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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!

Yes, You Need Digital Estate Planning. Here’s Why.

Digital Assets & Passwords

You’ve done your due diligence when it comes to shoring up your affairs: bequeathed home or property made plans for where your money should go, or even made plans for the end of life care and health directives. You have responsibly planned for what lies ahead and now you’re all set, right? 

Well, not so fast. Unless you’ve also addressed your online assets, you’re not as prepared as you may think. Consider these scenarios after your passing:

  • Who will be able to access your email accounts?
  • Will anyone be able to manage or post final messages on your social media accounts?
  • Will your digital photos, music, or other “in the cloud” items be accessible to friends or loved ones?
  • Who’s going to manage your online business or blog, if you have one, or your seller account on sites like Etsy or eBay?
  • How is digital currency, like credit card rewards or Bitcoin, to be handled?
  • Can anyone access your online financial accounts?

With just these few examples, you can see how much of our business and our lives are conducted online and, thus, just how important it is to include digital assets in your estate planning. 

Let’s take a look at what you need to know to get your online affairs in order. 

Legalities

First, it’s important to understand how digital estate planning provides legal protection for friends or loved ones that you may enlist to manage your assets. 

You may think that sharing a list of usernames and passwords is all you need to grant others access to online accounts. However, unless the recipient has a legal directive to access those accounts, he or she may not be recognized as an authorized user. 

That can lead to accusations of identity theft or hacking. 

To address this issue and provide legal protection to well-meaning third parties, the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADDA) of 2015 has now been enacted in almost every state. This gives fiduciaries the right to manage digital assets as they would tangible assets.

Again, however, it’s not enough to just ask someone to fill this fiduciary role. In order to protect them as an authorized user, this fiduciary must be assigned through a will, trust, or power of attorney. 

Following legal procedures provides protection and peace of mind for both you and the person you choose to serve as your online manager. 

How Do I Get Started?

Ready to plan for those digital assets? Here’s a basic list and some helpful resources to get started.

Start a List

Think about all your online accounts and/or assets and list them. Include everything, such as: 

  • Online financial accounts, including banks, utilities, mortgages, and investment accounts
  • Email and social media accounts 
  • Passwords for accessing devices
  • Online storage accounts like iCloud or Google Drive, including storage accounts for photos, videos or music
  • Payment sites like PayPal or Venmo
  • Online business or blog information, including domain names

Don’t forget to also include information on any hardware you may use, such as computers, laptops, tablets, flash drives, smartphones, and watches, etc. View this article for a more comprehensive list of what you may want to include in your digital inventory. 

TIP: You may find it helpful to keep this information in an online account management program, such as LastPass or Keeper

Detail Your Wishes

Now that you have all your assets accounted for, you need to decide what happens to them. Take extra time and care to make these decisions, and be as detailed as possible. For example, there may be emails, photos or posts that you would not want certain individuals (or anyone!) to see. Specify those wishes down to the letter. 

Also, don’t leave any decisions, no matter how small, up for interpretation. Do you want your knit sock store on Etsy to shut down immediately, or after all the socks are sold? Do you want your sister to have access to all your photos, or just the ones from your shared family vacations? Do you want your family fighting over your credit card rewards?

The devil is truly in the details when it comes to digital assets. 

Make it Legal

The next step is choosing who is going to serve as your digital manager a.k.a. digital executor. Naming an individual for this role clearly defines who can and cannot have access to your online assets. This person can also work with your overall executor to make decisions regarding digital assets. 

This person can be a friend, family member, attorney, business manager or any other trusted individual. Most importantly, whomever you choose should be willing to manage your assets according to your wishes, and not abuse that trust. 

Finally, work with your estate planning attorney and financial advisor to put this all into writing. This will include updating wills or a codicil to a will, powers of attorney, and living trusts. If you live in a RUFADDA state, you may need to complete additional electronic forms specifically naming your online fiduciary. 

TIP: Do not include your actual online asset inventory or any usernames or passwords in your will. Your will becomes a public document upon death, allowing anyone to access this information. Instead, store this sensitive information with your attorney, in a safe, or an online storage service. Just make sure to share the location with a few trusted folks. 

Once you’ve got your plan in place, don’t forget to update it regularly to account for any changes in new laws or your own digital activity.

Gifting Graduates with Financial Wellbeing

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Pomp and circumstance. Caps and gowns. Weekend celebrations full of laughs, maybe a few tears, and plenty of cake. Yes, graduation season is officially upon us.

Whether your graduate is leaving high school and planning for college, or your grad is finally earning that college degree and preparing for post-grad life, you undoubtedly want to acknowledge their hard work with a meaningful gift. And what could be more meaningful than setting them on the path of financial wellness?

In the time-honored tradition of the sage commencement speech, I offer these words of advice to pass on to your graduate in the hopes of fostering healthy financial choices. Although this advice doesn’t offer the immediate gratification of a card full of cash, trust that these well-timed words can offer a greater ROI than any material item left on the gift table.

High School Grads

Academics and Finances Go Hand-in-hand

We send high school kids off to college without explaining that what happens in class has a major impact on college expenses. For instance, how much extra debt is incurred when students decide to drop a class two weeks into the semester? Or when a college sophomore decides to switch majors and has to essentially start over? What about those who don’t take a full course load and end up staying in school for five, six, or even more years?

Talk to your high school student about doing the research now to ensure they understand drop policies, what’s required of their major (including starting salary and where they may have to move to find a job in that field), and what’s required in order to graduate on time.

College Affordability

If your high school grad has her/his heart set on a pricey college, but the costs have you concerned, there are a few options to consider:

  • Take general education and prerequisite courses at a cheaper school, like a community college, before transferring to that pricey school. Bonus savings if your student chooses local and can save on room and board by staying at home. *Just be sure to work with both schools to ensure that credits will transfer.*
  • Research your occupational choice before deciding on your school. With a quick peek at the Bureau of Labor website, you can get a feel for the amount of time it will take to pay off your student loans. Don’t spend $200k on college for a $25k/yr career!
  • More expensive schools often have larger endowments to provide scholarships and other aid. Don’t be scared away by the price tag; explore all the options and you may be pleasantly surprised by what you can afford.
  • Scholarship options are not just for incoming freshmen. There are many scholarships available for students beyond the first year, including those just for upper-level students or those in select majors. Keep looking and applying with free sites like Fastweb.

Just Because You Can Doesn’t Mean You Should

If your high school grad will be borrowing federal loans, make sure they understand a few rules of thumb:

  • It’s not free money. It must be paid back. Monitor your borrowing as you progress through school so you avoid the sticker shock of eventual repayment.   
  • You may receive more federal aid than you actually need in the form of a “refund check.”  It’s not a refund. It’s loan money that must be paid back. Just because you can use the money however you want doesn’t mean you necessarily should. You’ll just be robbing your future self by increasing your loan amounts. Return the money or adjust the number of loans you accept up front.
  • If you have unsubsidized federal loans, that means interest is building on those loans from day one. When you eventually start repaying those loans, all that interest will be tacked on to your total loan amount – and you will then get charged interest on that new amount. It’s called capitalization.

You can lessen the sting of capitalization by paying the monthly interest on these loans while in school or during your grace period.

College Grads

Prepare Now for Loan Repayment

Repaying student loans may start immediately for those with private loans, or it may start in six months for those with federal loans. You may have just one lender to pay, or you may have several. And for federal loans, you may have up to eight repayment plans to choose from. Clearly, there are a lot of options and choices to make now to ensure you get and stay on track. Here’s how to get started:

  • Update your contact information with all loan servicers to ensure you don’t miss any critical communication. This is very important as you move or change phone numbers after graduation.
  • Complete federal loan Exit Counseling as a great way to understand your federal loan repayment options and sign up for the plan that is right for you.

Start Saving Early

 It may seem hard to save when you’re starting your career, but it can make a world of difference in being able to weather financial setbacks or plan for a comfortable retirement. Consider this: When you start saving outweighs how much you save! A 25-year-old who invests $5,000 a year for just ten years will earn more than a 35-year-old who invests the same amount every year for 30 years. Compound interest favors the young.  

Saving can be made easier with a few tips:

  • Budget. No, it’s not always fun. But the clarity helps you align your money and your values. If saving is important to you, a budget will be your guide to make it happen.
  • Create an emergency fund for the unplanned stuff that will happen. Cars breakdown, people get sick, jobs fall through. If you have an emergency fund, you can lessen the blow from these costly events so you’re not financially crippled.
  • Participate in your employer’s 401(k); if they offer a match, max that out. If you don’t, you’re just leaving money on the table. You employer could pay your future tax bill for you! Also, if you leave that job, don’t cash out! Rollover your 401(k) into a new plan instead.
  • Don’t use credit cards for loans. Carrying a credit card balance is one of the most expensive ways to borrow money and should be avoided at all costs. This is the place where most money problems start. Anytime you use a loan to buy assets, you reduce your future purchasing power. Your money can’t work for you in this situation. There are costs to using future money (interest, fees, opportunity cost). Simple rule- If you can’t pay it off at the end of the month, then that is the clue that you are probably spending outside of your means.

Avoid Lifestyle Creep

As your career advances and you find yourself earning more, it can be tempting to upgrade: better clothes, a fancier car, a larger apartment or home, and expensive vacations. This is lifestyle creep and while it may initially feel like freedom to do what you want, it can actually keep you held hostage in maintaining a lifestyle you can’t afford.

Here’s what you do to avoid lifestyle inflation:

  • Plan for fun spending and keep an account just for that. Work it into your budget so you’re making regular contributions to your fun account, allowing you to enjoy both planned purchases and spontaneous splurges.
  • Keep your eye on the bigger prize by prioritizing your goals. If you know you need to invest $XX a month to retire at 55, or need to save $XX for your child’s college fund, you’ll be less tempted to spend on unnecessary wants when your goals are clear and defined.
  • Evaluate your inner circle for those who support or sabotage your financial plans. If Friend A likes a high-priced night on the town, while Friend B would be happy with a potluck and game night, you may want to surround yourself with more folks like Friend B. FOMO isn’t only a mental strain, it gets expensive too!

For the Class of 2019, and to you, their friends and family, I wish you all the best of luck in your future endeavors. May the gift of financial health be one that we continue to share and pass down, for that is the gift that keeps on giving.  

Are Two Heads Always Better Than One?

If you’ve ever had a roommate and/or been married, you know how hard it can be for two people to work together for what is (hopefully) a mutually beneficial goal. Whether it’s to save money on rent, or simply because you love and want to build a life with someone, we enter into these interpersonal arrangements with the best of intentions to compromise with and respect our partner to achieve the best possible outcome.

Yet, based on the estimated 50% divorce rate in America, those intentions clearly don’t always pan out.

Why, then, do we think that a business partnership would be any different?

When you think about it, business partnerships take the same level of commitment and compromise to work as marriage or living together. And yet almost 70% of them face a similar fate of failure. I believe that this ultimate failure – like any relationship – can be due in large part to not asking the right questions.

So aside from analyzing the common pros and cons of forming a partnership, I recommend also asking yourself a series of questions that will help you determine what both you AND your potential partner can do to address hot button topics upfront and set realistic expectations for a balanced relationship.

First, let’s take a look at the essential pros and cons of a business partnership.

PROS

  • Your partner has skills, knowledge, connections or other beneficial offerings that you do not.
  • You don’t have to go it alone. Having someone to weather the storm of starting a new business can provide confidence and camaraderie.
  • The workload is divided, thus it’s easier to accomplish more.
  • Creativity or innovation can be sparked by having another perspective / sounding board.

CONS

  • Joint decision-making can be long and tedious, it will lead to disagreements and possible resentment, and it can ruin relationships.
  • You have to share profits or stock, and this can get ugly when you have to jointly decide how to spend or reinvest to grow the business.
  • Work ethic and responsibility are subjective. Again, a recipe for resentment.
  • You may be liable for your partner’s actions or activities.

Now, here are the questions you can ask to determine whether a partnership is right for you.


1. Are you a team player?

There’s nothing wrong in admitting you prefer to work alone. In fact, it’s very common for entrepreneurs to have lone-wolf tendencies.

However, overlooking this self-evaluation will lead to major problems down the road, when you resent not being able to make decisions on your own. If both you and your partner lack the ability to be a team player, your power struggle will undermine and eventually destroy any goodwill you may have.

Be honest about where you fall on the self-sufficiency scale and ask your potential partner to do the same.

Also, don’t forget to consider the most obvious question: do you even need a partner? Unless you have to bring someone on board for financial capital or for the skills they possess that are not easily acquirable, chances are you can do this on your own.


2. Can you accept differences among skills and roles?

Ideally, the division of labor will be divvied up into ways that play up your unique skillsets. For instance, one of you may handle clients, while the other handles the books. This division is one of the reasons people choose partnerships: to each bring your complementary skills together in a yin yang balancing act.

But what happens when that division leaves one partner feeling like they are working harder or more hours? Or not getting their due recognition? Or more passionate then the other? Or any other myriad way that feelings of inequality can rear their ugly head?  

What once seemed like a complementary style may now seem like a partner with differing levels of passion, drive, or working hours than you.

Can you recognize contributions that may look different on the surface, but bring equal value to the table? Or what will you do if there is genuinely an uneven distribution of work?


3. Do you have similar values and have you set clear expectations?

Choosing a partner should be like a job interview: you should be looking for the “best fit” candidate that shares your values and vision for the business. This may seem like a no-brainer, but it’s easy to get caught up in the excitement having a great idea or great chemistry together and forgetting to perform this exercise in due diligence (ask anyone who’s ever started a friend or family partnership – and failed).

Having this pointed and deliberate conversation can help identify the right partner and set clear expectations from the outset.

Ask your potential partner interview-like questions to help guide both of you toward a more grounded, realistic approach to how your business will run:

  • How do you handle adversity?
  • Where do you see yourself in five years? In ten?
  • How comfortable are you with risk?
  • Tell me about how you motivate yourself.
  • Can I contact your previous business associates?

Bottom Line

Business partnerships, just like any other partnership, rely on carefully selecting the right partner that will bring balance and value to the table…and then is continuously committed to working hard every day to meet shared visions and expectations.

Choosing to form a partnership may not be the best decision for everyone or for every situation, but it can be very beneficial if entered into for the right reasons and with a realistic understanding of both the positive gains and negative drawbacks.

If you decide to go down this path, it will be essential to build an operating agreement. Legal and financial professionals can help to set up protections for all parties involved, through good times and bad. Again, just like any relationship, the goal should be for all partners to do well and, if and when it’s time to part ways, for an amicable split that ends with dignity and respect.

The Funny Month of February: Love and Money

Ah, February. With only 28 days, this short little month manages to pack quite a wallop, from wacky weather to omniscient groundhogs, to Super Bowl hype, to Mardi Gras, to the wrap up of a glitzy Hollywood award season.

Our general mood seems to shift with this month, too, as the practical and the romantic converge to realign our focus to a few key February agendas:

  • taking stock and organizing, as a byproduct of lingering New Year’s resolutions, being stuck inside, and current Marie Kondo mania;
  • money, thanks to those freshly delivered W2s and the commencement of tax season;
  • and love and relationships, as Valentine’s Day serves as our annual reminder to ply our loved ones with cards, candy, and gifts.

Because of this unique convergence of organization, money, and love, the brief month of February can serve as the perfect catalyst to get on the same financial page with your spouse or partner.

In other words, make February the time you have “the talk.”

Whether newly coupled, further along the path, or with the golden years right around the corner, reviewing your plans for combined finances and retirement can ensure you are both taking the right steps to get to where you want to be together.

Here’s how to get started.

Common Ground

The 2018 Fidelity Couples and Money Study shows just how out of sync most couples are when it comes to shared financial planning:

  • 46% cite money as the biggest challenge in their relationship
  • 67% argue over money
  • Over 40% of couples do not agree on when they will retire
  • 54% don’t agree on how much they need for retirement savings; 49% have “no idea” what that number might be

Clearly, we seem to be acting as single people within the context of our shared finances.  Only by gaining insight into our partner’s resources and goals can we begin to remove the fear and anxiety around money and replace it with shared purpose and strength.

It starts with establishing a common ground in which you are both completely honest about short and long term issues:

  • Current financial debts and obligations
  • Current methods of budgeting and saving
  • Shared goals for short term savings (think vacations, cars, home improvements)
  • Shared goals for long term savings

This last category will be very broad and should include the big questions like where you want to live in your later years, what you want to accomplish in retirement, any known health issues or how you can plan for the unknown ones, at what age you want to retire, how much you want to dote on the kids or grandkids, and so on.

The key to this discussion is to be frank and open about your dreams and expectations, and how you can work together to make both of you happy.

Be thorough, but don’t make it painful. Stretch it out over a few nights, maybe with your favorite takeout, or the promise of watching your favorite show together once you’ve covered X, Y, and Z.

RESOURCE: Fidelity’s Couples and Money Starter Guide

Take Action

With a new perspective on where you both are coming from and where you want to eventually be, now is the time to lay out a plan for the next year. What steps can you take in the next twelve months to get you closer to those shared goals?

Months 1-3

If you haven’t budgeted together before, now’s the time to do so. Otherwise, you’ll each be making decisions in a vacuum, never knowing if or how you are contributing to the future.

If you have been co-budgeting, try recalibrating and seeing how you can cut back, rearrange, or prioritize in ways that positively impact your goals.

RESOURCE: Best Budgeting Apps for Couples

Months 4-8

Get your affairs in order. Take these months to review all the paperwork: insurance policies, account statements, wills, and trusts, etc. Work with a professional if you have to in order to create a solid plan for your assets.

This exercise will serve double-duty, not only tackling these important topics but helping to identify which one (or both!) of you need help in better understanding these topics.

Part of caring for your partner is caring enough to give them the information and resources to be financially empowered in the event they will have to manage finances on their own.

RESOURCE: Estate planning for unmarried and married couples.

Months 9-12

Take advantage of end-of-year incentives to better align and maximize your goals:

  • If you get a holiday bonus or tax refund, use that money to max out retirement account contributions, beef up your emergency fund, or build college savings plans.
  • If you itemize, now’s the time for charitable giving.
  • Most companies offer open enrollment toward the end of the year, usually in October. Analyze your benefit utilization to determine if your enrollments are appropriate, or if you could make better use of the options available to you.
  • If you’ve got FSA money to spend, now’s the time to schedule a physical, get new glasses, order the screenings, dental issues etc. Remember that physical wellness is a component of overall financial wellness.

This twelve-month plan will prepare you well to meet again next February, maybe over a romantic Valentine’s Day dinner, to review how far you’ve come, and plan once again for the year ahead.

RESOURCE: Year-end Money Moves

Know When You Need Help

If managing shared finances were as easy as all this, then money wouldn’t be the primary cause of stress for almost half of all couples.

Navigating “the talk” can be challenging even for the most simpatico of couples. You should expect to hit some bumps along the way, and maybe even face what appear to be absolute stalemates as you try to establish your joint plan.

This is where a certified financial planner can help. We can provide an objective third party perspective, guide you with expert advice, and suggest solutions that will be in the best interest of both of you and your future plans together.

Including a professional advisor in your financial planning may be just what you need to ensure that you and your partner remain happily on track for many Valentine’s Days(and Mardi Gras) to come.

Do You Have Investing FOMO?

 

 

You get it: you need to invest wisely in order to grow your wealth.

You understand the importance of getting your money into the market, and you’ve been diligently contributing to retirement accounts and maybe even a brokerage account for years now.

But you can’t help but wonder… are you investing in the best possible way? Are you potentially missing out on a better investment someone else is using that you don’t know about?

It’s reasonable to feel this fear of missing out on something great — or having a little investing FOMO. It’s when you act on this fear that you can start making bad choices, choosing poor investments, and making speculative decisions rather than strategic ones.

What Is Investing FOMO?

There’s a research-backed definition for FOMO or fear of missing out: It’s the “pervasive apprehension that others might be having rewarding experiences from which one is absent.”

The prospect of “rewarding” opportunities tends to lure potential investors into the “take this opportunity now” trap without even thinking about it. This plays on your emotions, not your intelligence or capacity for reasoning.

You’ve probably seen these traps before. They sprung up around BitCoin. They come up around every new “hot stock” from talking heads on CNBC. They might even be lurking in your office when you hear your coworker talk about some wild investment that’s generating crazy returns that you just have to get in on.

Hearing things like this often makes us feel uncertain. Are we missing something? Is there an investment that’s bigger, more exciting, and more profitable than the ones we have now?

Your FOMO Could Lead to Serious Financial Costs

The answer in almost every case is “no.” Financial markets are efficient, and thinking you have the inside scoop on a huge investment that no one else knows about flies in the face of that.

There are millions and millions of market participants out there. Your odds of actually having information they don’t are slim to none.

Of course, you’d know that if you thought through this rationally. (Ever heard of things that are “too good to be true?” There’s a reason for that saying and it certainly applies in investing!)

But the fear that you could be missing out on something — even if you’re not entirely sure what that “something” is — often influences investors to make poor choices because they deviate from their cohesive strategy and impulsively act based on what other people they perceive as successful are doing.  

Those poor choices include:

Trying to time the market: Plenty of people love to try and predict when the next big downturn or upswing in the market will be. None of them have any real clue about when it will happen. 

Sure, we know it will happen. But we don’t know exactly when. And how will you know when to get back in? Anyone tempting you to invest big now (or to sell everything and get out before a crash) is leading you to a big mistake, and probably a new product.

Speculating instead of investing: Investing FOMO usually manifests through speculative behaviors. BitCoin and other cryptocurrencies are a great example.

Watching other people make hundreds of thousands, even millions, of dollars from buying coins can make you feel like you’re missing out, big time. No one is arguing you could make a lot of money from such a purchase.

But we need to be clear about one thing: if you do so, you’re speculating, not investing. Speculating looks a lot like gambling, and there’s no strategy behind it. It’s a lot of chance and luck, which means you could hit it big — but more likely, you’re risking money you may or may not have to lose.

Jumping from craze to craze: On a similar note, investing FOMO can cause you to dump money in whatever’s trendy this month. This creates huge potential for loss, not just because you’re jumping around without a plan.

But you’re also likely incurring higher fees, transaction costs, and throwing your asset allocation and diversification way out of whack. A better way? Invest strategically and with care, with the long-term in mind.

Getting Over Your Fear of Missing Out on the Next Big Investment

So, how do we get over FOMO and avoid making the wrong financial choices? The first step is to be self-aware. Start to recognize those uncomfortable feelings that creep up when someone you know or someone on TV or in the media begins talking about that next hot stock…

…and then learn to do nothing with that feeling. You do not need to act. You can acknowledge you feel uneasy, stressed, or worried that you’re missing out, but you don’t need to try and meddle with your investment strategy.

Step two? Reach out to your financial advisor and let them know how you feel. Your advisor is there to help you stay the course even when you’re emotionally tempted (by either fear or greed) to take a wild left turn into speculative territory.

Finally, you might want to immerse yourself in a little knowledge. If you can better understand how markets work and develop your own strong investment philosophy, you’ll be better able to sort through the noise that could previously trigger your sense of investing FOMO.

You’ll know what’s worth listening to — and what’s simply a distraction along the way.

Again, your advisor may be able to point you in the right direction if you’re not sure what resources to use to increase your knowledge and deepen your education on finance and investments. Your family’s life savings depends on it!

Budgeting for the Holidays?

 

 

Christmas with the Kranks, playing at any given time on a number of cable channels during the month of December, has a Rotten Tomatoes score of 5%. You read that right: 5%. A movie has to be mightily bad to receive such an abysmal score.

And yet, when I watch it, I see beyond the scathing critic reviews to the sound fiscal policy that lies central to the plot of this Christmas dud: a middle-aged couple, newly established as empty nesters, decide that the holidays have become a testament to excess.

They vow to skip Christmas this year, opting instead to spend their usual holiday expense on a Caribbean cruise for two.

Now, aside from the shenanigans that you would expect to ensue from such a premise, in a movie starring Tim Allen, there are some gleaming nuggets of wisdom we can take with us from those Scrooge-like Kranks.

And maybe, just maybe, the actions deemed horrific by their friends and neighbors can serve as lessons to help you keep some jingle in your pocket this holiday season.

Lesson #1: If you’re not budgeting for the holidays, you’re doing it wrong

Luther Krank is a numbers guy. He really crunched previous annual spending, down to ornament repair costs, to truly put a price tag on their customary Christmas expenditures.

As Grinch-y as this practice may sound, Luther Krank has the right idea. He will not be spending beyond his means because he’s accounted for every penny. He’s created a budget. And so should you.

If you don’t like the “B” word, let’s call it a spending plan. Either way, if you don’t know your financial limits, you’re setting yourself up for overspending.

In the madness of weekend sales, 24-hour specials, and last-minute markdowns, it’s easy to keep piling up those purchases that are such a “deal.”

And what does that get you? “Blue Monday,” which falls on January 19 next month. That’s the saddest day of the year, due in part to our excessive holiday spending finally catching up with us once those credit card statements come rolling in.

Don’t be a Blue Monday victim. Make a game plan:

  • How much can you afford to spend?
  • Who are you buying for?
  • What are your other holiday expenses? (parties, dining out, charity, décor, movies, concerts, etc.)

Once all expenses are accounted for, divvy up your budgeted dollars accordingly and enjoy the holidays guilt free! And my next tip might help with keeping your budget in line, too.

Lesson #2: Invest in experiences, not things

You’ve likely heard this one before, but kids outgrow toys, clothes go out of style, and physical objects rarely stand the test of time. But you know what lasts? Memories.

When Luther and Nora Krank decide to take a Christmas cruise, they decide to invest in quality time with each other. They even begin to connect more during the weeks leading up to their cruise, as preparing for the trip (and dodging holiday commitments) gives them something to look forward to together.

I’m not saying you have to skip Christmas altogether, or that you have to make a gesture as grand as a cruise.

But think about the little traditions unique to the holiday season that create priceless memories: putting up decorations, seeing distant relatives, baking cookies, looking at holiday lights, volunteering or otherwise giving to charity, and more.

These things cost little to nothing at all but can create a lifetime of cherished memories.

Don’t just take my word for it. This teacher’s post went viral for sharing that it’s the experiences her students talk about long after Christmas, not the expensive toys. 

Lesson #3: Sometimes, Just Sometimes, Giving Freely is the Way to Go

Without giving away any spoilers, I’ll just say that by the end of the movie, Luther Krank ended up spending double what he normally would on Christmas, being forced to pry open his checkbook and unclench his fist from around his tightly guarded wallet.

And he was perfectly fine with that.

I don’t mean to negate everything I just said, but despite all our best planning, sometimes the opportunities to embody the holiday spirit, or to help someone in need, or to create wonderful experiences will present themselves when we least expect them.

And far be it for me to tell you to deny yourself the ability to take advantage of these opportunities. After all, these are the things that make the season bright.

Indeed, the reason I saved this lesson for last is that, if you have followed lessons #1 and #2, you’ve probably made it a lot easier to put lesson #3 into action.

Staying within budget, and prioritizing quality experiences, means you may have extra cash, or time, or good old holiday cheer to be able to give freely, whether that’s with money, time, or hospitality – all of which carry value and can be worth their weight in gold to those on the receiving end.

From my family to yours, I wish all of you a wonderful holiday season and may the spirit of Luther Krank guide you throughout the new year.

 

The Basics of Benefits Enrollment Packages

Photo courtesy of Brennan Clark on Flickr

When you think about your compensation, do you immediately think of your salary?

Most people do. But your salary is only one part of your compensation — and if you fail to account for the other aspects of that, you might be missing out.

Those other aspects, of course, are your benefits. As open enrollment season approaches, it’s worth considering the basics of your benefits package. By optimizing the benefits you use, you may keep more money in your own pocket — which is money you can then save and invest.

Here’s what to keep in mind.

Get the Right Health Insurance

One of the biggest benefits of working with a company is the fact that you get access to group insurance policies, which are far cheaper to utilize than buying your own private insurance.

The obvious policy you want to get through your employer is health insurance — but what might not be so obvious is the right choice of all the policies you can choose from.

Many people opt for the plan that offers the lowest deductible possible (which can still feel pricey even when it’s the smallest amount available). That makes sense if you want to minimize what you could be on the hook for paying out-of-pocket.

But you might want to at least consider a high deductible health plan or an HDHP. Yes, the deductibles are high. Some run into the thousands of dollars for individuals and even more for families, which can feel like a bad idea to take on if you know you’ll have to pay so much for healthcare.

HDHPs, however, remain a good option for two main reasons. For one, your monthly premium payments will be lower. That keeps more money in your pocket — which you can then use to save into an account that an HDHP gives you access to a health savings account.

HSAs are the second reason why HDHPs make a lot of sense. They offer tremendous tax advantages.

You can deduct your contributions from your taxable income. You can invest the money you contribute so it can grow over time — and those earnings are tax-free, too. And finally, you can spend the money in the account, tax-free, if its used on qualified healthcare expenses.

No other account offers so many tax advantages, which makes HSAs well worth the HDHP required to use them. If you want to get even more value from them, max out your HSA — but don’t spend down the money in the account.

Instead, pay your medical bills out of pocket as long as you’re working and earning an income. Leave your HSA money invested until retirement. Then, you have a specific fund of money to spend on healthcare in your later years (when medical bills will likely be the highest expense in your retirement budget).

As for that high deductible? You can either build in a line item to your budget to set aside a little money each month in case of emergencies. Or you can plan to use your emergency fund should you need to cover a big medical bill before you hit that deductible.

Look at Other Policies, Too

In addition to health insurance, your benefits likely include disability and life insurance. Life insurance policies are usually small, and the benefit paid out to your beneficiaries may only be enough to cover the cost of a funeral.

Still, it’s better to opt into this coverage and relieve your surviving loved ones of being on the hook for such an expense. (It also means any assets you leave behind can go to those beneficiaries, instead of being used on any end-of-life costs).

If you have people in your life who depend on your income for their financial stability (like a spouse, even one who earns their own income, and certainly any minor children), you may also want to buy term life insurance to supplement the small policy you get through work.

Disability insurance is one of the best benefits your employer offers because it protects your biggest asset: your ability to earn an income.

Life insurance only covers you should your life actually end. But if you’re injured or ill and can’t work, disability will kick in to provide an income when you can’t earn one.

You need to look at both short-term and long-term disability. Both these policies cover different needs — and what you get through your employer may or may not be enough.

Look at what they offer and opt-in, as it will likely be cheaper than buying your own policy. Then, consider what gaps that coverage leaves and consider talking to a financial planner about strategies to cover those gaps as necessary.

Take Advantage of Your Retirement Accounts

Retirement plans that provide you with an employer match offer a great way to literally increase the amount of money going into your account. If your match is 3 percent, for example, your employer will match your contributions up to 3 percent.

Contributing at least enough to your retirement accounts to get the full match offered is like giving yourself an instant raise that goes straight to funding your future self. It doesn’t get much better than that.

Keep in mind that this could be an option for you even if you don’t have a 401(k). You might have a plan like a SEP or SIMPLE IRA, but these could also provide your match. If you’re not sure, ask your HR department and get information about what your plan includes.

What If You Already Max Out Your 401(k)?

That last point might not be helpful if you’re already on top of it and contribute not just enough to get your match, but enough to completely max out how much you can put into the account. (That’s $18,500 in 2018.)

If that’s the case, consider other ways to save. Do you have other benefits that allow you to take advantage of tax-advantaged accounts or even equity compensation?

Look into your benefits and see if you can take advantage of ESOPs, ESPPs, or nonqualified deferred compensation packages. These are a great way to build wealth in a different way than just topping off retirement accounts.

What Else to Look for — and What You Shouldn’t Use in Your Benefits Package

As you go through your benefits, you may want to take advantage of additional offers, like stipends or reimbursements for wardrobe or transportation. Some companies offer perks like free (or at least discounted) gym memberships, meal subscription services, tuition,  or childcare.

If you’re not sure, ask HR what kinds of perks might be available. The answer might be, “none,” but it’s worth making absolutely sure if you could opt in and use what the company offers rather than spending your own money on services you use anyway.

But you shouldn’t fall for the so-called “teasers” that may be included with your benefits. You don’t need things like accidental death insurance. You probably don’t need vision or dental insurance either.

A more effective use of money will likely be setting up a comprehensive financial plan that accounts for these kinds of things — and is less expensive than the fees and premiums you’d pay otherwise.

Good financial planning can also help you evaluate all the benefits available to you, and make sure that you take advantage of the ones that will help you add to your nest egg or help your dollars stretch just a little further.

How to Write a Nasty Email or Blog

Photo Courtesy of Web Brain Infotech on Flickr

 

At one point or another, you’ve probably opened an email only to find it was full of negative comments or even hate. The person on the other end was clearly angry or upset, and now you’re bearing the brunt of their frustration in the form of this ‘nastygram.’

 

It’s incredibly hard not to immediately respond with a message that’s just as riled up and angry. The same could be said for when someone wrongs you and you feel like going on the attack.

 

Whether you were unjustly the recipient of a ‘nastygram’ yourself and wanted to respond, or if you have something you need to get off your chest, here’s how to write a snappy reply back:

 

Don’t.

 

Take the High Road in Online Communications

 

What a disappointing answer! But it’s the best advice you can receive when it comes to writing a nasty email or blog. Just don’t.

 

The internet makes it all too easy for people to vent, rant, and get their negative emotions out of themselves — and on to other people.

 

There’s definitely a time and place to address conflicts or right wrongs. Through an email or article that you can’t take back, however, is rarely a good channel to use.

 

While you may feel free to say what you really feel and truly unleash all the thoughts you think that other person needs to hear from you, the presence of the screen between us and them creates a strange effect: we start saying things we’d never dare say to someone’s face.

 

How to Tell If You Should Step Away from the Keyboard

 

That’s a good first test to determine if it’s time to hit pause and just walk away (at least for a little while): if you’re about to type something you would never say in person, don’t do it.

 

Assume anything you put on the internet is there forever. Considering this, words you write when highly emotional, defensive, or upset may be ones you regret once you’ve had time to cool off and rethink the situation.

 

Before writing any kind of response to something that gets you worked up, put the email or post aside. Talk to other people about the incident. Or write out what you really want to say on a notepad or in a word document as a way to vent — then delete it and start over from a calmer, more reasonable state of mind.

 

If you still feel like you really need to give someone a piece of your mind, consider this: when have you ever been on the receiving end of a nasty email or blog post and thought, “man, this person has a point! I really am a jerk!”

 

Even if you made a mistake, having someone (digitally) yell at you for it probably wasn’t an effective way of dealing with the problem. That’s a two-way street: if you want to persuade someone, or request they address a mistake they made, or point out where they need to take responsibility for an action, being mean or aggressive will not get you the result you want.

 

Say What You Mean Without Getting Nasty

 

None of this means you have to sit back and let someone run over you. It doesn’t mean that you can’t ever share your opinion or what you think about a situation, either.

 

Here are a few ways of voicing your thoughts or addressing your concern in a constructive way:

 

  • Look at what actually happened, not how you feel about the situation. Focus on facts rather than what you made a certain action mean. Keep your emotions out of it.
  • If you can’t keep emotions out of it because you were hurt or disrespected, first think about what you hope to get out of sending a message about the incident. Do you want an apology or another action? Don’t leave it up to the other person to guess. Explain what happened without making accusations, and then request what you need to resolve the situation.
  • Before you criticize, think of what suggestions you could make for improvements or changes. Instead of just naysaying someone’s effort or ideas, offer a constructive solution to the problem.

 

Again, it might be a good idea to talk through the situation with an objective third-party first. Or at least write out the ‘nastygram’ you want to send, so it’s out of your head, then delete it.

 

When you’re ready to write a calm, unemotional response, go for it. Then ask someone whose judgment you trust and who does not have a vested interest in the outcome of the situation to review the email and edit it for you.

 

Ask them to point out accusatory language, emotional verbiage, and just plain unproductive sentences. Work to remove that from your message, so your response is clear, level-headed, and useful — not nasty.