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

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

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

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

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

K-12 Tuition is Now Covered by 529 Plans

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

Saving by Off-Setting State Taxes

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

Turbo Charging the Benefits for Younger Children

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

New Benefits for Special Needs Students

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

Plans Can Be Transferred to Another Child

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

The Bottom Line

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

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

 

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

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

A version of this article initially appeared on Investopedia.com

 

 

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

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

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

What is the “Kiddie Tax”?

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

How were Uniform Gifts and Transfers Taxed?

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

How is it Changing?

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

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

 

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

Will You Pay More or Less?

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

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

 

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

Is Financial Well Being the Key to Emotional Well Being?

financial well being

When you think of your financial advisor or financial plan, how do you feel? Gratified? Anxious? Indifferent? How much would you say your advisor has contributed to your sense of emotional and financial well being?

Most of us probably don’t ask ourselves those questions and yet, according to a 2016 Morningstar study, When More Is Less: Rethinking Financial Health, our sense of well being is an important element to consider when thinking about wealth management and financial planning.

A simple way to look at financial well being is that it’s the ability to:

  1. Fully meet your current and ongoing financial obligations
  2. Feel secure about your financial future
  3. Make choices that allow you to enjoy life

Seen that way, it’s clear how feeling secure financially can contribute to our overall emotional well being as well.

At the same time, not having a sense of overall emotional well being can have a negative, sabotaging effect on our financial well being, via decisions driven by anxiety, fear, insecurity, or some common behavioral biases.

Which comes first, emotional or financial well being?

The short answer is that either can.

While health, family, and friends are the most important things in life, we all know that feeling anxious financially can affect our important relationships. And we know that having a sense of financial well being can give us peace of mind that lets us more fully enjoy the life and relationships we have.

We also know that emotional well being – feeling emotionally secure and supported – can ground us so that we make better, more measured financial decisions. And that emotional distress can lead us to make reckless, impulsive, or biased decisions that can negatively affect achieving a secure and prosperous future.

What kinds of behaviors can derail financial well being?

Behavioral Science researchers have identified many simple yet critical attitudes and biases that can keep us from acting in our own best interest. Unconscious biases that can wreck havoc with financial well being include:

  1. The tendency for investors to react more strongly to negative news than to positive news
  2. Placing more weight – positive or negative – on current news than on the big picture
  3. A “herd mentality” that leads investors to follow the crowd, buying securities at their peak prices as a result

What’s the first step in achieving financial well being?

A good first step towards achieving financial well being is becoming aware of the role that our emotions and biases may be playing in our financial decisions, choices, and habits. Think about your financial choices and some of the last few big financial decisions you made: were there emotions involved, however subtly, that may have influence your choices? A good Financial Advisor, particularly one well versed in Behavioral Finance, can be enormously helpful. “By identifying specific patterns of thought that may sabotage a client’s overall financial health,’” writes Sarah Newcomb, Ph.D., a behavioral scientist for Morningstar, “an advisor can help guide clients into making better financial decisions and increase their satisfaction and peace of mind.”

An added benefit of identifying some of the emotions or biases that may be driving financial decisions: some of my clients have told me that discovering a bias that has affected their financial decisions has lead them to understand other ways that same bias has been affecting their life as well!

Nothing beats a sense of well being, and feeling more secure financially definitely contributes to a greater overall sense of well being and peace of mind. And emotional wellbeing – along with a good financial advisor – can keep you from sabotaging your own progress, and put you back in control and on your way to achieving your financial goals.

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

Are You Getting Your Money’s Worth in Financial Advice?

Measuring value

Recent news about a new fiduciary rule has left many folks more confused than ever about fee structures, and concerned about whether they’re getting the best value from their financial advisor’s fees or their brokerage firm’s fee structure. According to a recent podcast from the Wall Street Journal, it’s not only how much you pay – but also what you are paying for – that’s a source of communication breakdown between those clients and their advisors.

While the Department of Labor is pushing to get advisors and brokers to make it easier for clients to understand their fee structures, so far it doesn’t look like many of the bigger firms are taking them up on it.

Since any firm or advisor can claim to be client-driven, transparent, and “fee-based,” how can you be completely sure about what you’re getting and how much you’re paying? If your advisor is fee-based, rather than strictly fee-only, they may be earning commissions when they recommend certain investment products. Obviously, that creates a potential conflict of interest: those advisors have incentives to trade more frequently, and to recommend specific products in order to generate higher commissions for themselves and their firm, whether or not they’re best for you.

One way to avoid uncertainty – and the potential headaches it brings – is to work with a fee-only registered investment advisory firm (RIA). Fee-only RIAs and advisors do not earn commissions so they are not motivated by the frequency of trades, so they are less likely to encourage buying and selling unless it’s the best choice for you. Because RIAs are held to a fiduciary standard, they are legally bound to always – and only – act in your best interest.

Do your advisor’s feed include additional services?

Even if you are working with a fee-only RIA, however, you may be still not getting your full money’s worth. Many clients neglect to take advantage of untapped services that are included in their advisor’s fees, such as tax and estate planning, insurance advice, and financial coaching, among other services. If you’re not sure what additional services your advisor – or the advisors you are considering – provide, ask them. It’s the best way to ensure that there’s an open path of communication and that you are getting the most value out of your wealth management experience.

Only you can decide what kind of fee structure is best for you, what you feel is the appropriate amount to spend on investment management and financial planning, and what additional services are important to you to help you grow your wealth.

If you’re concerned you’re not getting your money’s worth, though, or that you’re paying too much, here are some good questions to ask yourself: How adequately served do you think you are? Are you confused with what services you are getting and what you are paying for? Do you feel valued? Are your goals being met and are you being listened to?

If you’re not satisfied with the answers to any of these questions, remember that you have options. Sherman Wealth Management is proud to be a fee-only independent RIA firm, because we feel it is the best way to meet our ethical standards and guarantee that all potential clients have a simple and cost-effective way to access investment management and financial planning.

Knowing what those options are, and getting clarity in your fee structures – whatever kind of advisor you ultimately choose – will allow you to feel more confident about the decisions you make, now and for your future.

This article was originally published on Investopedia.com

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

 

 

 

 

 

 

 

 

 

Saving for College and Wondering about Your Options?

Start saving early for college

For many parents, the Spring months are full of happy news, as high school seniors announce their college choices. For parents of younger children, however, those happy announcements may make them wonder if they are being savvy about starting to save for college.

One thing any parent will tell you is that time flies. Before you know it, your toddler will be taking the SATs. And one thing any financial advisor will tell you is that the earlier you start any savings plan, the better off you’ll be (although any time is better than no time.)

Not all college savings plans are created equal

The good news is that more parents than ever are already saving, including an impressive 65% of young millennial parents, according to Sallie Mae’s 2016 report How America Saves for College.

Unfortunately, 61% of the parents surveyed said they are putting their savings in regular savings accounts, and a whopping 44% of all money saved is held in savings & checking accounts, CDs, savings bonds and other low-yielding instruments. And too many of the non-savers are hoping that earnings from their own investments or savings will cover college.

So what are the best ways to save for your child’s education?

Better Ways to Save – 529s, ESAs, and UTMAs

With the availability of excellent plans with significant tax benefits and the potential for compound interest gains, why are so few parents taking advantage of them? One reason may be that the various plans, while excellent, are not always easy to understand. Even the alphabet soup of names is daunting when you’re also worried about packing lunches, soccer practice, and missing work for parent teacher conferences.

Here’s a simplified look at the top plans:

529 Plans

While 529 plans have been around since 1996, they still seem to be a well-kept secret, with only 22% of college savings invested in these portfolios of investment funds (here too, savvy Millennials are leading the charge with 44% planning to take advantage of 529 plans, while Gen X and Baby Boomer parents trail at 36% and 23%.)

529 plans are offered by each of the 50 states and allow you deposit post-tax money that grows and compounds tax-free. While you can invest in any state’s plan, investing in your own state’s plan may offer state income tax deductions in addition to the federal tax break for earnings.

Advantages: Anyone can create a 529 account (including the future student) and anyone can add up to $14,000 per year to the account (or $28,000 if married) without paying a federal gift tax. Up to a total of $400,000 can be invested in a 529 plan account per beneficiary (each state sets its own limits) and for most plans there is no age restriction for the beneficiary. They also allow withdrawals to pay for educational supplies such as computers and books, and the account owner can change the beneficiary to another eligible family member if the funds aren’t used.

Potential drawbacks: when you invest in a state plan, you do not control the financial decisions. Instead, you invest in the portfolio of funds offered by the plan. So shop around for the state plan you feel most comfortable with and that best matches your risk tolerance (a good Fiduciary Financial Advisor can help you evaluate the choices.)

Coverdell Educational Savings Accounts (ESAs)

ESA accounts are similar to a 529 plan in that you contribute post-tax money then growth in value is tax-free. Unlike 529 plans, however, you are free to invest the money as you please.

Advantages: You control the investments in the account and, like 529 plans, can use the funds to pay for educational supplies such as computers and books. You can also use ESA funds to pay for K-12 costs if your child goes to a private school. Any funds not used, may be rolled, tax-free, into the ESA of another family member.

Potential drawbacks: Contributions are capped at $2000 per year per beneficiary and must come from contributors whose adjusted gross income for that year is less than $110,000 (or $220,000 for individuals filing joint returns) so this option is not available to higher income contributors. The beneficiary must be under 18 when it the ESA is created and funded, and the funds must be used by age 30 or be subject to federal tax and a 10% penalty.

UGMA/UTMA Custodial Accounts

The UGMA (Uniform Gift to Minors Act) and UTMA (Uniform Transfer to Minors Act) allow larger gifts to be made to minors, while still qualifying for gift tax exclusion. They allow a parent or grandparent to reduce their estate for tax purposes with greater flexibility in how the money is invested than a 529 offers.

Advantages: Custodial accounts have the greatest flexibility. You can contribute as much as you want, invest it as you please, and – while 529 accounts and ESAs are exclusively intended for education expenses – funds in a custodial accounts can be used for any purpose.

Potential drawbacks: Unlike 529 plans and ESAs, the earnings are not tax-free. And, while custodian controls how the funds are used while the student is a minor, after the student turns 21 (or 18 in some states,) control is transferred to the student. Another important consideration for both taxes and financial aid applications is that custodial accounts are considered the child’s assets and the income they produce (over $1,050 and up to $2,100) will be taxed as income to the child, then any earnings beyond that are taxed at your rate.

Prepaid tuition plans

If you live in a state with excellent state schools, prepaid tuition plans may be a smart solution for you. Administered by the individual states, these investment accounts allow you to pay for – or contribute to – your child’s future state school tuition at today’s rates.

Advantages: Paying now is a great hedge against rising college costs and the increase in value is not taxed.

Potential drawbacks: The funds can only be used at state schools and do not cover room and board.

Get a head start on your child’s financial education too

Once you’ve chose the plan – or combination – that makes the most sense for you, it’s a smart idea to share your investment plan with your child, as soon as they’re old enough to understand. If you get them started early understanding the power of planning, saving, and compound interest, they’ll already have an A+ in financial literacy when they get into the college of their dreams.

 

This post originally appeared on Investopedia.

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

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

 

 

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

Young Father Building Financial Foundation

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

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

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

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

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

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

3. Not Buckling Your Seat Belt: Neglecting Insurance

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

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

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

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

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

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

 

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

 

A Rate Hike from the Fed Doesn’t Mean a Panic Hike for You

Stormy sea

Last week the Federal Reserve raised its key short-term interest rate to a range between .75% and 1%, the first increase this year and the highest it has been since the Fed lowered rates in response to the financial crisis of 2008.

Why does it matter?

This rate determines the interest rate at which the banks themselves borrow short term. The increase in the banks’ rate is then passed on to their borrowers, through climbing interest rates on things like credit-card debt, car loans, home equity loans and mortgages.

This means borrowers may already be feeling a small, but still noteworthy pinch, when it comes to interest on their loans.

No need to panic though: it doesn’t need to mean turbulent waters ahead. Taking a look at whether your own financial goals and strategies need to be adjusted will help you stay on track for your own future.

How will the hike affect you?

The relationship between the economy and interest rates is so complex that even experts sometimes find it daunting. That said, there are a few key action items to consider when interest rates start to rise:

 

1. Refinancing options for existing loans

It might be time to consider refinancing to lock into current rates before they begin increasing, including rates on your mortgage, home equity loan, and car loans. Make sure you know which of your loans are adjustable or floating, and discuss with your advisor on what your options are to potentially minimize any increasing costs.

2. Your debt payoff strategy and schedule

Do the math and decide whether it makes sense to reallocate funds and increase your monthly debt payments. By paying more on your loans you reduce the principal quicker and therefore accrue less interest payments over the life of the loan. Your financial advisor may suggest that your investment gains may still offer the potential to offset any interest rate increase however there are many things to consider before making any adjustments (see our risk tolerance point below).

3. Bank and credit card balance transfers

It is always a good idea to shop around for the most favorable credit card and bank rates, particularly if interest rates are about to rise.

4. Your risk tolerance

It is a great time to sit down with your financial advisor and determine whether the level of risk you are comfortable with has changed in light of an expectation of rising interest rates and determine if it is time to rebalance your portfolio or make any adjustments.

5. Your budget

Rising interest rates and a strengthening economy may lead to an increase in the prices for everyday items including gas, groceries, and entertainment. Take a look at your spending and make any adjustments necessary so that you can stay on track with your savings plan.

 

What’s the good news?

By raising rates, the Fed is signaling its confidence that the economy is strengthening, which is great news if you have clearly defined goals and a diversified portfolio.

Keep an eye out for these possible benefits:

 

1. Interest rates on your savings accounts could increase

While banks tend to raise interest rates on deposits more slowly than on loans, you may see the interest rates applied to your savings accounts increase over time.

2. Incentives to buy a home now

The specter of rising rates could be just the incentive you need to switch from renting to owning your own home.

3. Increasing employment rates and salaries

The Fed has communicated that it believes the economy will continue to improve and that “labor market conditions will strengthen somewhat further.” That is good news because continued growth could mean more jobs and rising wages.

4. More business

A more robust economy may also lead to more consumer confidence , driving more customers, clients, or contracts to your business and this additional business could offset the less desirable attributes of rising rates.

 

Take a look, then take it in stride!

March’s rate hike, while small, was an indication that the Federal Reserve is slowly downshifting the stimulus policies it put in place after the financial crisis of 2008. It also indicates confidence that the economy is growing and will continue to grow, at least in the near future.

Take a look at your savings plan, your investment portfolio, and your risk tolerance with your advisor, and see if you need to make any necessary adjustments.

With proper diversification, goal-setting, and the help of a Fiduciary financial advisor, you can stay on track to achieving you and your family’s financial goals despite a potentially more costly borrowing environment.

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

Don’t let Financial Differences Lead to Divorce

Divorce

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

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

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

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

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

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

Effective Communication Leads to Greater Financial Success

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

Be Willing to Compromise

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

Be Patient

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

Enlist the Help of a Financial Planner

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

Avoid Conflict

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

A Happy Ending

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

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

Your Financial Plan Depends on More Than Your Age

financial plan

Your Financial Plan

We live in a time of great personal freedom when we have the opportunity to choose our own life goals and paths.

While it’s true that very few 26-year-olds are likely to be retiring, you might be that lucky one who just sold an app to Facebook and is considering philanthropy. While most people start families in their 20s or 30s, you might be that 40-year-old who’s just about to adopt a first child. And while most 60-year-olds have hopefully accumulated some retirement savings, you might be that entrepreneurial baby boomer who is moving to Detroit to launch a startup or open a coffee bar.

In spite of this brave, and exciting, new world of personal choices, what’s the first question a financial advisor or online financial site generally asks you? Chances are it’s your age. Then that answer determines the next question, and the next.

Too many financial planners and investment sites, unfortunately, use age to make assumptions that then dictate investment recommendations.

The internet, too, is filled with articles like “Financial Planning Tips Every 30-year-old should know” and “The best financial goals for every age.” There are books and studies that break your life down into age-based phases like “early career phase” and “peak accumulation phase” then make generalization based on those neat buckets.

What’s more important than age?

We’re all individuals, with different dreams, goals, and life situations and when it comes to financial planning, age is not as important as it used to be.

Your goals and your risk tolerance should be the factors to consider first in devising a personalized financial plan or investment plan that works for you.

Is your primary goal buying a house, is it wealth creation for early retirement, is it having income so you can bike around the world for a year? Those answers are more important than the fact that you are 32.

Does a volatile stock market make you anxious? Do you prefer slow and steady to winner takes all? While it’s generally assumed that young people can afford greater risk and volatility because they have time on their side, you may be that 24 year old that wants or needs to preserve savings first and foremost.

Goals differ and investment always involves a certain amount of risk. That’s why a fee-only fiduciary financial advisor works with each client individually to manage goals and risk in a way that works for them. It is vital for success to determine the level of risk each client can afford to take, how much risk is necessary to help them achieve their personal goals, and how much risk and volatility they can comfortably live with emotionally.

You Are Unique

Each of us is unique and that means that no two people will have the exact same goals + risk profile, in spite of being the same age. Yes, living off retirement savings is different than living off a first salary, but the amount may be the same. And paying off student loans is really not all that different from paying off a mortgage.

What’s important is that you find a good fee-only fiduciary financial advisor who looks beyond pre-programmed, one-size-fits all recommendations for 20-30 year-olds or 60+ year-olds and focuses to your goals, your risk preferences, and your uniqueness to create a personalized plan that works for you and evolves as you evolve, not one designed for an entire generation.

 

This article was originally published on Investopedia.com

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

 

 

 

 

3 Ways to Make Budgeting a Success in the New Year

developing a financial budget

At the end of each year – and the beginning of the new one – most of us think about things we’d like to accomplish in the coming year. It’s a time we engage in self-reflection, ideas for self-improvement, and new – or ongoing – resolutions and goals.

One of the most common resolutions is losing weight, but we all know how that goes: crowded gyms in early January, inevitable drop-off when February rolls around. In fact, a study done by the University of Scranton shows that only about 8% of people actually achieve their resolutions.

Financial resolutions often include starting – or finally sticking to – a budget. Unfortunately, that resolution is all-too-often hard to stick to as well. (For related reading, see Financial New Year’s Resolutions You Can Keep.)

Why do so many people have trouble sticking to their resolutions? One of the main reasons is having unrealistic expectations. Overconfidence doesn’t just affect fitness goals, it affects investors’ behavior as well.

How can you make this the year you stick to your goals?

Take Baby Steps

Be reasonable in assessing where you are with your finances and don’t try to tackle everything at once. Start by listing all the areas of your financial situation you would like to improve. Then prioritize the individual elements in order of importance to you, and start by taking on one or two at a time. (For related reading, see: Achieve Your Financial Goals With a Financial Plan.)

If one of your goals is to start – and stick to – budgeting, don’t give yourself super-strict boundaries. Instead, start by creating good habits one at a time. If you want to pay off all of your credit card debt, for instance, take a look at how much debt you have and create a realistic weekly or monthly plan to start paying it off. If you want to buy a house in five years, you could decide to spend less now on something that you currently enjoy. (For related reading, see: Got a Raise? Here’s How to Avoid Lifestyle Creep.)

Focus on one or two goals at a time, see how it goes, and make progress – and adjustments – to stay on track.

Be Specific

Instead of saying “I am going to save more this year,” or “I am going to save $5,000 this year,” try to specify exactly how you plan to do it. Start with something like: “I will take $100 from each paycheck and put it into a savings account.” By giving yourself a tangible – achievable – steps, you’ll be better able to track how well you are sticking to it.

In addition, try to think about what it is that you are trying to accomplish. Why do you want to save an extra $100 each paycheck? Are you saving up for a car? Trying to pay off debt? Building up an emergency fund? When you add purpose to your goals, it makes it more compelling and easier to accomplish. (For related reading, see: Why Investors Can Be Their Own Worst Enemy.)

Stay Accountable

Know yourself: accept who you are and what that means. Are you someone who might let things build up then feel too overwhelmed to jump back on track? Think about sharing your goals with a friend or family member and set times to check in with them and go over your progress. If you want to go to the gym three days a week, think about getting a workout partner. If you want to save an extra $100 from each paycheck, see if there is a friend that has the same goal and you can do it together, comparing how it’s going throughout the journey.

Most importantly, understand that this is a process. Some weeks will be better than others, but, if you can follow these three steps – set realistic goals, set specific goals, be accountable – hopefully you will be part of the 8% that gets it done this year. (For related reading, see: The Importance of Personal Finance Knowledge.)

To read more about budgeting:

Financial Budgeting and Saving

Should You Start to Save… or Pay Down Debt?

This article was originally published on Investopedia.com

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