Financial Wellness or Cash Flow Band-Aid?

June 26, 2023

Abstract:

This white paper explores the impact upon the overall financial wellness of workers when using various financial point solution benefit programs such as earned and early wage access (EWA), buy-now-pay-later (BNPL), and small dollar employer loan programs. It also explores the pros and cons of point solutions and potential positive or negative effects on employees’ overall financial well-being. Analysis and discussion include whether point solutions provide a meaningful “financial wellness” benefit as often touted, or if these limited benefits are more of a short-term fix approach to serious financial challenges faced by workers: pervasive consumer debt, low wages, and cashflow mismanagement. The paper concludes with a comparison of point solution outcomes versus a holistic financial coaching and wellness approach.

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Workplace Financial Wellness in America: A Year in Review

May 23, 2023

Abstract:

The state of financial wellness of the U.S. workforce fell in 2022 as high inflation and economic uncertainty raised employee financial stress to levels not seen since the Great Recession. The rise in financial stress has contributed to declines in overall wellbeing as self-reported mental and physical health have fallen to their lowest points in two decades. Employees that engaged in their financial coaching benefit made substantial improvements in financial behavior; those that engaged with a live financial coach fared even better than those that engaged exclusively with a virtual financial coach. Working with employee resource groups (ERG) to deploy financial coaching benefits tailored to minority experiences has proven to be effective at increasing employee engagement and improving financial outcomes.

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Infographic: Coach to Advisor Case Study

April 03, 2023

How one family brought their Financial Coach and Financial Advisor together to optimize outcomes.

Think Tank Bulletin: Student Loan Debt on the Workforce

March 21, 2023

Currently, an estimated 43.5 million Americans carry over $1.7 trillion in student loan debt—an average of over $37,500 per…

Race and Financial Stress Special Report

October 25, 2022

Executive Summary:

The racial wealth gap in America has garnered much attention as part of the fight against social injustice. It is highly encouraging to see many of our partners that have not only publicly pledged their support in this fight, but are actively searching for ways to make tangible headway within their organization. Many are leaning on their financial wellness benefits to do just that, as they understand that improving the financial wellness of their most vulnerable employees will, over time, drive results in this quest for financial equity amongst the races.

In this special report, we’ll explore:

  • The current racial disparities in financial wellness
  • What role income plays in these disparities
  • How financial wellness is successfully driving improvements to narrow the gap
  • Ideas on how to improve financial wellness disparities within your organization

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2021 Financial Wellness Year in Review: A Q&A with Financial Finesse founder and CEO, Liz Davidson

June 20, 2022

Abstract:

This Q&A is designed to provide quotable commentary on Financial Finesse’s 2021 Financial Wellness Year in Review.

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2021 Financial Wellness Year in Review

June 20, 2022

Abstract:

Workplace stress has risen steadily for over a decade, and with the help of a global pandemic has reached a tipping point in 2021. Workers are increasingly expecting more support from their employers, and they are willing to change jobs to get it. To compete for talent, employers must shift their approach to benefit design and corporate culture to accommodate the new workforce. This report examines the divergence in financial wellness priorities that is signaling a shift in the employer-employee relationship and offers guidance for how employers can handle this workplace revolution.

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How To Choose A Healthcare Plan

September 10, 2021

Depending on the choices you have, choosing a healthcare plan can be frustrating – with different plans that have different structures and costs, how will you know which one is best for you and your family?

Start with any tools your employer offers

Your benefit provider may offer access to tools that help with this decision, so check for that as a first step for a more personalized answer based on the plan options available to you. It may be some type of quiz or interactive process that asks you to make a rough prediction of your anticipated healthcare needs – if you have a tool like that, definitely start there. Doing so won’t commit you to a particular plan, but it can help you narrow the options based on your answers.

Beyond using the decision support tools that may be offered, there are a few key things to consider. Here’s how to choose.

It’s all about balance

Big picture, choosing the best plan for you and your family comes down to whichever plan balances your personal healthcare needs with care that you can afford – no one wants to find themselves underinsured, but lots of people end up over-insuring. In some cases, that’s intentional – lots of people tell us they’d rather know they are covered just in case, and we can’t argue with that if you know the trade-offs you’re making. If instead you’re trying to find the best value without overpaying, it may require a little more legwork.

What are the premiums?

Before you start comparing the details of each plan, make sure you factor in this cost, which is the one thing you can count on spending no matter what for your healthcare. It can be tempting to choose the lowest premium, and if you expect to use your plan very little beyond preventive care services (which are covered 100% under most plans), then that may be all you need to consider.

If you think there’s any chance you’ll need to use your healthcare, then keep looking beyond the premium.

How does the coverage differ under each plan?

Make sure the plan you choose actually covers your needs. If you want to keep your primary doctor and other providers, make sure they are in-network so you don’t end up paying more for their services. See the extent to which any procedures or prescription drugs you’re expecting to need over the next year are covered as well.

A few more things to consider:

  • If you or a dependent have chronic health issues and one spouse has access to a plan with lower deductibles and co-pays, make sure that child or spouse is on that plan.
  • If you have traditionally had your entire family on one plan but both spouses have health coverage available, you should start looking into whether your doctors and providers are in the networks of both plans. If so, see if it may make sense to go ahead and put the spouses on different plans. Even if your company isn’t charging a premium for “covered” spouses, it may be less expensive overall to be on different plans.
  • As always, take a good look at any pending issues such as braces, lasik, etc. that are in your family’s future and plan accordingly.

How much might you have to pay out-of-pocket?

It’s important to compare the different ways you’ll share the costs of your care with your insurance company through co-pays, deductibles and coinsurance. You may also want to compare out of pocket maximums if you anticipate large expenses for the year. 

Is there an HSA option?

If you’re looking for a healthcare option that also offers the ability to save for future medical expenses, even into retirement, you may want to pay special attention to any HSA-eligible plans. This article goes into the details of how these aspects work.

Why give Health Savings Accounts a look?

If your employer is contributing to your HSA, that’s free money that can help to offset your out-of-pocket costs since your employer is essentially putting some of that money into your pocket. (Your HSA is your money so you can take it with you when you leave or retire.) If you plan to contribute to the HSA, calculate how much you can save in taxes. (You can get the same tax benefit by contributing to an FSA for health expenses, but the contribution limits are lower and you probably won’t want to contribute as much since the FSA is mostly “use it or lose it.”)

A case study: how one mom chose her plan for her family

As a real-life example, one of our coaches worked with someone who was trying to decide between a traditional PPO plan with a $1,000 family deductible versus an HSA-eligible plan with a $2,600 family deductible. The coverages would have been similar for her, but she was concerned by potentially having to spend so much out-of-pocket to reach her deductible under the HSA plan.

When we factored in the premium difference, we found that the PPO plan premiums were an extra $49 a month or $588 a year. In addition, her employer was willing to contribute $2,000 to her HSA. So, by choosing the HSA-eligible plan, she would basically be saving $2,588, which turned out to be more than the difference in the deductibles. Even if she spent the whole $2,600, she’d still be ahead under the high deductible plan.

In addition, if she decided to contribute an additional $3,000 to her HSA, she would save another $720 in federal taxes at the 24% tax bracket (not including state taxes or the tax savings on any future earnings in the account).

Of course, your numbers will be different, and your decision may not be as simple based on other factors. The lesson here is that you need to consider all of the factors, not just the premiums and the deductibles.

Choosing the ideal plan

Choosing a healthcare plan is a highly personal decision and there’s no perfect way to go about the decision without a crystal ball to tell you how the year ahead will go. Definitely take advantage of any decision-support tools your employer is offering, then check that against other possible scenarios in your life.

There are things you can anticipate such as braces, ongoing treatments or childbirth, but even the best laid plans can go awry with your health. The ideal plan for you is the one that covers the most likely scenarios you and your family will encounter without paying too much for coverage you don’t need.

Why You Should Treat Your HSA Like An IRA

September 10, 2021

Would you raid your Roth IRA or 401(k) to pay for car repair bills? I suppose if you have no other choice, you might. But ordinarily, we want to use our tax-advantaged retirement accounts only as a last resort because we want that money to grow tax-free or tax-deferred for as long as possible.

The HSA is the only account that allows us to make pre-tax contributions and withdraw them tax-free. Why then are we so willing to tap into our HSAs for medical expenses?

Making the most of your HSA

Yes, there’s no tax or penalty on those withdrawals since that’s what they’re meant to be used for. But HSAs can also be a tax-free retirement account since the money grows to be tax-free if used for medical expenses at any time, including retirement.

Since there’s a pretty good chance you’ll have some health care costs in retirement, you can count on being able to use that money tax-free. (If you keep the receipts for health care expenses you pay out-of-pocket, you can also withdraw that amount tax-free from the HSA later since there’s no time limit between the medical expense and the withdrawal.) You can also use the money penalty-free for any expense after age 65, although it would be taxable just like a pre-tax retirement account.

An example

Let’s say you contribute $3k per year to an HSA and don’t touch the money for 30 years. If you just earn an average of 1% in a savings account, you will have over $105k. But if you invest that $3k each year and earn a 7% average annual return, you’ll end up with over $300k or almost 3 times as much!

That’s why I recently decided to take advantage of our company’s switch to a new HSA custodian by transferring my HSA funds from a savings account to an HSA brokerage account. Since I don’t intend to touch this money for a few decades, I can invest it more aggressively and hopefully earn a higher rate of return. In the meantime, I’ll just pay my health care costs out of my regular income and savings.

Take care with any fees

One little hiccup that I noticed is that my custodian charges a $3 fee for the brokerage account if I don’t keep at least $5k in the savings account. At first glance, it’s tempting to keep $5k in the savings account to avoid that fee but the $36 a year in fees is only .72% of the $5k. That means if I can just earn more than an extra .72% in the brokerage account, I’ll be ahead. Given historical returns, I think that’s a pretty good bet.

Guidelines for making the most of your HSA

Here are some guidelines to make the best use of your HSA:

  1. First, make sure you have an adequate emergency fund to cover health care expenses. If not, ignore everything in this blog post until you do.
  2. If you have the option of a health care plan with an HSA, consider getting it. The premiums are lower so you generally save money in the long run if you’re in good health.
  3. Try to max out your contributions. (If you do it through payroll deductions into a section 125 cafeteria plan, you can also avoid FICA tax on the contributions). Aside from getting the match on your 401(k) and paying off high interest debt, this is generally the best use of your money because  the contributions are both pre-tax and can be withdrawn tax-free (for health care expenses).
  4. If you have  a brokerage option, invest as much of your HSA as you can in a portfolio that’s appropriate for your time horizon and risk tolerance. (Make sure your expected returns justify any fees you may have to pay.)
  5. Don’t touch your HSA money unless you absolutely need to. Instead, use your regular savings (see #1) to cover medical expenses.
  6. Keep the receipts for any health care expenses you pay out-of-pocket since you can withdraw those amounts from your HSA tax-free anytime.
  7. Have tax-free money to help cover health care expenses in retirement!

2020 Financial Wellness Year in Review

May 25, 2021

Abstract:

The state of financial wellness of the U.S. workforce improved in 2020 despite the economic challenges created by the COVID-19 pandemic. The greatest improvement occurred in the areas of cash flow, debt management, and homebuying. Employees that maintained a handle on cash flow and an emergency fund prior to 2020 fared best during the pandemic, leading many employers to add financial resiliency to their list of key focus areas in 2021. As concern for racial financial equity and equality grows, we expect to see more emphasis on diversity and inclusion (D&I) in workplace financial wellness initiatives in the coming years.

To read the full Report, download now.

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August 2020 Engagement Study

March 15, 2021

Learn how financial coaching influenced coronavirus related distributions in this study conducted by Financial Finesse on behalf of a large, midwestern building supply manufacturer.

What’s it really like to work with a financial coach?

March 11, 2021

Until they’ve tried it, your employees will never know; and not knowing may be keeping them from engaging with a benefit that could literally change their lives. 

Nearly 2 in 3 adults (64%) say that money is a significant source of stress in their life

We know that Americans are dealing with significant levels of financial stress, in many cases exacerbated by COVID-19. According to the American Psychological Association, “Nearly 2 in 3 adults (64%) say that money is a significant source of stress in their life, and around half of adults (52%) say they have experienced negative financial impacts due to the pandemic.”[1]

We also know that talking with a financial coach can improve financial stress levels considerably. For example, the percentage of financially suffering employees (i.e., those with an initial financial wellness score of less than 3.0) with high or overwhelming levels of financial stress fell from 70% to 41% after talking with a financial coach as part of their financial wellness benefit.

So how can we get employees ‘over the hump’ of not knowing and get them comfortable enough to call a coach? I asked our coaching team which myths or misconceptions they believe may be holding employees back. Allow me to bust them.

Myth #1 – A financial coach will try to sell me something.
While many financial professionals are compensated for selling financial products, this is not the case at Financial Finesse. Our company is independent and not affiliated with any other financial institution and our coaches do not sell or manage any financial assets.

Myth #2 – A financial coach will judge me or talk over my head.
Fear of judgment is universal, which is why we seek coaches that have first-hand experience with common financial challenges and screen for empathy and emotional intelligence (EQ).

Fear of judgment is universal

Our coaches are motivated by helping employees make progress, no matter what their starting point. In every conversation, they aim to make financial concepts easier to understand and to build rapport. To get a sense of who is on the other end of the line, employees can “meet” our coaches here. 

Myth #3 – A financial coach is not trained to deal with my problems.
Some may think their issues are too simple to merit a call or too complex for us to help. Our coaches address the full range—from fundamentals to complex topics—every day. If an employee needs advice (we provide coaching only), for example on taxes or investing, we can help them find someone through objective screening—we do not have a referral network or any affiliation with any providers.

Myth #4 – A financial coach expects me to have my finances in order before we speak.
Our coaches are happy to help employees get started—no prep work required. We hope the first call is not the last. That’s why we encourage employees to reach out to get the ball rolling.

Myth #5 – A financial coach will share my information with my employer.
This one simply isn’t true. Our coaches adhere to a strict code of confidentiality and never share any information with employers as it relates to their employees’ financial health.

Myth #6 – A financial coach can only discuss benefits offered by my employer.
While our coaches often help employees get the most out of their benefits, they are by no means limited to benefits-related questions. They can help with any financial concern.

We know that the more employees interact with our coaches the more their financial wellbeing improves, but getting first-time users started can be a challenge. By understanding their concerns, you can develop a communication strategy to address them head-on, encouraging engagement and changing lives—a win-win for any organization.

[1] https://www.apa.org/news/press/releases/stress/2020/report-october

COVID-19 Special Report: The Impact of a New Normal

May 13, 2020

At the time of this report, America is battling the COVID-19 global pandemic. In response to social and economic pressure, many employers have adjusted the way they do business, including implementing social-distancing protocols, work-from-home arrangements, and in some cases workforce reductions. Virtually all employees, to one degree or another, are experiencing adverse effects to their financial health. These effects are often hardest felt by those that are least prepared to handle them.

Although there is a tendency to look at the workforce as a single unit, employers increasingly need to segment their workforces from a financial wellness perspective because of the disparity in financial stress and behavior that exists among coworkers. In our 2016 ROI Special Report, we introduced a method of segmenting the workforce into five levels of financial health based on employees’ financial wellness scores: Suffering, Struggling, Stabilizing, Sustaining, and Secure. This report includes more detail on each segment.

Q&A with Financial Finesse CEO, Liz Davidson

May 06, 2020

Financial Finesse’s 2019 Year in Review Research Study & The Impact of a New Normal Post COVID-19

View the entire COVID-19 best practices abstract “The Impact of a New Normal” here.

1. Question: What were the most significant takeaways from the 2019 Year in Review report? 

Answer: For this year’s report we looked at how engagement in online, group, and individual learning sessions influence change in financial wellness as measured by the Financial Finesse Financial Wellness Score. The results were astounding.

Employees that engaged in group learning improved their financial wellness score on average 1.11 points, 40% higher than the 0.79-point average improvement by those that engaged exclusively online. But it was the employees that followed the best practice model and engaged in all three forms of learning that topped them all, improving their financial wellness score on average 1.44 points, outperforming group learners by 31% and online-only learners by 83%.

This improvement in financial wellness also translated into improvement in benefit participation. Employees that engaged in the best practice model had a 43% higher retirement plan deferral rate and an 81% higher annual contribution to a health savings or flexible spending account than employees that only engaged online. 

We also found that the greatest net improvement—which is the difference between improvement by those that engaged in the best practice model and those that engaged exclusively online—occurred among employees with the lowest levels of financial health. What is even more remarkable is the speed of improvement. Financially stressed employees exhibited the greatest degree of improvement in the shortest amount of time across all levels of engagement.

2. Question: What can employers leverage from the 2019 Year in Review report to help employees navigate the financial impacts of COVID-19? 

Answer: In the wake of the COVID-19 pandemic, we are seeing signs of increasing financial stress associated with the stock market and U.S. economy manifesting itself as a lack of trust in sources of financial guidance and concern for not reaching future financial goals. When considering the relationship between physical health, workplace productivity, and financial stress, this should have employers’ attention. The good news for employers is that the best practice model yields the greatest improvement in financial wellness for the most financially stressed employees in the least amount of time. These results could not have come at a better moment in history.

As the pandemic persists, we expect to see a shift toward lower levels of financial health across the global workforce. Given the strong relationship between financial health and employment cost, we encourage employers to focus their COVID-19 efforts on providing financial resources and support to their most financially stressed populations first. This population can be defined through a workforce financial wellness assessment, a demographic analysis, or by measuring financial stress metrics such as retirement plan leakage, garnishment, or benefit utilization. Once the at-risk population is defined, consider offering ongoing financial coaching delivered through a multi-channel model if possible. 

3. Question: What drives the trend of end-users in the lowest tiers of financial health exhibiting the greatest level of improvement in the shortest amount of time?

Answer:  The emotional courage it takes to confront serious financial issues is significant.  Finances still remain taboo, especially for those who are struggling financially, and there’s often a sense of shame or helplessness they have to overcome.  The best practices model is well suited to mitigate that, because it is set up to reduce barriers as a financial wellness benefit that can be accessed however employees feel most comfortable, and then migrate to ongoing financial coaching when they are ready.  The message they get is “We are all in this together.  Everyone has financial challenges.  You are not alone and there is nothing to be ashamed of.”  That alone makes a huge difference.  

Then when you consider the small wins in finding ways to reduce expenses by getting better deals on essential items, get credit relief or lower interest rates, begin the process of starting an emergency fund, can make a huge difference to financial stability, it makes sense that those who struggle most would improve the most with a model that provides unlimited financial coaching through multiple channels.  

4. Question: On average, which aspects of an employee’s financial wellness improved the most under the best practices model?

Answer: On average, employees that engaged in the best-practice model for five or more years showed a 1.59-point improvement (on a 10-point scale) in financial wellness score. The greatest net difference between improvement among employees who engaged exclusively online and those that engaged in the best practice model occurred in the areas of retirement planning and investing. Employees that engaged in all forms of learning also had a 43% higher retirement plan deferral rate and an 81% higher annual contribution to an HSA or healthcare FSA than employees that engaged exclusively online. They were also more likely to have a handle on cash flow, have an emergency fund, pay bills on time, be comfortable with debt, and pay off credit card balances in full. 

5. Question: How do you anticipate COVID-19 may alter the traditional compensation and benefits structure most workplaces have become accustomed to? Do you anticipate a potential or temporary decrease or suspension of benefits like 401(k) matching, PTO, etc., as employers explore potential cost-savings strategies to avoid having to layoff or furlough employees? 

Answer: Many employers are considering any practical cost-saving measures to stay afloat during this crisis. However, rather than decreasing or suspending benefits that impact some, I believe we will see a strategic refocus of attention and funds, where available, towards benefits thought to be more flexible and impactful across the board, like HSA’s for example. 

That said, I believe COVID-19 will cause a major mind shift in how we think about employee benefits, in line with human-centered design principles, where the focus shifts from the benefits themselves to the employee’s individual financial needs, integrating benefits in a way that best meets their financial security. This includes:

  • Increased personalization of benefits so each employee can design their own benefits package that best meets their needs, with the help of digital and phone based financial wellness platforms that guide them through the decision-making process. 
  • Increased focus overall on workplace financial wellness as an employee benefit. Employers are actively looking for support in helping their employees through COVID-19 financially and I believe these efforts will quickly morph into a much deeper commitment to financial wellness as a standalone benefit. Our business more than doubled in Q1 2020 vs. Q1 last year and is only gaining momentum as more employers look for proven and cost-effective strategies to help promote their employees’ wellbeing and financial security. 

6. Question: According to PayScale, the gender pay gap has improved 7% since 2015. Why do you think the gender gap in financial wellness continued to widen for women in 2019 despite a narrowing of the gender pay gap over the last several years? 

Answer: Historically, the gender gap tends to widen in periods of economic expansion and narrow in periods of economic contraction. This has held true throughout the duration of our research. Based on the data, men tend to be more confident and aggressive in their investment strategies during bull markets, which puts them in a better position financially at the time, but also creates more risk in the event of a market downturn. Women, on the other hand, tend to be more conservative, but also more resilient and take a more active role in managing their finances in a down market. Since 2019 was a strong year for the market and economy overall, the gender gap widened. We fully expect it to narrow post-COVID-19. Please note, the narrowing is not necessary a good thing as it represents the “gap” not “absolute” financial wellness. In tough economic times, both men and women tend to regress financially, women just regress at a slower pace. 

7. Question: How are employees planning to utilize their COVID-19 economic stimulus checks?

Answer: As part of our ongoing COVID-19 relief efforts, Financial Finesse hosts weekly webcasts aimed at helping employees navigate the day-to-day financial changes and decisions we’re all facing. In order to make these webcasts as relevant as possible, we created a follow-up survey and shared it with the thousands of employees who attended. One of the questions we asked was “What do you plan to do with your stimulus check?” Surprisingly, the majority of respondents that received a payment (47%) plan to put it toward an emergency fund. Only one in five (20%) indicated using it to cover immediate essential expenses. While there is no such thing as good news when it comes to COVID-19, we were excited to see most employees proactively saving their stimulus check versus reactively relying on it to cover immediate essential expenses. 

2019 Financial Wellness Year in Review

May 06, 2020

The state of financial wellness held constant, but the typical employee engaging in a financial wellness benefit is gradually looking younger and more masculine. Improvement in employee financial behavior has been subtle but includes fewer reporting they carry a balance on their credit cards and more indicating they check their credit report at least once a year. The type of engagement—e.g., online, group, individual, or all three—also influences the degree of improvement, with those engaging in all three types garnering the highest levels of improvement. As demand for financial technology coupled with live financial coaching increases, we expect greater improvement in workforce financial wellness for years to come.

To read the full Report, download now.

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VIDEO: How to Help Your Employees Through the COVID-19 Financial Crisis

March 25, 2020

VIDEO: Your COVID-19 Financial Survival Kit

March 25, 2020

FAQs from Your COVID-19 Financial Survival Kit Webcast

March 25, 2020

You may have joined our recent webcast titled Your Covid-19 Financial Survival Kit. We had a lot of questions come through during the sessions so we want to share the commonly asked ones, with their answers! Our facilitator, Bruce Young, CFP, has provided written answers below.

Take a look at the different topic areas, and for more resources see the banner on the home page of your Financial Finesse Hub

401 (k)

Q) Should I keep funding my 401 (k)?

A) Yes! you are buying low and you don’t want to miss out on matching funds if it’s available to you.

Q) Should we lower the amount we are contributing to our 401 (k) for the current time period?

A) Unless you need to redirect funds to beef up your emergency fund, you should avoid lowering your 401 (k) contribution because you are now buying low and can take advantage of dollar-cost averaging.

Q) Is this a good time to increase my 401 (k) payroll deduction?

A) Yes, if you have an emergency fund already then this is a great opportunity to be investing more in your 401 (k) while the market is low.

Q) I am within 11 months of retirement – should more go to fixed income (money market, CD’s) or leave a portion to stocks, etc.?

A) Ideally, you will want to have up to 3 years’ worth of living expenses in a “safe” investment such as money market CD’s, etc. Typically, a conservative portfolio based on your comfort level of risk. An example might be 20 to 35% stocks, 65 to 80% fixed income.

Q) I am retiring in less than a year, should I continue to put money in my 401 (k)?

A) Yes, especially if you have a company match in your 401 (k).

Q) What if you have a 457? Should I borrow from a 457 before my 401 (k)?

A) While a retirement loan is generally a last resort, the benefit of taking a loan from your 457 is IF you had to leave / separate from service you may not be subject to the 10% penalty (if under age 59 ½)

Q) I have two years until retirement – what is my risk tolerance.

A) Typically, a conservative portfolio based on your comfort level of risk. An example might be 20 to 35% stocks, 65 to 80% fixed income.

Q) If I have a 401 (k) loan should I convert it to a distribution payout? I’m 65.

A) Ideally, no as you will be making it a taxable event.

Market

Q) Is there any benefit to withdrawing large sums of money out of bank accounts during these times ie how do you calm a panicked senior?

A) No. That being said, having a set amount of cash on hand ($ 200 – $ 1,000) for emergency cash transactions is a good practice.

Q) How do you communicate to friends and family members that they shouldn’t be liquidating at this point?

A) First off, it’s maintaining a calmness when talking with them. Going over what their time frame is (when they need the money), recognizing that the investment markets do go down and historically they have rebounded, and finally re-assess their risk tolerance, ie do they need to re-balance their portfolio.

Q) When is the market going to go back up?

A) I wish I knew! Seriously, no one knows that answer, hence sticking to the sound fundamentals of investing and (ideally) dollar-cost averaging into the market.

Q) Once the market stops going down, do you recommend investing in the stock market?

A) Since we do not know when that inflection point will occur, you want to maintain your investment strategy through both the ups and downs of the market.

Q) Is now a good time to purchase stocks?

A) Yes, if you have a long-term investment timeline this could be an excellent time to purchase stocks!

College

Q) Should I keep saving for my child’s education? Or keep it for emergencies?

A) Saving for a child’s education should be behind (1) saving for an emergency (2) saving for your retirement. Also, if there is any high-interest rate debt, that should be prioritized over children’s education.

Q) I have a high school senior going off to college in the fall. I’m concerned about the loss we have recently taken on the money we have set aside for college. Will the market rise soon enough, or should we sell and take a loss?

A) We do not know when the market will rebound. Prior to selling at a loss, consider alternative means, ie student loans that could be paid off once the market does return.

Emergency Fund

Q) What is the correct amount of money for an emergency fund?

A) Start with a goal of $ 1,000 working towards 3 – 6 months’ worth of NECESSARY expenses

Qis it a good idea to hide away money in our home if the market does not recover? Is this what you mean about emergency money?

A) Having emergency cash (think a range of $ 200 – $ 1,000) at home is advisable. Your emergency SAVINGS should be in a safe type of investment (think savings account, CDs, money market accounts).

Buying a Home

Q) I just bought a house this month at what seems to have been the peak of the housing market. Should I be concerned? Or is this a long-term, ride-it-out scenario?

A) Unless you bought the house with the expectation of “flipping” it, a home purchase is a long-term investment

Q) I’m saving up a down payment for a house, now that the stock market is plummeting, I want to invest some money in the market while prices are low, how should I prioritize this?

A) It depends on which goal is MOST important to you. If buying a home is, then saving in a savings/money market account is the preferred way to save. If buying a home is a “nice to do, but can wait” then investing in the market can be beneficial when prices are low.

Q) Hi, we have been preparing to buy a house in an area, that is always high demand and expensive and it will stay that way during the crisis too. Should we buy or wait if something good comes up?

A) With mortgage rates at historical lows, it may still be a great time to buy a home, but you’ll want to consider your job stability.

Q) I am currently in a transition, should I purchase a home or continue to lease/rent?

A) Mortgage rates are at historical lows, so you should consider job stability and how long you plan to stay in the area before making the decision.

Q) If possible, would this be a good time to refinance a mortgage?

A) Yes! Mortgage rates are at historical lows.

Student Loan

Q) How should you think about federal student loans now that interest rates are waived?

A) If you can continue to make your normal payment, this is a wonderful opportunity to pay down the balance more quickly. If you are having issues making the payment, contact your student loan servicer for a forbearance program.

Employee FAQ’s Regarding Their Health And Wealth During COVID-19

March 24, 2020

In addition to the COVID-19 Financial Survival Kit Webcast, the FF team has received hundreds of proactive and reactive calls and emails from employees asking what they could and should be doing financially during this volatile time. We wanted to share some of the most frequently asked questions we’re hearing and the responses from our expert team of CFP® professional financial coaches.

1. I am not so worried about my 401k because I have some time until retirement, but I still have pre-school expenses. My child’s preschool has not yet said when they will open and if I need to continue to pay while they are closed. What should I do to manage the uncertain expenses?

Start with the facts and proactively plan for any variable you can control. Ask your daycare what their policies are and if they have any new updates. Many preschools / day cares are offering to reimburse or halt payments if your child isn’t coming in. Some will do that if it’s for a two-week period or more. Dependent care FSA’s are a resource, but most of the time only if people signed up at annual enrollment.

What are your options if your child needs to stay home longer than you are working from home? If you haven’t already, write down your budget and compare it to a new one with you at home. If necessary, decide which expenses you will cut. Explore ways to cover the need –high school kids are home; do you have one you trust who could watch your child? Are your parents able to help? Are you able to work from home long-term? If so, have a plan for your child so you can focus on work.

2. I am actually thinking about investing in this market, to take advantage of the lows. What do I need to consider before I do so?

Market corrections are historically the best time to invest, but every correction is different. Today (3/16/2020) the market has declined over 30% from its high point less than a month ago. The main concern this time is how COVID-19 will impact the economy over the long-term. For money that is intended for ten years and longer, this could be a great time to invest –stocks are cheap overall. It could also be a good time for tactical investors to purchase stocks with the intent of selling them for a short-term profit. This, of course, takes a higher risk tolerance for loss and more knowledge about investing.

Many brokerage firms offer inexpensive options to purchase a small number of shares so build positions over a few different time periods. If you want to buy 100 shares or put $1,000 in a certain stock, ETF or mutual fund –buy a third or half now and the rest later. This way, you’re not betting on one particular date and are dollar-cost averaging.

Regardless, first make sure your emergency savings are where they need to be –especially in light of this pandemic and how it might impact your income –if all that is set and you have no other short to medium term goals – then yes this can really help you boost your retirement savings. You can do this easily by simply increasing your 401k contributions into a strategy that aligns with this goal.

3. I am worried that I will not be able to stay productive while I am at home, trying to work and home school my three small children. How do I make sure that I am not penalized for this at work?

You’re not alone! First, contact your employer, and discuss how this needs to work. A lot of employers are making concessions and creating more flexibility. Plus, the federal government is putting more muscle behind this so that employers follow.

4. My partner wants to put more money into the market right now, but I am worried that we will just lose it all. What should we do and how do I get over this disagreement with my partner?

First, see response to question 2. Second, you should establish an amount that you are both comfortable with to invest and potentially experience short or long-term losses. Discuss how the loss could affect your overall plan. For the amount you are going to invest, consider investing over a few different dates to avoid trying to pick “best date.”

5. I have a healthy emergency savings account …. I think. How do I know what is a healthy emergency savings account now?

This depends on your specific circumstances. The short answer is: “if you tell me your emergency, I can tell you how much you need in your emergency fund,” but we don’t know exactly how that looks. Consider 3-6 months of expenses as a rule of thumb or how many months it would take you to replace the income you might lose. For some that might be 2-3 months for others it could be longer.

The average time it takes to replace every $10k in income can be about 1 month, but it really does depend on your job, industry and the current job market.The biggest risk for most of us is the loss of a job and this pandemic might have made that risk higher for some. It’s not a bad idea to beef up your emergency fund at this time, delaying major purchases for a few months if you have more risk, watching your spending a little closer and saving in general. If this blows over shorter than the experts expect, you will be in a great place.

6. I was planning to put some money into my kid’s 529 accounts, should I wait? Should I keep it in a more liquid account?

If you have an adequate emergency fund and low debt, you might want to continue purchasing funds in your 529 plan and take advantage of the monthly dollar cost averaging –purchasing shares of funds on the same date every month spreads your risk, buying more shares when prices drop.

7. My kid is going to college next year. How can I take advantage of the low interest rates that I have been hearing about?

Borrowing for your child’s education is a larger topic to really plan for. Student loans are not available a year before they attend school. There are opportunities right now for borrowing at low interest rates such as home re-financing, home equity loans and personal loans. IF, if, if this is your well thought out plan, you may want to talk to a couple lenders and explore rates. This is a good time to review your child’s investments and adjust if necessary. If available, this is a great conversation to have with a financial coach.

8. I wanted to invest some money into my house. Should I wait or use the time to stimulate the economy and online shop?

This depends on your overall financial health and balance sheet. The economy could use your help, but you shouldn’t put yourself in a potentially compromising position. I would first review your financial priorities. Do you have adequate emergency savings, are you contributing to your 401k to get at least the match, do you have any high interest rate debts?

Also, it depends how you want to invest in your home. Do you want to renovate, make repairs? Are you looking to make additional payments? Now might be the time to refinance your debts to lowers rate and explore making the same or more payments to pay them off faster vs investing for your long-term goals. There is a trade-off for every decision you make depending on the time you have to get to that goal, and your tolerance for risk.

9. I don’t know if my preschool can continue to pay teachers while the school is closed. Is there something that I can do to support them? Is the government doing anything to help these low paid hourly workers?

I recommend contacting your care provider and asking them directly. If you have the means, you can buy gift cards or offer to make a utility bill payment for them. One of our coaches has volunteered to continue school payments even though they’ve kept my kids at home. Congress is debating a relief package, but we don’t know what it entails or when it will be approved.

At this time we are not aware of any government sponsored or state sponsored programs to help this exact demographic – however in general, states are making unemployment insurance more readily available, some employers are offering paid time off, and paid family leave (depending on the size of the organization that may or may not be mandated at the federal level).

10. My partner may lose his job or some of his income. We were actually planning for our income to increase this year! How should I rethink all of this during this uncertain time?

Re-assess your situation and map out a scenario for both potential paths. If you have a decline in income, decide how you will either make up for that income in another way or decrease expenses. Challenge all your fixed home expenses – do you need them? Are you paying the right amount? Control your variable expenses – limit the amount you are spending on groceries, dining out, entertainment, etc.

Create a crisis budget then start living off of that right away to increase cashflow to savings. Try and build that up as much as you can. Line up other methods of income, savings that might be available to you as needed, review company benefits and speak with employer about help that might be available if you were to lose your income. Some are offering paid time off, paid sick leave, and/or paid family sick leave.

11. If you are in the position to help others, what are some immediate actions you can take?

  • Supporting small businesses
  • Supporting those who may be impacted more directly (teachers, childcare providers, people who work in your home)
  • Consider reaching out to elder care centers, nursing home or your neighbors that you know might be at risk. Offer to run errands for them –whether it’s shopping for groceries etc.

12. I have some loans that I was thinking about paying off (or I was debt snowballing my way to financial freedom). Is this a good idea or should I hold onto my cash?

It depends on your emergency savings situation, and the likelihood of your household losing income. If your savings aren’t where they should be and or you feel your income is in jeopardy – then the answer is to pause any aggressive debt paydown plans and save more cash for now. If your interest rates are high, you might keep a month’s expenses in cash and use the rest to pay off your debt.

13. What can I invest in that will help stimulate the local economy? The national economy?

Given the nature of the virus and our focus on containment and social distancing – make sure to follow CDC guidelines and do your best to support businesses in a way that serves your needs and helps stimulate the local economy but doesn’t put you or others at risk. (ie grocery stores, pharmacies, ordering your goods online to be delivered curbside, ordering delivery from local restaurants / deli’s if that fits your budget and needs). Don’t jeopardize your own financial safety in the process!

14. I’m planning to retire in three months and I’m invested in the market. What should I do? Will I still be able to retire?

This is a difficult decision because you might have experienced significant losses already. You should run a retirement estimate and re-assess your retirement plan to determine how the recent market declines have impacted you and your ability to meet your future retirement needs. If you are planning to retire in the next year or two, compare your current cash flow (income and expenses) with your potential phases of retirement (when your income or expenses change can define the different phases). With that analysis, you are able to identify shortfalls in the short, mid and long-term.

You might consider investing money you’ll need in the short-term (next 5 years) in a safe place like cash, stable value, money markets, CDs, etc. You can’t confidently expect losses to recover in time before you will need the money. The mid-term money could be invested conservatively with the goal of pacing inflation and fulfilling the shortfall need in 5-10 years. Short and mid-term bond funds, conservatively managed portfolios and laddered CDs are examples.

Money needed in more than 10 years can be invested according to your risk tolerance and need for potential growth. If you can determine that you don’t need to take a lot of risk to meet your needs, you might want to reduce it. If available, absolutely call a financial coach! 

15. Should I stop contributing to my 401k?

Typically, the answer is no for a couple of reasons. If you are getting an employer match, at least try to contribute enough to get that free money. For most plans, you are not able to get that matching opportunity unless you beef it up significantly at the end of the year. Also, you might have experienced losses in your account. One way to recover from these losses is to continue to dollar cost average (automatic investments over time) into funds that are down so when the market recovers, you see gains. Buy low for the long-term.

However, if you are in a situation where you have no or very little emergency savings and feel that your income is threatened then this might be one of the only times to consider doing that so that you can shore up your emergency savings. If you are in this situation you will FIRST want to challenge all of your expenses and keep only the essentials. All extra cash should be diverted into your emergency / crisis / protection fund.

16. What does it mean to take a 401k loan in a down market? What are the pros / cons versus using a credit card?

Taking a loan from your 401 (k) is discouraged unless necessary. But if you need to take a 401 (k) loan, it is best to avoid doing so in a down market. Of course, you don’t have the luxury of knowing when you will need it or even if you are in a market that is increasing or declining. If you take a loan when the market is low and pay it back monthly in a rising market, you are essentially selling at a low price and buying back as prices increase, not a good investment strategy. This could work in the opposite way if you take a loan and the market declines as you pay it back, this would be a good investment strategy if you could predict it.

How To Make Financial And Life Decisions in Uncertain Times

March 19, 2020

If you are a planner like me (full disclosure, I am not a CERTIFIED FINANCIAL PLANNER ™, but a planner in the generic sense), who likes to analyze all of her available options before making a thoughtful and well-informed decision, you may feel frozen from action in the current environment. New developments on public health recommendations, personal health recommendations, and the general state of the economy are being broadcast daily. How can we make the “right” decision when the situation may be entirely different tomorrow?

We all must make daily decisions, and in uncertain times, the importance of those may feel amplified as we try to control the situation as much as possible. To clarify, when I refer to “decisions,” I am referring to both the smaller things in life –Should I still plan a summer vacation? –and the bigger life event-related ones –Should I have another baby? Should I switch careers? These questions can be applied to all decisions, including financial ones.

One option is to freeze all decision-making until things have stabilized. For a lot of decisions, this strategy could work. However, what if you have a time-sensitive decision or an opportunity that may not last long? Below are a few questions to ask yourself as you navigate a decision in an uncertain time:

Do I really need to decide now?

When you are close to a situation, it can feel like you must decide right now. However, for most things in life, that’s not the case. Consider whether waiting to gain some perspective will help you make a better decision, and one that you feel more at peace with. Try to avoid letting fear and panic guide your decision making. Write a date on the calendar to revisit the decision, to hold yourself accountable to deciding and not putting it off indefinitely.

What is the best-case, worst-case, and most likely scenarios for each option? What are the potential upsides and downsides of each scenario?

This is something that I do a lot at work, when making my own decisions or helping a colleague make a decision. But I find that most of us are less likely to do it in our personal lives, and especially around our finances. It can be easy to get emotionally invested in a specific outcome rather than looking at all outcomes. If you’re not sure of the upsides and downsides of a financial decision, call a financial coach to help you identify them!

What is my back-up plan if things go poorly? What does my support system look like?

Contingency planning is critical here, and your support system plays a huge role in what your worst-case scenario looks like. Are you thinking of switching careers, moving across the country, or buying a house right as we head into a recession? Your age, your savings, your income streams, your partner, and your risk tolerance will all impact how the worst-case scenario looks for you.

Every day we make a multitude of choices, and ultimately our lives become the sum of these choices. Do what you can to set yourself and those around you for success, but know that there’s no such thing as a “perfect” decision