Does a Money Market Fund Make Sense for You?

April 24, 2017

Are you looking for a stable value investment with easy access to your cash when you need it but a higher return than leaving your money in a checking or savings account? A money market fund could be a good fit. Here are some things to consider.

What is a Money Market Fund?

While a money market fund is often referred to as a “cash equivalent” because of its low risk profile, a money market fund is not cash. It’s actually a mutual fund which invests in very short term, low risk debt securities such as treasury bills, the debt of various government agencies, and “commercial paper” (short-term corporate IOUs). The investment objective of a money market fund is to earn interest for its shareholders while maintaining a stable net asset value (NAV) of $1 per share. The value of these short-term investments rarely fluctuates, which is why they’re considered almost as good as cash. But since they’re not cash, money market mutual funds yield a slightly higher return than savings accounts or money market accounts.

When to Use a Money Market Fund

The benefits of money market mutual funds — safety, liquidity and a higher yield on “cash-equivalent” savings — make them attractive to many savers with differing goals. Here are some common uses for money market funds:

For an emergency fund – A money market fund can be a low risk place to keep 3-6 months of expenses. Make sure you choose one that doesn’t have a penalty for redeeming shares.
For cash management – Many financial institutions offer money market accounts with cash management privileges, where unused cash balances are swept into a linked money market fund and shares are redeemed to pay a check, debit card or ATM withdrawal.
To save for short term goals like a home down payment – Money you know you will need relatively soon shouldn’t be subject to the volatility of the stock or bond markets.
As a parking place between investments – If you sell an investment, you can park the proceeds from the sale in a money market fund while you research other investment options.
To balance the asset allocation of your portfolio – Many investment strategists recommend that a portion of any investor’s portfolio remain in “cash,” available to take advantage of opportunities that come up in the stock and bond markets.

When Not to Use a Money Market Fund

A money market fund is considered a short term, cash-type investment. That’s great for your emergency fund but may not be the best place for retirement savings that you don’t plan to access for decades. If you’re not sure what the mix of stocks, bonds and cash (such as money market funds) should be in your portfolio, download this Risk Tolerance and Asset Allocation Worksheet.

Types of Money Market Funds

There are differences among money market funds that make for variations in taxation, safety and yield. Savers with different goals will choose different funds. Money market funds, depending on their objective, can offer a taxable return or a full or partially tax-free yield, depending on what type of debt securities they hold in the fund..

What to Know Before Investing

Money market funds are not federally insured. However, most people consider the amount of extra risk in money market funds to be so minimal as to be easily offset by the slightly higher interest they earn. Fees on money market funds can vary, so do some research before you invest, including reading the fund’s prospectus.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here and on Twitter @cynthiameyer_FF.

What I Learned From My First Maternity Leave

January 16, 2017

I had my first biological child when I was 41. At the time, I had a busy career as a financial planner for a global financial services firm and was already a stepparent. I liked my job, my team, my co-workers and the family-friendly corporate culture at my firm.

While I wasn’t quite sure what to expect after the baby was born, I had a vision that things would largely be the same, only busier. I’d be even more efficient and organized and cut back on some volunteering so I could get it all done. For those parents reading this, I’ll excuse you while pick yourself off the floor from laughing at my naiveté! If you are preparing now for parenthood, allow me to share some things I learned from returning to work after my first maternity leave:

Your HR Department is here to help you.

My HMO gave me forms to fill out for short-term disability and submit to my employer. It turns out I didn’t need them because my firm had 12 weeks of paid maternity leave with full benefits. My office HR rep was a fantastic resource once she knew I was expecting. She fully explained my benefits and how the leave would work.

Before my leave, she arranged for blinds to be installed in my team’s office indoor-facing windows, so I had a private place to nurse or pump when I returned. My manager encouraged my business partner and me to work out whatever arrangement suited us for my return, including a full-time schedule, a part-time schedule and working from home. Keep in mind that at the time I worked for a very large company that has won many awards for being friendly to working mothers, but even in a smaller company, you may be surprised at what you can negotiate.

It might start sooner than you expect.

As I wrote about here, a week or so before my daughter was due, I developed some unexpected complications and had to begin my maternity leave suddenly. It was challenging on many levels. I felt fine, and there were so many things that were left to do. Luckily, this happened late in my pregnancy, but I have friends who have had to go on leave suddenly with many months to go. A paid maternity leave that starts well before the baby is born could have financial implications.

If you still plan to take the same amount off after the baby then there will be a period of time without income. If you have sick time or PTO available, consider using that first before you begin your formal leave. Once you’re expecting, consider building up your emergency fund to cover an additional 3-4 months of living expenses above what you’ve already saved in case you have to take unpaid leave. Use this calculator to determine how much you can save.

You may want to take a longer leave.

After 12 weeks, I went back to work part time, but I found it was too soon. My baby wasn’t sleeping for more than 45 minutes at a stretch, and I was exhausted. My team at work was very understanding, and we tried keeping my daughter in the office with us for a while.

Eventually, I asked to take an unpaid leave for another three months, under the Family Medical Leave Act. That meant that I could take leave for an additional 12 weeks without pay but without risking my job. I was able to continue my health insurance coverage at the same group rate but had to write a check for my share of the premiums as I wasn’t getting a paycheck. See here to learn more about employee protections under the FMLA.

Accept you will feel torn.

Ambivalence is completely normal during the early stages of returning to work after maternity leave. When I was back in the office, part of me felt like I should be home, and when I was at home, part of me felt like I should be at work. Remember that your HR Department is here to help you manage the changes, so reach out when you have questions.

Don’t let maternity leave stress you out. Your company wants you to have a successful maternity leave and a productive return to work. With some preparation and a realistic assessment, you’ll be ready for it!

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

Is a Roth IRA the Wrong Tool for Emergency Savings?

December 08, 2016

I recently stumbled across this blog post called “The Emergency Roth Fallacy,” which criticizes me (along with a host of other financial writers) for advocating the idea of using a Roth IRA for an emergency fund. The basic idea is that since Roth IRA contributions can be withdrawn tax and penalty-free at any time and come out before earnings (which can be subject to taxes and a 10% early withdrawal penalty if withdrawn before 5 years or age 59 ½), you could use a Roth IRA as your emergency fund. Just be sure to keep it somewhere safe like a bank account or money market fund until you’ve built up sufficient emergency savings (at least enough to cover 3-6 months’ worth of necessary expenses) elsewhere. At that point, you can then invest the Roth IRA money more aggressively to grow tax-free for retirement. Let’s take a look at the criticisms:

“Who cares about saving taxes on an account earning 1%!?” I don’t know about you, but I try to save every penny I can from taxes. The bigger point is the opportunity you may have to invest that money later for a higher tax-free return. By funding the Roth IRA while you’re building your emergency fund, you avoid missing the opportunity to stick as much money in a tax-free account as possible.

“Money you withdraw can’t be put back.” Technically, you can put the money back within 60 days one time each year. It’s also no worse than not having contributed the money at all, which would be the alternative for someone who can’t afford to do both. However, I would go further and say that this is actually a benefit of using the Roth IRA as an emergency fund. That’s because the pain of withdrawing money that would otherwise grow tax-free can discourage people from withdrawing money for non-emergency purposes.

“It’s a complex solution to a non-existent problem.” First, the strategy isn’t for everyone. Many people do prefer the simplicity of a simple savings account for their emergency funds. On the other hand, I also know people who are reluctant to build up their emergency savings because they want to get as much money as possible into tax-advantaged accounts like the Roth IRA. This solution can solve that dilemma for them.

“It’s WAY too hands-on.” There are plenty of people (like yours truly) who are willing to take a few extra steps to optimize their finances. It can also be implemented by financial advisors for clients who prefer being more hands-off.

There are some additional benefits of a Roth IRA vs a regular savings account for an emergency fund. The fact that it’s designated as a retirement account and requires extra paperwork for withdrawals can discourage you from tapping into it for frivolous “emergencies.” Some institutions may pay higher interest rates on IRA accounts. Finally, some states provide more creditor protections to IRAs and IRAs avoid the time and cost of probate as long as there’s a living beneficiary.

None of that may matter to you. You may prefer the simplicity and convenience of a regular savings account. But for others, the Roth IRA can be a useful tool in helping them build and preserve emergency savings.

Are You Prepared For the Unexpected?

November 17, 2016

If you’re like me, you may have been quite surprised (whether in a good or bad way) by the election results last week. The fact is that things don’t always go as we expect and sometimes life throws us curve balls. For example, I recently had a trip in which my first flight was delayed, then the Wi-Fi that I had been planning to use to get some work done on my second flight wasn’t working (here’s a different perspective on this), and then I found out my luggage hadn’t made it to my final destination.

Fortunately, I had everything I needed to finish my work (including writing this blog post) on me and the rest was delivered to my hotel by the next morning. The key is to be able to roll with the punches and that’s a lot easier when we’re prepared. The same is true in our financial lives. Here are some preparations for life’s financial curve balls:

Insurance

Knowing how my travel day had gone, I opted for the more complete supplemental liability insurance for my rental car. I knew the odds of an at-fault accident were low, but it could happen and being carless, I have no other insurance. That means I could be personally liable for thousands or even hundreds of thousands of dollars in damages in the event of an accident.

Insurance is for those unlikely but disastrous events that could leave us financially debilitated. (If the event is likely, the insurance wouldn’t make financial sense for the insurance company and if the event wouldn’t be disastrous, the insurance wouldn’t make financial sense for you.) Make sure you have enough property and casualty insurance to replace your valuables and to cover your assets in case you’re held liable for damages. That may mean having an umbrella liability policy if the limits on your auto and homeowners insurance are too low. Don’t forget health, disability, life, and perhaps long term care insurance too.

Emergency Fund

If insurance covers the unlikely events, the emergency fund is also for all the things we know will happen but can’t predict when. Your home and car will need repairs. You’ll have out-of-pocket medical expenses. You’ll probably be in between jobs at some point. If you don’t have adequate emergency savings (ideally enough savings and other supplies to get you through at least 3-6 months), you may end up having to borrow the money at astronomical interest rates or even worse, losing your home or car if you can’t make the payments.

Advance Health Care Directive and Durable Power of Attorney

These documents specify your wishes or delegate someone to make those decisions for you in case you’re unable to. You can get advance health care directives drafted and stored for free at My Directives. A durable power of attorney is relatively inexpensive or you may be able to get it for free as an employee benefit.

Investment Diversification

Just like things don’t always go as we expect in our personal lives, the same is true for the overall economy as well. That’s why we diversify our investments. Have at least 30 different stocks in various sectors (if you have a mutual fund, you probably already have this) with no more than 10-15% of your portfolio in any one stock (especially your employer’s). You may want to include bonds, cash, and even alternative asset classes in your portfolio like real estate and commodities as well. Even the most diversified portfolio can lose value but by holding for the long term (at least 3-5 years), you also diversify by time and so the good years can make up for the bad ones.

Just because most of the political or financial experts predict an outcome doesn’t mean they’ll always be right. Life has a way of making fools of us all. When it does, you’ll want to be prepared.

My Advice to Recent College Grads

August 26, 2016

At one of our client sites, I was able to meet with about a dozen new hires, all of whom are very recent college graduates. They are starting their first “real jobs” and want to get their financial lives off on the right foot. During training, it was suggested that they sign up for a one-on-one financial coaching session, and many of them took HR up on that suggestion.

I had a blast during those sessions because most of the kids (yeah, I’ll call them that because I have a daughter roughly the same age) who came in said that they had no idea how to handle their new income. They were fine while in college, working summer jobs or some part-time jobs during school for spending money. But being out in the real world, with real responsibilities like bills to pay and student loans coming out of deferral, was a wee bit scary for many of them.

While they all had different incomes and amounts of student loan debt, there was a lot of common ground with this group. My daughter is only a year behind them, so I can already see the conversation we are going to have next summer when she lands her first job. In that discussion, I’ll ask her to do a few of the things that came up in the sessions last week. For recent college graduates or anyone looking to get their financial life started on the right track, here are some principles and tools that I think can help build the foundation of the financial life that should lead to long term financial security.

Spend less than you make and know where your money goes.

Mint is a great free tool to track spending. With the alerts feature, get a text message when you hit your monthly budget for one or two “hot spots“ in your budget (where you think you might overspend). The Mint app on my phone is how I start almost every morning. You can also go old school Excel with this Expense Tracker. However you do it, understand where your money is going and make sure that you spend less than you make.

Automate your savings.

Make sure that you are contributing to your 401(k) in an amount that is equal to or greater than your employer’s match. If possible, get your contribution plus the match to be 15-20% of your compensation. If you can’t do that right away, enroll in the rate escalator feature of your 401(k) or make it a habit to increase your contribution by 1% every time you get a pay increase.

Set up a savings account in a bank or credit union that isn’t your primary bank. The goal is to create a speed bump between you and your money so that the savings grow all the time. Once the account is set up, get a direct deposit (something small like $10, $20, or $50 per pay so that it’s not a burden) going into that account with each paycheck. That’s going to be your long term emergency fund and perhaps the down payment on your first house.

Always know your credit score.

No one should ever have to pay for their credit score. That’s a sentence that I firmly believe. The good news is that with free services offered by Credit Karma and CreditSesame , you can track your credit score and see your credit reports at any time. (Checking your own score is NOT going to count as an inquiry and have a negative impact on your score.) Both sites also have great alerts, phone apps and tips for how you can increase your credit score over time.

Pay down debt rapidly. Debt is NOT your friend.

Use this Debt Inventory to keep a record of who you owe and how much. Enter your current debts and save it as “August 2016” debt. Then when you get your next batch of statements, update the sheet and save as “Sept 2016.” Update until they are at $0. Print them out so that you can track the progress you’re making on a monthly basis.

Pay only the minimum on all debts except the one with the highest rate of interest. Circle that one with a red pen and consider it your enemy. Throw every ounce of financial energy you have into eliminating that debt. When it’s gone, lather – rinse – repeat.

As the foundation of a long term secure financial future, these steps will help get you to a place where you’re never really worried about money. While they look very simple (because they ARE!), most people that I meet with are not doing these very basic steps. If you start your career with them, you will get your financial life well ahead of most of America and of your peer group.

Building a Strong Financial Foundation

August 02, 2016

One of my favorite things to do is to talk to employees or honestly anyone about their finances. I find that some of the best guidance I give comes from other people. I also get a lot of insight as to why people find themselves constantly in a financial hole.

As I was doing a series of financial consulting appointments, I started to notice a trend in people wanting to make the right financial decision but not in the right order. My mantra to all is to look at building your finances like building a house. If you do not lay the right foundation, your house will crumble at the first sign of stress. For instance, if you start paying off debt with no savings, eventually life is going to happen and you will either have to stop paying on your debt to take care of the emergency or worse, get into even more debt because there was no cash to take care of the expense. Here are some steps to lay down a strong financial foundation:

1. Create and stick with a monthly spending plan. The greatest resource you have to help you achieve your financial goals is your income. If you do not have a written plan for how you are going to spend your income, you may overestimate how much you can spend and have nothing left over for emergencies.

Having a monthly spending plan is an important foundation to your finances because you need to know how much money you really have to use towards goals. It will also give you insight into how much you need in savings and how much you can actually save.Consider using websites like Mint to create a realistic spending plan to account for your spending.

2. Have an emergency savings account. An emergency fund is a foundation to a great financial plan because it makes sure you can take care of the unexpected like paying your mortgage if you suddenly lose your job or replacing your transmission without having to go into debt. I actually label my emergency savings account as “debt free insurance.” I found labeling the account is a constant reminder to my husband and myself that the purpose of it is to protect us from having to use debt to cover emergencies. This also prevents us from getting tempted to use this account for non-emergencies.

If your emergency account is at ground zero, break up your goals. First, shoot for a goal to get $1,000 into the account as soon as possible to cover minor emergencies and then set a goal of at least 3 months of expenses. Consider setting up automatic payroll deductions to reach your goal.

3. Pay off high interest credit card debt. For many that carry high interest credit card debt, they will save more money by paying off the 13-20% interest than they will make in an investment averaging 6-10%. No debt also means that your money can go towards your financial goals and not your creditors’ bottom line.

I had a meeting with a wonderful young woman who was contributing regularly to a Roth IRA but was carrying credit card balances with over 20% interest rates. I told her the best investment she can make is to pay off her credit card. We used the DebtBlaster Calculator to come up with a strategy to pay down her debts. She was surprised that she could pay off her debt in less than ½ the time by paying off her higher interest rate first, adding an extra $100 a month and committing ½ of her average tax refund amount to her debt.

As you look to getting your house in order, make sure you lay a foundation that can withstand the test of financial stress. It may not be fun. However, your foundation will help you withstand the financial crisis that will inevitably come and help make sure that whatever else you build does not buckle at the first sign of financial stress.

What Climbing Mt. Everest Can Teach Us About Budgeting

May 31, 2016

Budget – the word can strike fear in the bravest soul. A budget for some is like climbing Mount Everest. Many have tried, many have perished, and the ones who get to the top are never the same again. As I was watching a documentary about Mt. Everest, the similarities between the ones who made it to the top and lived to tell about it and the ones who did not or perished are striking similar to those that successfully use a budget and those that have struggled to stick to a budget:

Unrealistic Expectations. Some of the failed climbers set unrealistic expectations about their own physical health, mental stamina and timeline to climb the mountain. Likewise, I have found one of the reasons why people fail to stick to a budget is that they create an unrealistic one. Look, you eventually are going to buy clothes and eat out. Even if it is not that often, put a dollar amount in the category. If are not sure where to start, look at your spending for last year, divide that number by 12 and use that number as your starting point for your monthly budget.

Not planning for the unexpected. Many climbers did not have a plan for how they would handle sudden changes in weather. Like the climbers, many people do not buffer what I called the “expected unexpected events.” We all know at some point our cars will need repairs and we will need to call a plumber. We just do not know when these things will happen. If you don’t know how much to save, consider reviewing your bank account for car maintenance and home repair transactions for last year, dividing it by 12 and using that number as a starting point.

Not changing your plan. Successfully climbing Mt. Everest means making adjustments to your plan since your route may change or the terrain might take a climber longer than expected. As our lives change, the budget needs to be adjusted. Where I live in Georgia, my gas bill is higher in the winter and my electricity skyrockets in the summer. Also in the summer, I have to account for summer camp expenses. Review and adjust your budget to account for the highs and lows of your expenses throughout the year.

Of course, sticking to a budget is a lot easier than climate Mt. Everest. We can still learn a lot from it though. Making these adjustments can help you experience the “high” of financial wellness.

Do You Need Financial Earthquake Insurance?

March 07, 2016

Think of a financial shock that could totally knock you off your feet. That’s a financial earthquake. Unemployment, an illness, divorce, the death of a spouse, the loss of a home or a business – a financial earthquake is unexpected, unpleasant and unwelcome. Continue reading “Do You Need Financial Earthquake Insurance?”

Why You Need a Plan B

February 26, 2016

I woke up one morning recently and scrolled through my emails on my phone before getting out of bed. I was shocked to see that one of my coworkers was involved in a hit and run accident. A car came barreling through an intersection, hit her car and drove away. She was injured in the accident and was, a day later, more upset that her workout routine was disrupted than being in a pretty major accident. Continue reading “Why You Need a Plan B”

How To “Budget-Bust Proof” Your Spending Plan

September 01, 2015

Okay, I am going to call this Confession Tuesday. I have spoken to so many people that struggle with creating a budget. I can hear the guilt and even shame in what seems to them like their inability to live within their means. Continue reading “How To “Budget-Bust Proof” Your Spending Plan”

How To Determine Your Financial Priorities With A Late Start To Retirement

July 20, 2015

We hear a lot about the retirement crisis in America and there’s a great deal to be concerned about these days. With a decline in pension availability and concerns about the long-term viability of Social Security, the burden of saving for retirement rests squarely on our shoulders. However, the average American has less than $25,000 in total savings and investments for retirement (see EBRI’s 2015 Retirement Confidence Survey). Continue reading “How To Determine Your Financial Priorities With A Late Start To Retirement”

7 Things To Do Before Summer Is Over

June 29, 2015

Most of us would agree that it’s important to schedule regular medical and dental check-ups at least once per year. Whether or not we actually follow through with those wellness visits is another story. I admit to recently realizing that I am long overdue with the scheduling of my annual check-up so last week I dedicated an entire 15 minutes to the schedule so I could get those “should be” routine visits on the calendar. Continue reading “7 Things To Do Before Summer Is Over”

Financial Lessons From The Game Of Thrones Season Finale

June 19, 2015

My apologies if you haven’t watched the Game of Thrones season finale yet. But if you haven’t and you’re a fan, exactly what are you waiting for??? I’ll take a few liberties with the show’s broader themes and hopefully won’t spoil anything that you haven’t already heard or watched. Continue reading “Financial Lessons From The Game Of Thrones Season Finale”

4 Financial Planning Tips For Irregular Income Earners

June 17, 2015

Both my wife and I earn irregular income as freelance writers. Our yearly income can vary significantly depending on what type of projects, contracts, or gigs we land. Many of our friends in Los Angeles earn their living in a similar fashion in fields like editing, sound design, acting, post-production, or line producing. Salespeople, farmers, contractors, small business owners, and artists will all recognize the challenges of financial planning while earning variable income. Continue reading “4 Financial Planning Tips For Irregular Income Earners”

The Only Extended Warranties I Usually Buy

June 12, 2015

I am not normally a fan of extended warranties on many things.I once worked with someone who owned car dealerships and in discussing their business, I learned that the extended warranties have very high profit margins so the consumer in me said “if the profit margins are that high, they probably aren’t a good deal for me as a buyer.” I usually opt out of the warranties on relatively durable goods like a car, washer/dryer, microwave, etc. So far, it hasn’t come back to bite me (so far…). However, I do give consideration to buying the warranty on less durable things, like electronics (laptops, TVs, etc). Continue reading “The Only Extended Warranties I Usually Buy”

Don’t Let Car Problems Wreck Your Finances

May 26, 2015

Have you ever found yourself in a situation where you had to dip into your savings account or worse, pull out that credit card that you just paid off and use it for sudden car problems? When my husband and I were struggling financially, there were few areas in our finances that brought us to our knees the way that a potential car problem did. As my husband and I were reminiscing (really shuddering), he told me that if he had to talk to a couple struggling to manage their finances and their cars the following is what he would tell them: Continue reading “Don’t Let Car Problems Wreck Your Finances”

What I Am Teaching My Kids About Money

October 13, 2014

As you may know from following this blog, I have just completed my dissertation and other requirements to earn my Ph.D in Personal Financial Planning from Kansas State University so we now have two proud Wildcat alums on staff here. (Doug Spencer is the other. He personifies loyalty to one’s alma mater and has plenty of purple shirts in his wardrobe to prove it.) Continue reading “What I Am Teaching My Kids About Money”

Here’s a $2 Million Jackpot Worth Playing For

July 08, 2014

Would you like the thrill of gambling without the out-of-pocket cost? Now you can combine the good habits of saving and paying down debt with the ability to win entries to prizes from SaveUp.com ranging from gift cards to the chance of winning the $2 million jackpot. I learned about this prize-linked savings incentive by reading an article in the July issue of Kiplinger’s and signed up a few weeks ago to check it out. So far, the only thing I have won is a 1 year subscription to Prevention Magazine, but it is fun and motivating to earn credits to play online card games to win prizes like a $5,000 savings deposit or your bills paid for a year. Credits can also be used towards entries to the $2 million drawing, called the SaveUp Super Jackpot. (Pick 6 numbers and the next jackpot numbers will be announced on August 1.) Continue reading “Here’s a $2 Million Jackpot Worth Playing For”

Should I Keep My Emergency Funds in a Roth IRA?

June 09, 2014

In last week’s blog post, we examined the flexibility of Roth IRAs. Perhaps the most appealing feature of Roth IRA accounts is the tax-free growth of earnings. If you expect to be at the same or a higher tax bracket, the Roth IRA is definitely worth considering based on the prospects of future tax savings. Even if you don’t have a strong opinion as to where your future income tax bracket will be when you need access to your funds, it may prove beneficial to have this added feature of tax diversification. Continue reading “Should I Keep My Emergency Funds in a Roth IRA?”

Going Against the Odds

May 30, 2014

I’ve played one sport or another virtually my entire life. And, along with playing, I enjoy watching as well. One of the many things I love about sports is that it is just so unpredictable. Continue reading “Going Against the Odds”