Is Cash Always King?

Seasoned debaters know that a persuasive argument isn’t about being right or wrong, rather it comes down to delivering your points in a compelling, efficient, and strategic manner. There are many topics in the financial world that have spurred such debates over the years and the effectiveness of cash has certainly had its time in the limelight. 

Without further ado, the question you’ve all been waiting for: is cash really king?

A look at both sides of the coin.

It should come as no surprise that people have different opinions on the role cash should play in your finances. 

The “cash is king” crowd argues that the world is predictably unpredictable and this underappreciated trait can leave people with a false sense of security in the event of an emergency. Everything breaks, so how will you fix it?

On the other hand, the “cash is trash,” proponents say it’s better to put more assets in markets that yield an average 7% return as opposed to banishing your assets to a dismal 0.1% return in a money market or similar account.

So, which side is right? 

Our answer: both. Amassing a proper cash reserve can bring flexibility to your finances, but oversaturating your account with too much cash can hold your finances back. Let’s take a look at a few ways you can find the right balance for you.

You don’t always need a reason to save.

Comprehensive financial planning is all about making intentional decisions with your money to support the many other elements going on in your life. We often talk about saving with a goal attached to it, retirement, kid’s education, vacation, etc. but all of your savings don’t just go to the things that you plan for. 

Think about it, most times you need cash in a pinch are for expenses you never could have foreseen, a trip to the emergency room, busted water heater, failing engine, unexpected travel, etc. Saving doesn’t have to come with a concrete reason, rather it can be a cushion when life pulls the rug out from under you.

An emergency fund with 4-6 months of living expenses helps you save for the things you can’t predict or even comprehend now. It’s important to save for the unexpected and unthinkable.

A strong cash reserve helps weather storms. 

The right amount of cash can protect your assets in the event of a job loss, pay cut, unexpected health problem, intense market volatility, etc. Having that cash on hand can also keep you from going into debt (adding insult to injury in tough times). 

Everyone’s reserve will look different. Those with unpredictable income, business owners, and large families might want more in cash, adding extra protection in lean times. Keep in mind that your need for cash will likely fluctuate over the years depending on your stage of life and financial responsibilities. 

The COVID-19 pandemic may have forced you to re-evaluate your reserve. The past year may have illuminated your need for more cash. It’s important to be honest with yourself about what you need and that you do what you can to protect yourself and your family. 

Trust us, when something unexpected comes up, you’ll be grateful for your diligence and foresight to build a safety net. 

It can save you from amassing unnecessary debt.

A down period doesn’t stop bills from piling up. This could lead to putting expenses on credit cards, taking out a personal loan, leveraging business assets, or even borrowing from family members. Cash can protect you from taking on more debt, and Gen X in particular needs to be careful about their debt accumulation. 

Clients that didn’t follow our lead have ended up using credit cards and home equity line of credits HELOCs for short term cash crunches. These strategies may work for a couple weeks, but can be a harbinger of financial danger in the long-run.

Cash makes investment forecasting irrelevant.

No matter how convincing someone sounds over the phone, during a webinar, or in a book, they can’t and will never be able to time the market. Markets react to many stimuli and this process can’t be mapped or charted like the weather segment on the 11 o’clock news. 

Your investment plan takes time, care, and diligence to build. Retaining the appropriate mix of cash can provide space for your investments to weather market volatility

Think about cash like a back-up generator. If a big storm hits and the power will be out for a couple of days, your generator keeps the food in the fridge fresh, the water running, and appliances operating. The right saving metrics gives you the resources to wait out the storm and give your investments the time they need to work out. 

Having cash can help you keep the lights on, so to speak, as opposed to fumbling for matches and candles in the dark. 

Cash creates opportunities.

Cash brings flexibility and freedom to your financial life. 

Take interest rates at the height of the pandemic as an example. While federal interest rates dropped to near zero, interest on commercial loans skyrocketed by 10-12% to account for increased credit exposure. This means that without cash on the sidelines, it was unlikely that you could take advantage of the huge sales in real estate or equity markets in March and April of last year, since the cost of borrowing for the public actually increased over this period.

Cash is also a valuable asset for aspiring business owners. If you have a great idea but no cash for start-up funds, you might need to find a partner to pick up the slack, and, of course, split the profits.

The right cash back-up can also save you from taking on unnecessary personal burdens like getting a part-time job you hate or adding to your count of sleepless nights. It’s wise to protect yourself with enough cash to be flexible with your money when need be. 

How much is too much cash?

The amount of cash you have should be dependent on your needs, goals, and personal situation. You might want to accumulate cash on a “slow and steady” basis or you might want to rapidly build cash to free you up to take more risks. 

The debate between “cash is king” and “cash is trash” is a volatile one, but your position on the issue should take your personal and financial needs into account. Strike the right balance that works for you, then invest the rest.

 
Need help determining how much cash is right for you? Schedule a time to talk with us today.

How Gen X Can Start Off 2021 On Good Financial Footing

As the song of 2020 fades out, (cue the rapturous applause) a new melody is just beginning. Dust off your tuner and warm up those pipes because 2021 is officially here. How can Gen X start the new year in tune?

Today, we’re going to look at the top ways the generation that wears many hats can prioritize their financial wellbeing in the new year.

1. Keep debt in check

Gen X notoriously carries the most generational debt, outpacing both Boomers and Millennials. Experian found that on average a Gen X individual carries over $134,000 in debt, nearly $41,000 above the national average, and the effects of the pandemic certainly haven’t mitigated this trend. 

So what can you do about it?

First, come to terms with the type of debt you have. All debt is certainly not created equal—there is both good and bad debt. Taking advantage of all-time low-interest rates to buy a car, refinance your mortgage, or consolidate loans might be a great move for you. 

However, paying 22% interest on your credit card bill for miscellaneous items you bought last year at random can be a wealth destroyer. Those items likely didn’t further your goals or enhance your lifestyle, so it doesn’t make sense to carry that balance on your shoulders month to month. 

Another warning sign of bad debt? Dumping a big chunk of change on depreciating assets that won’t further your goals. Think about this point in terms of a high-end car. Spending $70,000 (with an average 5% interest over a 5-7 year term) on a luxury car that will depreciate to roughly $30,000 in less than 4 years doesn’t make sense for most Gen X individuals and families. 

Instead of funneling that money into an asset that is working against you, consider allocating these funds to your retirement or brokerage accounts. For a 50-year-old couple, every $10,000 saved today has the potential to turn into $30,000-$40,000 to fund your retirement. 

This example isn’t to say that all large purchases are bad, simply that you need to take careful thought and consideration before making them. Before you buy something for status, see how it fits into your financial goals now, and how that purchase will impact your future. Our advice? Consider escrow for large purchases and make a detailed plan to pay it off before signing on the dotted line.

2. Re-focus resources to retirement and brokerage accounts

At your peak earning years and retirement on the horizon, 2021 presents an important opportunity to double down on your investments. Gen X is so often sandwiched between financially dependent children and parents that it makes prioritizing their own financial health a challenge, to say the least. Take some time this year to evaluate your investment strategy both in terms of retirement accounts and outside investments like brokerage accounts, real estate, etc. Ask yourself some questions. 

  • Are you automating your contributions?

Workplace retirement accounts, IRAs, and brokerage accounts all apply here. As Warren Buffet said (loosely), “spend what you don’t save, not the other way around.”

Automating your investments helps you grow your wealth without thinking about it. Removing that extra step brings consistency to your plan, ensuring that you are regularly investing from month to month. You’re busy enough as it is—take one thing off your plate by automating investments. 

Can you increase your contributions this year? If you received a raise, perhaps you can allocate a percentage or two to your retirement account or bump up your monthly contributions to your brokerage account. Periodically increasing your contributions will help bolster your investments each year. 

  • Is your portfolio properly allocated?

2020 was the year for testing risk tolerance. The intense market volatility caused many people to re-evaluate both their tolerance (personal ability to stomach risk) and capacity (financial ability to assume risk) for risk in their portfolio. Your allocations will also change depending on where you’re at in life. If retirement is quickly approaching, you may want to look at how your investments are allocated to ensure you have the right mix for your time horizon. 

Diversification is crucial to a strong portfolio, but you already knew that. What you might forget, though, is regular rebalancing to keep your portfolio properly allocated and diversified. If you didn’t do this at year-end, the beginning of the year is another good time to see if your accounts need a bit of a rebalance.

  • Are you hitting your targets?

Everyone’s retirement savings journey will look a little different. Someone who wants to open their own restaurant in retirement will need a much softer cushion than someone who sees themselves jamming with a house band on Saturday nights.

It’s also important to balance investing in vehicles with different tax treatments. Your 401(k), IRA, Roth IRA, and brokerage account all bring varying tax liabilities. Having tax diversity come distribution is a powerful tool to maximize your accounts’ balances. 

As a general (very general) rule of thumb, you want to shoot for saving at least 15% of your income.

3. Build up emergency funds

Dipping into your emergency fund is never fun, but last year may have forced your hand and that’s more than okay. 2020 is why we have emergency funds! In the new year, be intentional about rebuilding this fund to safeguard you and your family against tougher times. Ideally, you’ll want 3-6 months of living expenses in a high-liquid account. 

How can you turn your attention toward this fund? 

  • Allocate some of your discretionary monthly spendings to your emergency fund.
  • Put a portion of your year-end bonus in this account.
  • Intentionally cut costs like subscriptions/dining out/shopping/etc.

Worst case scenario: what happens if you need money but your emergency fund is still lackluster? For most people, turning to a home equity line of credit (HELOC) is a strong first step. HELOCs can be a smart financial planning tool because you can access funds as you need, and can borrow against your credit at any time. Utilizing a HELOC can save you from putting massive medical bills or other unexpected expenses on credit cards.

A robust emergency fund gives you much-needed flexibility in this dynamic world. 

4. Prioritize health savings

In this season of life, health issues can pop up seemingly out of nowhere. It’s important, then, to be able to cover yourself in case of larger health costs. If you’re enrolled in a high-deductible health plan, maximizing your health savings account (HSA) is the first step.

We like to call HSAs one of the greatest gifts from the tax code because by following the rules, your money is never taxed. Contributions are pre-tax, funds grow tax-free, and distributions for qualified medical expenses remain tax-free. 

Another perk? HSA funds roll over year to year, making it an incredible long-term savings agent. Investing your HSA funds over the long-term opens up important opportunities in retirement like money for long-term care, caregiving assistance, and other end-of-life considerations.

In 2021, do yourself (and your family) a favor by prioritizing your HSA contributions. You can put in $3,200 for single coverage and $7,200 for family coverage in 2021. 

5. Set SMART goals

Goal-setting is critical for every generation, but especially Gen X. Given the financial, personal, and professional hurdles you have to jump through, focusing on your own financial health sometimes falls to the wayside. This year, get ahead of that stress by setting SMART goals.

  • Specific
  • Measurable
  • Attainable
  • Relevant 
  • Time-bound

This strategy takes your goal-setting to the next level by asking you to critically analyze how each goal fits into your plan. Using the SMART acronym not only encourages you to set goals that are important to you but also helps you carve a path to accomplish them. 

You can use this formula and apply it to any goal you have like maxing out your 401(k), fully funding your HSA, and building a bucket for larger spending goals.

6. Revisit your estate plan

2020 was a stark reminder that plans can go awry in the blink of an eye. Keeping your estate plan up to date brings clarity and efficiency to a stressful process. Consider the following.

  • Update or create your will.
  • Double-check beneficiary designations (insurance policies, retirement accounts, investment accounts, property, trusts, etc.)
  • Fund your trust(s).
  • Ensure property and other assets are properly titled. 

Estate planning is a financial chore many put to the back burner, but bringing your plan up to date can quell stress and confusion.  

7. Conduct a financial wellness check

The new year presents an essential opportunity to check-in on yourself and your finances. It’s critical to care for yourself first. 

Once your needs are properly met, then you can turn your attention to the other people and responsibilities on your plate. Allow yourself to put your savings and investments first, then make a plan for what’s left.

Consider the following questions:

  • What are you looking forward to accomplishing this year? 
  • Are your spending, saving, and investing habits aligned with your goals and values? If not, how can you get there?
  • How can you better prioritize your financial health this year?

A fresh start leaves room for new beginnings and bountiful opportunities. We certainly gave you a lot to consider as you start the new year. If you’d like to talk more about how these ideas fit into your financial plan, set up a call with our team today.

Why You Should Sell Your Vacation Home

Buying a vacation home is a common dream that is rarely worth the investment in time and money. The only time it might be worth it is if your last name is Musk or Bezos, or you’re some other person just looking for fancy ways to spend your riches. Otherwise, if you’re still on the way to amassing a vast fortune, you should sell your vacation dream home and use the money to invest in true assets.

Selling Your Dream Vacation Home Frees Up Cash to Invest

Owning a vacation home isn’t actually great in terms of investing. In fact, some financial experts say that a home is not an asset at all. Think of all the expenses related to homeownership; maintenance, repairs, insurance… the list goes on and on. Assets bring in money, while liabilities cost you money. Based on what you know about homeownership, would you call it an asset or a liability? We’d call it a liability.

Oh, sure, there can be tax benefits to owning a vacation home. You may be able to deduct the interest on the mortgage and the property tax. Or maybe you could become a landlord and start renting and deduct other expenses, but that is another job! Coupled with the added work, costs, and issues with depreciation, things will get complicated quickly. 

So, unless you run a business out of your vacation home or want another job—and really, that’s not the point of a vacation home, is it?—then there aren’t enough tax benefits to justify the fact that it doesn’t provide any return on investment once you run the numbers.

Now, plenty of wealthy people own vacation homes. Heck, the billionaires of this world own multiple residences around the world. Bully for them. But I can promise you that they didn’t get rich by buying up vacation homes for themselves. Because rich people don’t buy liabilities to grow wealth, they buy assets.

Now, if you own a vacation home and you want to grow your wealth, you should sell that liability. Why? Because your vacation home is literally a box of potential just waiting to be utilized. Once you sell it, you free up cash that you can leverage in order to build your wealth. You can use that cash to invest in true assets that will make you money! All you have to do is realize that your dream vacation home is a liability, not an asset. Convert that liability into an asset now and let your money start working for you.

Accessibility is Always an Issue

Let’s say your vacation home is situated in what your spouse likes to call, “Paradise on Earth.” You’ve got views of the ocean, verdant, sloping hills in the distance, and friendly locals who don’t drive like New Yorkers on fight night in Manhattan. All good, right? Unfortunately, no.

How exactly are you getting to this idyllic locale? And how often? You probably have a job to go to from Monday to Friday, so you can’t travel down to your vacation dream home then. It’s too far away to make it worth a quick Saturday, Sunday visit. Ah, but you have vacation time, right? Two or three sweet weeks once a year when you can spend five hours on a plane, an hour in a rental car, and finally arrive in Paradise on Earth. For the next several days, you’re patting yourself on the back for having the wherewithal to afford this amazing, beautiful dream vacation home. Well done, you! And just when you’re getting into the swing of being able to relax all day long… Bam! It’s time to pack up and go back home to real life. Talk about a wake-up call.

Face it. Accessibility to your vacation home will always be an issue. Until and unless you can figure out a way to work remotely from anywhere in the world (e.g., your dream vacation home), you’re just working to pay for that second home, which doesn’t seem as nice, does it. And having access to it for just a few weeks out of the year isn’t worth it, is it? What if you want to visit other places one year? Isn’t Tahiti on your list? And these issues never go away, because you live here and your vacation dream home lives there, far away in Paradise on Earth. The answer is counterintuitive but profoundly true. If you ever want to be able to stay in Paradise on Earth—wherever that is to you—then you need to sell your dream vacation home and take the money and invest it. You’re literally sitting in a powerful asset that you can leverage to grow wealth to live permanently in Paradise on Earth.

Security is a Nightmare

You know those times when you leave the house for a weekend trip and you stress over whether you left the oven on? We’ve all experienced that. It’s terrible because you don’t want to come back to a pile of ashes where you left all your worldly possessions. Well, owning a vacation home in a remote location is like having that feeling times a gazillion, 24/7. You know, and I know that security experts always recommend leaving some lights on and holding mail at the post office. Why? Because burglars and teenagers target empty houses, that’s why. And what is your dream vacation home eleven months out of the year? An empty house. Security is a nightmare when you own a remote house. Smart vacation homeowners employ security guards or nosy/willing neighbors to keep an eye on the house while they’re away. But is that really enough to help you sleep at night, knowing how much your vacation home means to you (not to mention how much it cost)? And the truth is, burglars shouldn’t be your only concern.

Your vacation dream home could be in the wrong spot when a tree falls or when a local fire breaks out. Flooding could be a risk if a tropical storm develops. And you won’t be there to mitigate the risks or to remedy the damage when it happens.

Look, I know that owning a vacation home feels like you’ve achieved something. You feel like you’ve “arrived” after years of hard work. But I can tell you from personal—and professional— experience that your vacation dream home isn’t doing you any favors. If you sell it and take the cash and invest that money, you’ll be able to take lots of vacations and stay in gorgeous locations since you’ll be using that freed-up money to invest in your future.

I really hope you’ll at least think about it. I want you to succeed, and I want you to get wealthy. But at this stage of the game, your vacation dream home is an impediment to your future wealth. Please give us a call so we can talk about ways you can use that money to invest. Don’t let the liability of a vacation home turn your dreams of leisure into the drudgery of obligation.

Why It’s Important to Teach Your Kids Early About the Value of Money and How to Do It

Our children see us order something new from Amazon. A few clicks on the computer, and it arrives in two days. They watch us insert a card into a machine at the store and we take home whatever we wanted. Then there are those ATMs at every turn ready to disperse cash with a magic PIN.

Adults know how difficult it can be to earn money. Still, our children see that easy access and often assume that making money is just as simple as pushing a button.

By age 3 your child understands basic money concepts. By age 7, many of their money habits may already be set. Talking to your children about money through this window and beyond may give them the insight they need to become more savvy consumers later in life. 

Children (and most adults) Are Tempted by Toys

Even though Netflix, Amazon, and Hulu are mostly ad-free, kids still see plenty of advertising messages in other mediums. They are heavily influenced by marketers and by what their friends say, buy, and do. Have you ever heard of FOMO?

Teaching kids money skills and concepts as they express a desire for toys can help introduce them to valuable life lessons. Saving for that new shiny toy will help to instill a sense of delayed gratification. Everyone should learn how to live within their means and understand how to budget for larger ticket items.  

Teaching Children the Value of Money

Teach the Basics – Ensure that your children understand and can identify what various coins and bills are. As they develop their math skills, they should be able to count out change. They can practice while they run their lemonade stand. The ability to provide change without the aid of a cash register is a skill that can be valuable throughout a child’s lifetime. 

Explain How Money Works – Help kids understand the order of money. Money has to be earned before it can be spent. It requires time, work, and effort. Deposits need to precede withdrawals. There’s a reason Amazon makes it easy to buy in just one click. The less time you take to consider your purchase, the more likely you are to make an impulse buy and potentially waste resources.  Kids should know there’s no magic money tree or printing press in the backyard. 

Offer a Small Allowance – Children are not too young to learn that their time and work have value. A small allowance teaches them what it’s like to put in a specific amount of work for the goods that they purchase. Showing them how to set some of it aside for saving starts them off on the right foot. When you are shopping, let them know that purchases need to be within a specific price range and why. The next time they express interest in a particular toy, help work through the decision-making process together. Paying with their own funds gives them a first-hand experience of managing cash flow. 

Help them To Understand Saving – When your child wants a new toy that costs more than they currently have, it offers another good learning lesson. In order to get what they want, they’ll have to save over time. That means no spending money in the interim. It means having patience and understanding that the sacrifices you make today can pay off tomorrow. This mindset can help them greatly when it comes time to save for cars, homes, or retirement later in life. 

It’s Never Too Early to Start Saving for Retirement – Once your child starts earning some money, they should start saving for the future. It’s never too early to have the chat about how retirement looks and how today’s earnings will support your future self! Have them start by putting aside 10% of every dollar earned and explain how time will be on their side. Parents, if you have the funds, help them get more bang for their buck and help them fund a Roth IRA

Start teaching your kids good financial habits NOW. 

Proper money management reinforces math skills and complex concepts such as delayed gratification and cash flow management. Take the time to teach your children about the value of money. Starting these lessons early gives them a gift that will pay dividends (and interest) for the rest of their lives. 

A Little Relaxation and Vacation Can Get You Back on Track

The Dog Days of Summer

For many, 2020 has been hugely stressful, and the benefits of taking time off are often underestimated. When life gives us unexpected turns, one of the best things we can do is use the opportunity to take a step back and relax. Taking time off from our place of employment gives us the means to do precisely that. 

For those of us still able to do it safely, vacation and travel provide a tremendous benefit. If you cannot safely get away, merely taking time off to relax at home can have benefits. Whether you stay home or travel to a destination, you can recharge when you take a break from your daily routine. 

Paid Time Off (PTO) in the Workplace 

For many, the amount of PTO offered is a significant factor in whether they accept a job. But the reality is that most Americans don’t take enough time off. 

According to a 2019 study by Tsheets, the American workforce left nearly a billion days of paid time off on the table the previous year! People may have any number of reasons to avoid taking PTO, but the benefits can make them more focused, productive employees when they return. When PTO is used, it’s a win-win for both the employees and the employers. 

The benefits of PTO can be realized even if you don’t go anywhere. That time off can energize you so that you’re more focused than ever when you return. 

Making the Most of Time Off

Reduce Stress – Time off, whether it’s spent in the Bahamas or your suburban home, removes you from an environment likely associated with stress. This simple act can also alleviate small physical ailments such as headaches or backaches that are likely stress-related. It gives you a window to breathe easily and collect yourself. The effects can last for weeks after the vacation is over as well. Having less stress improves the workplace setting for both employees and employers.

Get Happy – When your to-do list is miles long, and you’ve got tunnel vision on the next task at hand, it’s challenging to step back and gain some perspective on what you are doing. Vacation pulls you out of the thick of things so that you can objectively look at your work and life. You’re better able to evaluate your situation and regain a sense of normalcy. This ability to step back and look at the larger picture from time to time brings more balance to your lifestyle.

Improve Physical Health – Taking time off from work can help reduce a number of health risks, including the risk of coronary heart disease and heart attacks, according to Allina Health. Stress isn’t just a mental health issue. It elevates blood pressure and contributes to heart disease. It can lead to autoimmune issues and a large number of other serious health ailments. When you take the time to get away, you are resetting your physical health. 

Increase Productivity –People often aren’t a good judge of when the events of their personal lives impede their ability to do the job right. Employees get the most direct benefit from taking time off, but employers should consider the benefits as well. It is likely detrimental to your business to let your employees build up a large balance of vacation time. It doesn’t matter if your employees have a lot on their plate, without a mental recharge, their productivity will decline and possibly strain business relationships inside and outside the organization. Employers can encourage employees to take all their PTO or insist on “mandatory minimums” for vacation. For employees, taking all of your time off can eliminate the feeling of being pulled in a million different directions and allows you to regain personal focus.

Taking the Time to Unwind Benefits You Personally and Professionally

Maybe your travel plans for 2020 were thwarted by unforeseen circumstances. Or perhaps you fall into the category of having PTO, but not using it. Whatever the case may be, chances are, the benefits of time off can still help you. If you have the opportunity to take a break, the best thing for you personally and professionally is to do it. Vacations are something we all deserve, and the benefits are boundless.

Career Change and Pocket Change: Financial Advice for Career Shifters

The new year always gets people talking and thinking about changes they would like to make. For some, that means finally getting serious about leaving a career for which they are no longer passionate. For others, it may mean devoting time to an entrepreneurial endeavor, business start-up, or even a capital intensive passion project.

If you count yourself among either of these groups, I’ve got some advice to make that transition a lot easier on your finances. 

Depending on how dire your situation is, and how desperate you are to change, these steps can feel lengthy. But ideally, no career shift should happen without thoroughly weighing all the pros and cons, and carefully considering the financial ramifications of what is usually a monumental life decision.  

Plan It

To start this process, do a copious amount of research into your new career field. And then do even more research.

This should be an honest examination of what it would take to move into this field, including the potential salary and the potential costs:

  • Will you need extra education, training, or certifications?
  • Will your new role have any significant upfront expenses (Offices, equipment leases, mortgage financing, zoning, etc.)?
  • Will you lose benefits or have to pay more for them?
  • Will you need to hire and train staff?
  • Will you need additional insurance to protect your family?
  • Will you need to move?

And the list goes on. After final calculations, you may find that your career shift leaves you with a financial shortfall. Either way, make a plan to begin putting money away now to build a supplemental nest egg. 

If you can, try to save at least twelve months of expenses for your family to withstand a slow start and allow for bumps in the road. But don’t let perfect be the enemy of good: even saving $1,000 a month can leave you with a bit of a cushion to help counterbalance a possible reduction in income.

Start-up expenses and marketing will need to be accounted for too. Try to bucket enough funds for these expenses, or you may need to consider a partner or other less desirable forms of funding (retirement drawdowns, etc.). You can control your freedom with proper funding. Don’t delay, start saving now!

Live It

Once you have a realistic idea of what you can expect to earn with your new career, live that budget for at least 3-6 months. Sure, some easy items that most people can start with include: 

  • Eating out less
  • Skipping the fancy coffee shop
  • Fewer trips or taking staycations instead
  • Canceling services you don’t utilize or don’t need, e.g., streaming services, music memberships, gym memberships, cable television, magazines, etc.

But, let’s face it- the big purchases are where you can do the real saving, especially when purchasing depreciating assets like cars, boats, and electronics, etc. Forgo a luxury car for a reasonable one, and with the substantial savings, you can enjoy that Mocha Frappuccino while you sock away cash for your new career too!

One career shifter, Carissa U. from Madisonville, followed this advice when she left a high-stress sales job that was making her burnt-out and miserable.

“When the time came to make the jump to my new career, I was paid about 30% less, but I was ready. Some people thought I was making a foolish choice, but I never looked back.”

Take the Big Steps

If your situation is a little more complicated than Carissa’s, you may find that you need to look at your more significant assets to accommodate your goals. That usually means a house or a car.

Refinancing these items, or even downsizing to more affordable options, may be a great way for you to prepare for making a financial leap. 

But Transition Slowly

Though you may dream of a dramatic, Office Space exit scene from your current career, there’s no need to shut the door immediately or even completely. 

Financially, it can make more sense to use a slow transition to prepare for your new career by taking courses, networking, joining a professional association, or even job shadowing. 

Ask about rearranging or reducing your hours so that you can slowly develop time every week to check out your new field. 

Enquire about staying on as a consultant. This safety net can make it much more palatable to take a risk, and you may be surprised that working in a reduced capacity can reenergize your passion for your current job. 

Ask a Professional

Whether you’re projecting salaries, examining benefits, considering tax credits, or crunching the budget, a financial advisor is an invaluable part of the career change process in providing an educated second opinion. 

If you are planning a career change in 2020 or just looking to improve your finances, partnering with a fee-only advisor is a great way to start the process.

Managing Kids’ Tech Use

With so many kids receiving new devices over the holidays, you may have noticed that you now see more of your young techie online than you do in person. After all, so much of how tweens and teens interact these days is done in a digital environment: texting, social media, or video chats are much preferred to talking IRL (tween speak for In Real Life).

But just because your kid is a digital native doesn’t mean that she or he possesses the knowledge or maturity to navigate this online environment in a way that is healthy. Parents need to set expectations and guidelines for acceptable online behavior. A contract can be the best way to establish those boundaries.  

Why Technology Contracts?

You may refer to it as a tech contract, a media contract, an electronics contract – feel free to call it whatever you like. What matters most is that the contract serves as a tool that both informs and educates your child, while also providing the freedom that comes with knowing upfront what is and isn’t permissible. 

Why contracts? They serve as a collaborative approach to help your child have autonomy over self-regulation, a technique that is more effective than the traditional “do as I say” method. This article sums up the benefits of contracts by pointing out how culture has shifted for this generation: “Today’s children tend to roam the world as independent contractors…they are growing up in a culture of democracy and equality and they feel that.” 

If you’re ready to create a contract for you and your child, the internet is chock full of examples and templates to use. The most effective ones, however, focus on a few key elements that will help your kid (and you!) stick to the agreed-upon guidelines. 

Incorporate Social Skills

This contract is a great way to underscore the importance of maintaining or even deepening real social skills. In other words, use this contract upfront to balance how much communication is happening online vs. offline. 

For example, the contract we use with our tween clearly outlines that she put down her device and be immediately responsive when being addressed and that she interacts verbally with her friends when they are together. 

You may also consider including a clause that requires one hour of social activity for every hour that your child is online, or the joining of a club, group, or sport that aligns with their interest. 

Lastly, make sure your child knows what you consider unacceptable social behavior in the online world, too. We give our daughter a version of the golden rule: don’t text, email or say anything through your devices that you wouldn’t say to their face, or in front of us. Be polite. NO bullying. 

Make Safety a Rule

While kids can know what they should do to be safe online, remember that they lack impulse control in those still-forming brains. For them, the leap between knowing the path and walking the path may prove to be one they are not yet capable of making. 

Build safety into the contract by making it clear that all downloads and purchases must be approved by you. Encourage them to build their case for these items by researching them first on sites like Common Sense Media or Smart Social

Talk about the ramifications of sharing personal information and photos, whether their own or that of others. Review this article from Parent.com or this one from McAfee for talking points, and strategies teens can use to step away from the selfie culture. 

Define the When & Where of Technology

Should devices be off-limits during meals? Accessible up to a certain time in the evening? In common areas only, or also in their rooms? And what happens when the rules are different at their friend’s house?

Every judgment call is different based on your child and your family. But there should be clear expectations for when and where built into your contract. 

For us, we feel it’s appropriate to limit screen time during the week, but extend it on the weekends. And no screens during homework time (unless it’s to aid in homework completion). 

Allow the Contract to Grow 

As your child grows, so might their trustworthiness with their devices or their need to access more apps or features. For that reason, it’s important to review the contract regularly. This will give your child the structure of knowing that as they behave responsibly, more responsibility will be granted. 

Be Accountable and Role Model Good Behavior

As part of your contract, your responsibilities to your child should also be outlined. For us, that means putting it in writing that our child can share anything that she deems alarming or unsafe and we’ll support her. It also outlines the penalty system if she breaks the contract.

You may also document any ground rules you want to set for yourself about tech usage, like putting your screens away during drop-off and pick-up or meal times. Modeling the expectations you have for your child can go a long way in strengthening your contract. 
As I mentioned, there are plenty of contract templates available online that you can modify to suit your needs. If you need help learning more about this timely topic, start here for a good round-up from various sites. 

Don’t Let Identity Theft Ruin the Holidays

As you gear up for the busiest shopping time of the year, managing your money involves more than just setting and sticking to a budget. 

Thieves, knowing that the holidays make us distracted shoppers, are just waiting for you to make the slightest slip-up that allows them to access your finances. That explains the 22 percent spike in holiday ID theft from 2016 to 2017.

Couple this with the fact that 53 percent of all holiday shopping now happens online (a hacker’s paradise!) and the odds are pretty good that even the wisest of us might make our wallets a little more vulnerable this time of year. 

So take a break from raking leaves, grab a turkey leg, or settle in with some pumpkin pie and let’s dig into steps we can take to spend safely this holiday season. 

Be Vigilant Online

An Experian survey of those who experienced holiday identity theft indicated that 43 percent of the theft occurred while online shopping. Specifically, 16 percent of that theft occurred on Cyber Monday. 

Clearly, this is the season for cybercrime. 

Most of us are probably familiar with basic online shopping tips, but being SUPER vigilant this time of year means taking it up a notch:

  • Type in the web address instead of clicking on a link 
  • Only make purchases on sites that are secure, like those that have “https” in the URL or that have an icon of a lock before the URL  
  • Don’t conduct business over public Wi-Fi, including signing in to any sites or apps
  • Be wary of inbox deals that seem too good to be true; they probably are, and they are probably phishing scams

These may seem like common sense tips, but our stressed-out, holiday-frazzled brains sometimes take shortcuts during this busy time of year. Stay alert and trust your gut. 

Maintain Your Personal Space and Info

If you brave an actual shopping trip out into the throngs of frenzied consumerism, beware of those that are keeping a close eye on your transactions. These people stand just a little too close, trying to see your PIN as you type it into the keypad. 

Or they are overly interested in whatever item is on display next to the area where you are applying for that new store credit card or club membership. They like to lurk around ATMs.

If you feel someone is standing too close, ask him or her for space. This will let them know you are aware of them and their actions, and they will move on to someone less suspecting. 

If you must use an ATM, keep your head on a swivel and shield the keypad. Ask a friend to keep watch, if you can. 

If you can avoid it, never say personal information aloud. If a cashier must have your info for a membership or marketing program, or you are signing up for new credit, try to use the text function on your phone to show the information and then quickly erase it. And of course, carefully guard the screen!

Use Those Credit Cards

For so many reasons, credit cards are the way to go when it comes to lessening the sting of identity theft. Credit cards offer better fraud protection, including reduced liability for you, generally limited to $50. You also avoid having your personal funds drained and the potential wait to get that money back (if you can).

 Of course, using a debit card also comes with that whole PIN entry dilemma we just covered. Both credit cards and debit cards are still exposed to the threat of skimmers, which are devices that thieves attach to card readers so they can copy and duplicate your card information, but credit cards offer more time to report a theft and you don’t have to worry about going weeks without funds and potential overdrafts to your account. 

Bottom line: leave the debit card at home, use credit, and check for skimmers. 

An Ounce of Prevention

The easiest way to combat identity theft is proactively taking steps to prevent it in the first place. 

Luckily, many banks and credit cards offer tools to monitor your accounts and alert you to any potentially fraudulent activities. Take advantage of these resources to provide an extra layer of security. 

Also, keep an eye on your monthly statements or log in to your online accounts weekly or daily (from a secured Wi-Fi connection, of course). Actively managing your accounts will help you catch identity theft as it happens, and may even help you keep on top of your holiday budget.

You can take prevention a step further by asking the credit bureaus to put a freeze on your credit. This blocks thieves from opening new accounts in your name, regardless of whatever personal information they may possess. 

If It Happens…

Your first steps should be to contact your creditors and the credit bureaus to alert them to the fraud and stop it from progressing. You will most likely need to freeze your credit and place a fraud alert on your accounts. 

The Federal Trade Commission offers a consumer-friendly site to walk you through a checklist of fraud recovery, including how to address specific types of fraud and identity theft. 

Finally, if you have a financial advisor or planner, talk to her or him about identity theft. They can help you put preventative measures in place, as well as create a plan of action in case it should ever happen to you.

Happy shopping!

What Women and Men Get Right about Investing

Yes, I know that with this loaded topic, the potential exists for this article to quite easily go off the rails. This could become yet another article about Mars vs Venus. Another opportunity to perpetuate stereotypes about bringing home the bacon vs buying yet another pair of shoes. One more piece that paints women as financially inept and men as financially savvy.

That’s why I’m going to take a different approach here. Instead of pitting men against women or making one group of investors out to be better than the other, I want to highlight what it is that both women and men do well when it comes to money. Specifically, when it comes to investing.   

Women Invest Wisely

First, it’s important to point out one significant fact that may or may not surprise you: women are better investors. It’s true. 

Several recent studies have shown that women who invest outperform men: 

  • A 2017 Fidelity study showed that women perform better than men by 0.4 percent. While this may seem negligible, the increase can compound over time to create a significant return.
  • A 2018 Warwick Business School study showed even better stats: women outperformed men by 1.8 percent. That’s a 0.6 percent increase over their 2016 study. 

And that’s not to mention that women are better savers, putting aside 9 percent of their paychecks while male counterparts are saving 8.6 percent of their paycheck. 

Yet, despite this positive performance in the market, women self-report a surprising lack of financial confidence. Only 47 percent of women rate their financial understanding as good or very good. Of those women who do invest, only 43 percent of them were confident about those investments. 

Nevertheless, trends among female investors show a number of factors that contribute to their increased performance: 

  1. Women are wary of risk. Almost half of women (48 percent) worry about taking on too much risk. The result is that women tend to seek balanced portfolios that minimize risk via asset allocation, producing more steady results over time. 
  2. Women are patient. When the stock market is volatile, women simply remain calm and focus on long-term returns. Think tortoise vs hare, with women adopting a slow and steady strategy to win the race. 
  3. Women seek guidance. Women are more likely to ask for help when they’re ready to invest. Seeking professional advice can help align long-term goals with well-informed investing strategies, rather than just making “hot picks.”

Men Invest Confidently

While women may be better at investing, men approach investing with less trepidation and more gusto. The result is more men taking greater advantage of the financial gains via investing. 

A litany of research exists to show just how prolific men are when it comes to investing: 

  • Men invest 60 percent more money than women do.
  • Men hold only 60 percent of their assets in cash while women hold 71 percent in cash.
  • Men overwhelmingly (53 percent) choose the most aggressive investment plan, compared to just 38 percent of women.
  • When asked what they would do with an extra $1,000, men were 35 percent more likely than women to put that money into investments.

So how do men come by this seemingly natural level of confidence? Well, there’s a lot we can say for how we socialize kids regarding money. A recent PNC survey among Millennials indicates that having the money talk with boys tends to focus on how to build wealth. 37 percent of males said their financial education included wealth-building while only  29 percent of females said the same. Girls were more likely to be told to focus on savings (67 percent of females vs 58 percent of males). 

It seems that men are getting the investment message loud and clear from the time they are young. No wonder they tend to embrace risk, manage their own investments, and engage in active trading. 

What Can We Learn From Each Other

Well, it’s pretty simple really: women should take a confidence cue from men, while men should mirror women’s more measured approach to investing. But how do we make progress in bringing these mindsets closer together?

First, we can start by educating both boys AND girls about wealth-building. It’s outdated to think that personal finance for women revolves around household management, or that men are solely responsible for being the breadwinner. Let’s have balanced discussions that stress the importance of holistic money management with all kids.

Second, we can work together with professionals that consider these gender differences as part of the advising process. As women investors increasingly become an area of focus for finance professionals, more advising firms are taking a female-centric approach to working with clients. 

For male investors, adding a female advisor to your team can provide a different perspective to balance your strategy. 

Finally, being cognizant of these differences and learning to appreciate our individual strengths can move us closer to embodying those positive financial behaviors of the opposite sex. 

Becoming a better investor should include learning from anyone with a proven track record, regardless of gender. Shifting our mindset to look at these differences in terms of successful outcomes instead of uniquely male or female traits can help bridge this gap.

Making Smart Money Moves for School

Planning for College

Ah, September. After the dog days of summer, this is the month where we can finally enjoy some cooler weather, all things pumpkin, football, and maybe even a cozy sweater or two. And if you’re a parent, you are either counting down the days or already basking in, what is really the most wonderful time of the year: back-to-school time. 

It’s fitting, then, that this month we take a look at what it takes to get your kids to and through school —  and we’re not just talking college! Let’s face it, K-12 can be costly, too, at both the public and private level. Luckily, there are two savings plans that help you plan and save for both your immediate secondary school costs, as well as your future college costs.  

Coverdell

Let’s start with the Coverdell Education Savings Account. This investment account allows you save up to $2,000 annually in after-tax contributions until the beneficiary turns 18. Earnings are tax-free and so are withdrawals, if they are used for qualified education expenses

This a self-directed plan, giving you the flexibility to invest in what you’d like. Parents, grandparents and other family members may contribute in the child’s name. However, it does come with limitations on who can contribute, based on income: if your AGI is more than $190,000 for joint returns or $95,000 for single filers, this is not available to you. 

For Use In: K-12 and College 

Qualified Expenses: Books and supplies, tutoring, computers/laptops, transportation, special needs services, uniforms, private school tuition, college tuition, and room and board. 

Other Things You Should Know: The balance must be spent by the time the beneficiary is age 30. However, you may transfer the balance to another beneficiary or roll it into a 529. 

529 Plan

The 529 plan is administered at the state level and also offers tax-free earnings and withdrawals for qualified education expenses. Think of 529 plans and ESAs as Roth IRAs that are pinpointed for education.

Previously used only for post-secondary costs, the 529 plan was updated in 2018 to allow for an annual withdrawal of $10,000 per year for K-12 tuition. Take note of that: unlike the Coverdell, the 529 can be used only for tuition at the K-12 level. 

The 529 also differs from the Coverdell in that there is no contribution cap. However, $15,000 annually is a good number to shoot for, since that is the maximum allowance under the gift tax exclusion. There is also no income limit for contributors.

With this plan, your investment selections are limited to what your state provides. Thus, you may choose to use another state’s 529 plan (yes, you can do that!). Your state may try to keep you local, however, by offering an income tax deduction for your 529 contributions. Check state-by-state deductions here

For Use In: K-12 (private school tuition only) and College 

Qualified Expenses: Books and supplies, computers/laptops, private school tuition, college tuition, and room and board. 

Other Things You Should Know: Should your child not go to college or you have excess funds, you can still use the 529 balance for non-education expenses. However, you will be assessed a 10% penalty and pay taxes on the earnings (and may have to repay any state tax breaks). 

The 529 is also transferable to other beneficiaries for education expenses, including siblings, grandkids, or even yourself. Or you can let the account stand and apply it toward graduate school. Worst case your grandchildren could inherit them!

Tax Credits

In addition to these savings plans, don’t forget to look into any state or federal tax credits for which you may qualify. 

State Programs

For secondary school costs, there are some states that allow for credits or deductions on qualified expenses. Depending on the state, that can include private school tuition or out-of-pocket costs for special needs students. You can view all state programs here

American Opportunity Credit

At the post-secondary level, you or your student can take advantage of the American Opportunity Credit for most undergraduate college costs (except transportation or living expenses). You may claim 100% of the first $2,000 spent on qualifying expenses, and 25% of the next $2,000 for a total credit of $2,500. 

Parents will get the credit as long as the student is claimed as a dependent, with some limits based on modified AGI. The credit can be claimed for a maximum of four years. 

Lifetime Learning Credit

A little more flexibility is available with the Lifetime Learning Credit, including the ability to claim books or supplies, and the inclusion of graduate, vocational, and non-degree students. There is also no time limit on how many years you may claim the credit. 

The maximum amount you may claim is $2,000, or 20% of up to $10,000 in qualifying costs. Like the American Opportunity Credit, there are also income limits based on modified AGI. 

Ask an Expert

Just like we encourage our kids to seek help from a trusted expert, I encourage you to sit down with a financial advisor to make sure you’ve explored every option to make the most of your school savings plan. As programs and plans vary among states, your advisor can keep you posted on the plans, credits, or deductions that will allow you to maximize your money – now that’s a smart move!