The SEC’s site Investor.gov has a great compound interest generator to show kids how their money could grow.

SPENDING

Summer is also a great time to teach kids about comparison shopping, supply and demand, and the power of buying things when they are on sale. Keeping track of what you save each time you buy a sale-priced item this summer can be an eye-opening for your kids. As you enjoy vacation trips, or even day trips to waterparks, let your kids know about the value you are getting (rather than complaining about high prices.) Give the kids a choice when possible, telling them how much you have to spend for the day and ask their input about how to spend it. When they know that buying cotton candy means they are giving up two rides they learn a valuable lesson about resource allocation!

READING

Find great books to read or listen to in the car about entrepreneurs’ success stories. Young children will enjoy books about Thomas Edison, for instance, or Alexander Who Used to Be Rich Last Sunday. Try a biography of Steve Jobs for the teens, or check out finance videos from Khan Academy.

PAYING

Take a moment to explain what you’re paying for when you’re paying bills: show your kids how the electric bills soar in the summer if you’re use air conditioning or your water bill if you’re watering the lawn. Calculate – or Google – how much it costs when they leave lights on. Not exactly entertaining but an empowering eye-opener for kids.

PLAYING

Nothing like a great game of Monopoly to while away summer nights while teaching kids about saving up for those houses and hotels (including our favorite trick: hiding money under the board so no one sees how much you are accumulating!)

In short, if you treat money matter-of-factly – and build in some challenges, competition, and entertainment – summer can be a great time to sneak in a little fun “schooling” that will help prepare kids for an empowered future.

 

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.

5 More Financial Mistakes to Avoid in Your 20s and 30s

Young Father Building Financial Foundation

You’ve made the commitment to start “adult-ing,” a very important first step. Don’t start to build from the roof down, though: make sure that you’re laying a strong financial foundation.

In our last post we talked about 8 Financial Mistakes to Avoid in Your 20s and 30s. Here are five more money mistakes to watch out for:

1. Going on a Financial Blind Date With Your Significant Other: Not Having the Money Talk First

Talking about money isn’t romantic and can be downright uncomfortable. That’s why many couples go into marriage—a financial partnership—without knowing exactly who they are partnering with. Discussing personal finances, debt, goals, spending patterns and how you make financial decisions with your partner before marriage, or soon thereafter, is critical to your short- and long-term financial health. (For related reading, see: Don’t Let Financial Differences Lead to Divorce.)

2. Living la Vida Loca: Splurging on the Wedding or a Baby

Important milestones like a wedding, a first child or even your first house are exciting and make precious memories that last a lifetime. But be careful not to let them put you in debt or divert you from a financial plan that allows you to make other great memories down the road. Know what you can afford, get creative within your budget, and make sure you’re investing in your partner’s and children’s future as well. The kids won’t mind—or even remember—that you didn’t buy them that top-of-the-line stroller. What they’ll remember is your smile and their favorite red ball. #Priceless

3. Not Buckling Your Seat Belt: Neglecting Insurance

It’s tempting to skimp on insurance once you’ve covered your basic health and homeowner’s policies, but that’s a big mistake many young adults make. Insurance is an uncomfortable topic—and the options can be very confusing—so covering yourself with health, life, car, home, disability and long-term disability insurance often gets put on the back burner. Cover yourself adequately now so that when the unexpected happens, it’s not a financial disaster. (For related reading, see: Introduction to Insurance.)

4. Going for the Gold: Taking a Job for the Pay

While a great offer is always tempting, make sure that any job you take is something that will advance you in the direction you want to go. Don’t take a job just because the money is great, although that’s important too. If you do, you could get stuck in a job you don’t love with nowhere to go. Take a job that is going to move you closer to the job you want—and the even-higher salary you want—in a couple of years.

5. Putting Too Many Eggs in the Wrong Basket: Not Prioritizing Savings

Maxing out your 401(k) or IRA is smart, but don’t forget to save for other major purchases that may be coming up sooner than you think, like buying a new home, having children, or continuing your education. Multiple savings accounts can be a great way to keep your eye on multiple baskets! Be careful, too, not to prioritize your children’s education over saving for your own retirement. Student loans are less expensive than the kind of loans your kids would have to take out to support you if you haven’t set enough savings aside to support your own retirement.

Enjoy this special time, living your life to the fullest. If you make sure you’re also making smart financial choices, you’ll really enjoy your 20s and 30s, knowing that you’re building a solid future.

 

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

5. Living on the Edge: No Emergency Fund

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

6. Playing the Odds: No Health Insurance

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

7. Going With the Flow: Not Setting Financial Goals

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

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

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

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

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

Don’t let Financial Differences Lead to Divorce

Divorce

Financial differences rank among the leading causes of divorce among couples, both young and old. The statistics are alarming, but perhaps not surprising. How we handle money is not usually a topic of that comes up while we are dating. As a result most couples don’t discuss financial compatibility before saying “I do”. When the honeymoon is over, though, and the bills start rolling in, couples often experience a reality check. While love is grand, it can’t pay the bills so it may not take long before fights erupt over different money habits.

Part of the problem is that it is simply uncomfortable to talk about money. Whether we like it or not, we tend to tie our own feelings of self-worth to money matters. It’s not uncommon to see how much money we make as a direct reflection of how much we are contributing to the relationship. These feelings can become further complicated if there have been financial missteps along the way. While avoiding conversations about money can allow us live in a blissful state of denial for a while, the long-term consequences can be life-altering.

The good news is that it is never too late to make meaningful changes and save a marriage that is threatened by financial discord.

According to financial planners who work with couples, money conflicts fall under five main categories:

  • Differences in spending and saving habits
  • Disagreements about who should control the money
  • Differences in priorities
  • Dishonesty about debt and habits
  • Differences in risk profiles

Whether you are experiencing frustration around one of these issues or all five, there are ways to build better financial health as a couple and avoid relationship problems.

Effective Communication Leads to Greater Financial Success

Effective communication can make a world of difference when it comes to financial matters. Establishing trust, which is cultivated through honest communication, is key. Trust is built when each partner commits to openly expressing their feelings about money and listening to what the other partner has to say. This includes being willing to reveal financial failures, knowing that your partner will be forgiving and withhold judgment.

Be Willing to Compromise

Although it is easier said than done, another key to resolving money issues is compromise. The first step is for both partners to sit down and agree on a common set of financial goals and what steps they will take to meet those mutual goals. Establishing a family budget – and committing to it – is critical. That budget should include some freedom for spending on things that are important to both partners, regardless of who is earning more money.

Be Patient

As you begin the process of rehabilitating your financial health and establishing clear lines of communication with your partner, remember to be patient. Keep in mind that spending habits are deeply ingrained in each of us. Both you and your partner have been influenced by your parents’ habits and your approach to money has been formed over a lifetime of experiences.

Enlist the Help of a Financial Planner

Whether you need help mediating tough conversations or you want expert advice on how to establish a budget that will help you meet your financial goals, don’t try to go it alone. Work with a financial advisor who can offer helpful insights and steer you in the right direction. With the right help, you can get back on track financially and strengthen your relationship. If you are to the point where money issues are creating such a strain on your marriage that you are considering divorce, outside intervention from an experienced financial advisor can be critically important in finding solutions that work for both of you.

Avoid Conflict

Often couples will argue about whether they should give or loan money to family members. While each case is different, and very personal, it is generally a good idea to try to avoid making these kinds of loans. Once that first loan is made, you have set a precedent and you are more than likely to receive follow-up request for additional money. While it can be difficult to say no to friends and family, it is always in your financial best interest to avoid these types of transactions.

A Happy Ending

Even in the best marriages, there are bound to be differences over finances, but those disagreements don’t have to drive a wedge between you and your partner, or worse, lead to divorce. If you actively work to establish trust through open and honest communication and recognize when it is time to seek outside help from a fee-only fiduciary financial advisor, you are taking important steps to letting your financial life be a solid foundation for your marriage – and not the wall between you.

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