6 Things That Fortnite Can Teach You About Financial Wellness

February 15, 2019

What does America’s obsession with Fortnite have to do with making the most of your financial wellness benefit? Surprisingly, more than you would think. Fortnite is on track to be the most popular video game in history and is currently beating out television and movies for user engagement. For those who play it regularly, it’s become part of their identity – inspiring dance moves, fashion and online commentary.

I’ve got a son in middle school, so I’ve witnessed this up close. He and his buddies are obsessed with all aspects of the game. What keeps them, and the millions of other players, so engaged, and how can we apply those factors to changing our own financial behaviors?

1. Collect and construct.

Fortnite draws in the new user through its “collect and construct” feature, where the player goes into the battle with a tool they can use to chop down and collect objects and then uses those materials to construct structures to advance in the game. An effective financial wellness program impacts you in a similar way, inviting you to collect the building blocks of financial health and use them to construct good financial habits. For example:

2. Engage and entertain.

How does Epic Games keep players coming back again and again to play? It’s contagiously fun – and doesn’t take itself too seriously. Characters are called “skins,” with a range of colorful, anthropomorphic animation. You can get them to dance by using an “emote” – and learn it yourself if you’re inclined.

An effective financial wellness program helps you to improve your financial habits by encouraging repeat usage. Pay attention to the various ways that you can access your benefit and take advantage:

  • Gamification of tools and resources – making it fun to progress;
  • Multimedia learning tools so you can learn in the style which works best for you;
  • Coaching to empower you to make changes (vs. advice which keeps the power with the advisor); and
  • Facilitated workshops and webcasts which use the power of “show not tell” to create “aha” moments.

3. Play alone or with a friend.

Sometimes you want to be alone and sometimes with companions. Fortnite lets gamers play in teams (“squads”) or play on their own (“playground mode”). Financial wellness programs offer multiple ways to engage, including:

  • Self-directed learning online using articles, blog posts, multimedia planning tools, videos and podcasts;
  • In-person and telephone coaching conversations with a CERTIFIED FINANCIAL PLANNER™ professional or financial counselor; and
  • Group learning using facilitated workshops, webcasts and peer-to-peer coaching groups.

4. Leave you wanting more.

Did you ever try to get your teenager off of Fortnite to come to the dinner table? It’s so difficult. That’s because Fortnite is “sticky.” Gamers are rewarded in some way every single match. While it may be easier to get someone in the middle of running a retirement projection to pause for dinner than to lure your teenager, aim for “stickiness” in your financial wellness journey:

  • Break up action steps into bite-sized, achievable pieces;
  • Start high level and drill down when you need to – look for a big picture summary and ways to dive deeper; and
  • What’s in it for me – take advantage of opportunities to personalize your financial wellness benefit so that you can practically and easily apply what you’re learning to your financial life.

5. Avoid overload.

Has the Fortnite player in your life ever had a Fortnite induced meltdown? Not so fun, right? Too much of that kind of intense neurological stimulation can activate the fight or flight mechanism in the human brain. Financial wellness is a process and a practice, not an event. That means:

  • Define your goals then prioritize them one at a time;
  • Tackle tasks one thing at a time and don’t try to do everything at once; and
  • Be gentle with yourself – work at the pace that works for you, and don’t worry about your colleagues and friends.

6. You don’t have to pay to play – but watch out for a hidden sales pitch

A basic version of Fortnite can be downloaded for free and anyone with a compatible device can play. Truly unbiased financial wellness programs are offered as an employer-paid benefit. It should be offered at no cost to you – without any sales of financial products or services.

Unfortunately, some financial services providers are now using the term “financial wellness” to try and earn insurance or investment sales from employees. Beware! That’s just like downloading Fortnite Battle Royal then getting tempted to buy lots of V-Bucks. Not sure if your program is an unbiased financial wellness program? See this infographic.

Do you have to actually play Fortnite to become better at improving your own financial wellness? Not unless you want to take inspiration from a successful video game. I encourage you, however, to take a few steps today and then keep going. With all the time you’ll save once you’ve gotten your finances in order, you’ll have more time to work on perfecting your floss.

6 Tips For Thriving On Commission-based Income

January 21, 2019

Are you living on earnings from commissions? You may be working for a firm, but in effect you’re working for yourself. Your income depends in large part on your actions, which is exactly what successful sales people and consultants like about it. The reality is, however, that the sales cycle, the economic cycle and your industry cycle influence the timing of your income. This can disrupt your personal finances if you’re not prepared.

Whether your income is strictly from a draw against sales production, or partially based on those sales, the keys to thriving – instead of just surviving – are planning and organization. I was a self-employed consultant or commission-based employee for most of my working life until I came to Financial Finesse. These are the tools I used to manage my uneven income:

1. Track income and expenses

If you’ve got uneven income (gig work, commission-based income, etc.), it’s essential to know when income is expected and where every dollar goes. Find a way to track your expenses – this could be an app, a spreadsheet in Excel or just paper and pencil. Once you’ve got a good idea of your regular bills which don’t change, such as housing and car payments, you can focus on tracking the discretionary spending only, such as food, entertainment, travel and gifts.

2. Create a cash flow-based budget/spending plan

Living on a variable income is a challenge when you have fixed expenses due at predictable times. What worked for me was using a cash flow-based budgeting system that I set up for myself in Excel, which tracked when I expected income to arrive and how that related to timing of my expenses. I made my own, but you can try this comprehensive Personal Cashflow template from Microsoft Office, this summary “Financial Snapshot And Budget” template from BudgetsAreSexy.com or use your expense tracking app. The key is to budget by source and timing of income.

3. Develop a plan to fill the cash flow gaps

Your home, car and groceries are paid every month, but you might not be. Where the timing of income doesn’t match when you need to pay for essential expenses, be purposeful in how you’ll close the gap. Many people default to using credit cards, 401(k) loans or home equity lines of credit (or worse, a payday or title loan) to manage uneven cash flow, but those things are an expensive bandage, not a long-term fix. Close your gaps this year by committing to:

  • Build a generous surplus. A cash cushion will help you navigate when you’re not paid when expected, you have unexpected expenses or when the extra work isn’t available. Start by building $1,000 balance in your savings account, then add to it by saving 10 percent of every check until you’ve got 6-12 months of basic living expenses. This may take a few years to fully accomplish. You can save $1,000 in a year by saving about $2.75 per day. Save $5.50 per day and you’ll have it in six months. Save $10 per day for 100 days and you’ll have it even sooner.
  • Diversify your income. There’s a second – or third – source of income for everyone. Explore your side hustle options. Aim for enough regular work to cover an essential bill, such as your mortgage (or rent), your car or student loans. An extra 4 hours per week can supercharge your financial goals. If you’ve got multiple sources of income, Steady’s income tracker can help you figure out where you’re getting the most bang for your effort. Not sure where to start? See 7 Side Hustle Blogs That Will Inspire You To Make More Money and 50 Ideas For A Lucrative Side Hustle.

4. Use multiple accounts

Consider using a checking account, an account for your emergency fund/cash savings and an account for your “planned spending.” The planned spending account is for everything you know you’re going to spend during the year, such as taxes, gifts, life insurance and vacations. Add up all your planned spending and figure out what percentage it is of your total budget. Deposit that percentage in your planned spending account for every check you receive.

5. Reorganize due dates for bills

Contact your lenders to see if you can change your due dates for bills to correspond with when you’re typically paid. If you’re taking a draw on the 1st of the month, for example, see if you can reorganize your mortgage (or rent), car payment, cell phone, etc. to be paid on the third. That way you’ll get the fundamentals taken care of no matter what happens.

6. Prepay your taxes

If you’re paid as an employee, make sure you have enough money withheld by your employer. Use this IRS withholding calculator to figure out the correct number of withholding allowances to claim. Make sure you include any funds you receive from your side hustle. If you’re self-employed and paying quarterly estimated taxes, consider using an app such as Track to give you clarity on what you have earned and what you owe.

The bottom line

Thriving on a commission-based income requires treating your personal finances like business finances. Preparation and diversification are essential. Put the time in to get things set up and watch yourself thrive!

How Much Should You Contribute To Your HSA This Year?

January 09, 2019

How much should you contribute to your Health Savings Account in 2019? If you’re enrolled in a high deductible health plan for this year, take a look right now so that you can make any adjustments you decide to make ASAP (yes, unlike the FSA, most plans allow you to change your payroll contributions throughout the year).

What’s so great about HSAs and High Deductible Health Care plans?

What if I told you that you could reduce your current income taxes, invest your money so it could grow tax free and take future withdrawals pay for medical expenses – also completely tax free? Would you do it? Probably. That’s why Health Savings Accounts are such a great deal. However, there are some common misunderstandings about how they work in conjunction with an insurance plan.

The biggest risk with HSAs

Generally, with a high deductible health plan, in return for a less expensive premium, you will pay for more of your medical expenses yourself before your insurance begins to pay. (See this video on how a deductible works.) If you’re used to a more traditional insurance plan with a lower deductible which starts paying sooner, you may not realize that if you don’t contribute enough to your HSA, you could find yourself financially unprepared for thousands of dollars in medical bills.

Let’s take a simple example: You break your arm in a sports injury and have $3,000 worth of medical bills from urgent care, the X-Ray, your cast and follow up visits. Because you chose your company’s high deductible plan for its low premium, your insurance deductible is $3,500. That means that the FULL cost of your injury is yours to pay. You didn’t contribute much to your HSA, so you find yourself scrambling to pay for the bills with your credit cards and are considering taking a 401(k) loan for the remainder.

The minimum – cover your insurance deductible

If you had contributed enough to your HSA to cover your deductible you wouldn’t be in this situation. Many employers who offer high deductible plans also make HSA contributions on behalf of their employees, but it’s often not enough to cover the full in-network deductible. At a minimum, you should contribute enough to your HSA annually to cover the portion of your in-network deductible your company contribution doesn’t.

The maximum – contribute up to the IRS limits

Someone with individual coverage can contribute up to $3,500 to an HSA in 2019. Those with family coverage can contribute up to $7,000. Those who are 55 or older by the end of the year can contribute up to an additional $1,000 in catch up contributions. If you’re making catch up contributions, you’ll both need your own HSA. Note that if you and your spouse are both covered individually by your employers and file taxes jointly, your combined HSA contributions cannot exceed the family maximum. Need more details? See IRS Publication 969.

Use these charts to figure out how much you’d need to contribute each pay period.

Paid Every Two Weeks (26 times per year)

Paid Twice Per Month (24 times per year)

What if I don’t think I’ll need to spend all my contributions? Should I still make them?

Yes! In fact, that’s the whole idea behind HSAs. Many financial planners recommend maxing out your HSA before your 401(k). If you don’t spend all your contributions in the year you make them, you can roll them forward indefinitely without penalty. You can invest surplus funds to grow. Most HSA accounts have mutual fund investment options with long term growth potential, such as stock or balanced funds.

The growth of your investments in your HSA is tax-free, if you take future withdrawals for medical expenses. To give you a simple example, if your $1,000 surplus in your HSA grows to $10,000 in the future, you’d be able to reimburse yourself for future medical expenses for the entire $10,000 without taxes. This is such a powerful income-planning tool that folks are actually paying for their insurance deductibles using other funds now, so they can leave as much as possible in their HSAs to grow for the future. See The Health Savings Strategy That Not Enough People Are Talking About.

How much of my HSA should I invest, then?

A best practice is to keep the amount of your insurance deductible in cash. When you’ve got surplus more than the deductible amount, consider investing that in a longer-term option. If you leave your job, don’t worry – just like your retirement account you can leave the HSA with the provider or you can roll it to a new employer or the financial services firm of your choice (see this post.)

What if I can only change my payroll deductions annually but I want to save more?

If your company only allows you to choose how much you have deducted from your paycheck once per year during open enrollment, you can still write a check or set up a deposit from your personal checking account into your HSA. Contact your HSA provider for instructions.

The bottom line

Contribute enough to cover your insurance deductible, and more if you can swing it.

8 Things To Do When You’re Worried About The Stock Market

December 28, 2018

It’s been a rough ride lately in the U.S. markets. As I write this, the S&P 500 index fell about 5.8 percent during a short trading week, leaving investors feeling jittery. Part of the yield curve inverted, which means that short term interest rates are higher than some longer term interest rates. Is the powerful bull market we’ve had since the Great Recession beginning to wind down? If so, what should you do to prepare?

Whether this is normal volatility in a market that has room to grow or the beginning of the next economic downturn, recent events are a reminder that financial markets don’t go up in a straight line. Eventually, we’re going to have a bear market because that’s how the business cycle works. Over my adult lifetime, I’ve seen plenty of market bubbles and busts. Consider your worry about the market a sign that it’s time for a check-in on your investments.

1. Measure returns from where you started, not from the highest balance

It’s a natural tendency to look at the highest number on your 401(k) or brokerage account statement and then feel like you lost money when the statement balance is subsequently lower. You feel like you were counting on that sum, and now it’s not there anymore. Unless you sold at the exact moment when your balance was the highest, however, you wouldn’t have realized the gain, so it’s not very helpful to measure that way.

How did you do against your goals?

A more realistic approach is to measure your success vs. your goals. Has your account balance grown since you originally invested the money? Did you require a certain average annual rate of return or that your balance grow by a certain amount by a certain date to fund your goal?

What’s your progress so far? Are you trying to match or beat a benchmark using one or more market indices? (See Why Is An Index Important In Investing?) If you’re saving for a house down payment or an early retirement, and you’re still on track to meet that goal, that’s what matters – not whether you’re down 10 percent from the all time high.

2. Run a retirement projection

For most of us, funding a future retirement is a primary reason we’re investing. Now is an excellent time to run an updated retirement calculator to check your progress, given your savings and reasonable projections for your rate of return and inflation. You can use the Retirement Estimator for a basic check in to see if you are on track. You can also use the calculator to model different scenarios using different rates of return to see what happens.

Make sure you’re using a reasonable expected rate of return

When updating your retirement projections, it’s better to use a conservative expected rate of return. Research from the McKinsey Global Institute suggests investors lower their expectations for average annual US stock returns to 4 to 6.5%. If they’re wrong about it, you’ll be happily surprised, but if they’re right, you’ll be adequately prepared.

3. Check your risk tolerance

Try downloading our risk tolerance and asset allocation worksheet or use the questionnaire from your brokerage firm or retirement plan provider. Compare the results to your current portfolio mix. If they line up, you may not need to re-balance your investments. If there is a big discrepancy between your current investment mix and your ideal one, you may want to make some changes.

Know the difference between risk and volatility

One note about “risk” and “volatility.” Risk is typically measured in portfolio management by standard deviation. The more spread out daily prices are from the average price – either higher or lower — the higher the standard deviation of an investment.

If it were just math, it would be easier to stomach the volatility. But it’s your money! When most people think about risk, they think only about the downside risk – the risk that they’ll lose money and not be able to achieve their goals.

Try putting a dollar number on your risk tolerance. How much would you be willing to see your portfolio value drop in the short run before you’d throw in the towel? For example, if you need $50,000 in ten years to take a sabbatical, would you be comfortable seeing the interim value of your account drop to $45,000 (a 10 percent drop) in return for the possibility of a ten percent gain? How about $40,000 (a 20 percent drop)? If the thought of seeing your balance temporarily drop to $40,000 causes you indigestion, then maybe it’s time to lower your stock exposure.

4. Rebalance your portfolio if needed

Rebalancing back to a target mix of investments helps you keep the level of risk in your portfolio stable by taking some profits from those investment types that grew faster in value and buying more of the investment types that didn’t grow as fast or fell in value. Think about rebalancing as buying low and selling high.

Once you’ve re-checked your risk tolerance and run projections to see if you’re on track to meet your goals, you may or may not need to make some changes in your investment mix:

Examples of rebalancing:

  • If your current investment mix reflects your goals and risk tolerance, you probably don’t need to rebalance. For example: you’re planning to retire in 22 years, have a moderate risk tolerance and you’re in a 2040 target date fund.
  • If your investment mix is out of whack with your target mix, rebalance. During the past decade, many investors have become overweighted in stocks due to strong stock market performance. If your goal is to maintain 60 percent in stocks and you’ve got 80 percent in stock funds, it’s time to rebalance and move 20% back to bonds.
  • If your risk tolerance has changed and your target investment mix is different than before, that’s also a very good reason to rebalance.
  • If you’re within 5 years of retirement, consider building up a much larger cash position. In pre-retirement years, it’s generally a good idea to move at least 3 years of anticipated expenses to cash-type investments (think savings, money market funds, CDs, etc.). That way, if the markets are in a slump when you retire, you won’t have to sell investments at a loss to pay your bills and can wait for a market recovery. Make sure you’ve updated your risk tolerance. Many pre-retirees find that they want to take a lot less risk in their investments during the transition to retirement.

Not sure of the best ways to rebalance your portfolio? See 4 Different Ways To Rebalance Your 401k.

5. Put together a simple investment policy statement (IPS)

You may also find it helpful to put together a brief, written outline of your target investment strategy to use across all your accounts. An IPS doesn’t have to be fancy. Just set some targets for types of stocks, bonds and other investments (like real estate or commodities) that you want to maintain over time. See this Investment Policy Statement Template for some ideas and/or dive deeper here: Morningstar Course (free): Creating Your Investment Policy Statement and Investment Policy Worksheet.

6. Diversify

Are your investments as diversified as they could be? Diversification mixes different types of investments so that the gains of some investments offset the losses on others. That reduces risk (although doesn’t eliminate it). Different types of investments historically have delivered gains at different times – think U.S. stocks vs. international stocks or stocks vs. bonds.

If you’ve got a “plain vanilla” portfolio, consider the pros and cons of incorporating different types of investments to reduce volatility. Many investors are just in the S&P 500 index, for example, or only in stocks and bonds. If it fits your risk tolerance and goals, incorporating some non-correlating investments like real estate, commodities and hedge fund proxies (e.g., market neutral funds, managed futures, long/short funds, hedge fund ETFs, etc.) can help reduce risk and smooth out returns.

7. Build up your emergency cash

You may not know when the next recession will hit, but you can still be prepared. Recessions don’t just bring bear markets. For some people, they also bring layoffs. If you don’t already have 6 months in living expenses in an emergency fund, work to build up that account.

8. Take advantage of volatility IF you’re aggressive

Are you a hands-on investor with an aggressive risk tolerance? Periods of high market volatility also present opportunities, but only for those who are comfortable with the financial equivalent of skydiving. There are new ways to “trade volatility,” including volatility ETFs, futures on the VIX (the volatility index) and options on market indices. My husband, Steve, spent time this past week using his mighty math powers to successfully trade volatility ETFs. I’m not that hands-on, nor am I that much of an aggressive investor, so it’s not something I’d do myself.

What’s the bottom line? Recent market volatility is an alarm clock reminding us that it’s been a great bull run, but there may be some roller coaster times ahead. Make sure you’re buckled in.

How An Extra Four Hours Per Week Can Supercharge Your Goals

November 02, 2018

I believe firmly in the financial power of the side hustle. There’s a second source of income for nearly everyone. For me in midlife, it’s rental real estate, but when I was young and single, it was bar-tending.

For someone else, it could be babysitting, dog walking, teaching, writing, multi-level marketing or working in a store or café. Not sure if you have the time or skills to earn a second stream of income? Start by asking yourself, “If there was something I could do that I enjoyed for just four hours per week to earn extra money, what would that be?”

Four hours per week…

I am not suggesting you work two full-time jobs. I want you to have a balanced life. Chances are, however, that you have four hours per week that you’re not currently using to their full advantage.

I already have another stream of income and I still do, but if I needed to add another, I know exactly where I’d find that time. Despite my packed schedule at Financial Finesse, keeping an eye on our real estate investments and raising kids, I spend about four hours obsessively reading three newspapers online. This could be you, or maybe you’re the one who binge watches Netflix, scrolls through Instagram or Facebook or spends hours waiting for your child at soccer practice. There are many more productive things we could do with those four weekly hours.

What a few hundred extra dollars per month can do

Working 4 extra hours a week doesn’t seem like much and the pay may seem insignificant at first glance, but I invite you to explore the true impact: An extra $200 per month from babysitting is helping a Financial Helpline caller pay off her $15,000 in credit card debt in less than four years vs. the more than twelve years it would take if she just paid the required minimum. She’ll save nearly $14,000 in interest payments. See the illustration here.

Another employee is using his $300 per month income from doing projects on Fivver to build his down payment savings. He is planning to buy a home in an expensive city, so he needs a good sum to even qualify for a low down payment mortgage. Because of his extra income, he’ll be able to build his down payment fund from $18,000 to the $25,000 in savings he needs in two years.

What could a few hundred dollars extra per month do for you? Does this idea sound intriguing? If so, keep this guidance from our CFP® professional team in mind:

Do something you enjoy

My fellow planner, Mark Dennis, has been an online college professor teaching business and personal finance classes on the side since 2009. It’s a strong fit for him, because it’s related but doesn’t conflict with his primary job at Financial Finesse, and he enjoys doing it. “Additional income is very handy as my daughters enter into their college careers,” explained Mark, who is facing a mountain of tuition payments.

Our Planner Operations Director, Linda Robertson, used to moonlight during the Christmas season nights and weekends at the mall selling jewelry while still working full-time. “I earned a nice commission on gold and diamond sales,” she remembered. “But most importantly, I learned so much about the 4 Cs of diamonds that now when I buy jewelry for myself, I know what to look for (plus I used to get a great employee discount when I worked there!).

Look for flexibility (if you need it)

Fellow planner Tania Brown was a part-time security guard when she was younger to furnish her first condo without having to go into debt. “The hours were flexible enough for me to maintain a full- time job,” explained Tania. “Because I worked nights, I was able to study since I was also going to school.” Mark, our planner who is also an online professor, teaches around his primary work schedule and vacations. He has even taught classes while on a cruise ship!

Work for yourself

If you’ve got kids, are caring for an aging parent, or have a ridiculous commute, part-time self-employment is likely to be a better fit. I have many friends who generate extra income from offering nutritional products, clothing, jewelry or household goods. My husband and I fit our rental real estate business around demanding, professional jobs. Since we use a property manager who can handle the urgent and daily tasks, we can work on the business evenings and weekends.

Kelley, who was a passionate income-diversifier in her early career years, signed up for a babysitting service where parents requested sitters and she could go in and see if there were any she wanted to do. “The pay was great, parents LOVED that I was older, and I even found some regular gigs where I’d go over early in the morning to get the kids to school so mom and dad could go in early and leave in time for school to get out. Then I’d go to work at the normal time,” she explained.

Or work for someone else

If you don’t have an entrepreneurial side, no worries. There are plenty of part time jobs to be had. Planner Steve White has worked part time at Home and Garden shows, boat shows, and fairs for vendors as a lead generator. “You have to be comfortable talking to a lot of people,” he cautioned.

Kelley worked a retail job on several occasions throughout her 20s and 30s. Her most memorable was working weekends at Michaels craft store during the holidays. See her post: 5 Seasonal Jobs To Earn Extra Holiday Cash.

Experiment with a future career or business idea

For Mark, his online teaching is likely a gig he can continue on a part-time basis when he is ready to ease into semi-retirement. For you, it could be an excellent way to test a business or investment idea. Just make sure it doesn’t compete with your current employer.

Get paid for your hobby

Kelley also taught fitness for 12 years. “Not only did I get paid to work out, but it got me to the gym when I may have not otherwise gone, and it was a free membership,” she recounted. “This experience also bled over into my professional career. It was great networking and also helped me with presentation skills.”

When Linda was in her early career, she found her salary didn’t give her enough fun money. “I’d get off every day at 3:30 when the bank lobby closed so I felt like I had extra time on my hands. I started working part-time after work at a tanning salon next door to the bank for free tans and extra spending money.”

Experiment with what works until you find a good fit

Kelley also used to be a part-time pet-sitter. After trying her hand at dog-walking, she switched to cat-sitting. “There are limited hours that people actually want their dog walked, so you’re limited in income,” she described. “However, a cat sitting gig was much more palatable. Times were more flexible, so I could accept more clients, and there’s money to be made by staying over to care for pets.”

When part-time work isn’t a good idea

There are some periods in life when focusing on income diversification may not be the best fit. I can’t imagine working two jobs when my daughter was a baby. It was hard enough working at one, with a maternity leave. Your current job may be more than a 40-hour per week commitment, or you have personal or health challenges that require your time and attention.

However, if you’ve got some time that’s not being put to its highest use, consider a four-hour per week side hustle. Then set a goal for that money. You’ll be surprised at how far that takes you.

 

A version of this post was originally published on Forbes.

How To Invest For Income In Retirement

October 26, 2018

All your working life you’ve been saving and investing some of your income for retirement. Now you are getting ready to leave full time work and begin to spend it. How do you figure out how to invest so that your money lasts for what is hopefully a long and happy life? Whether you are a DIY investor or working with an advisor, consider these general guidelines for investing to generate retirement income:

Create both fixed and flexible sources of income

Right now, you have investments that you own. If you are like many retirees, it may make you nervous to spend your assets. Income, on the other hand, is psychologically easier to spend. Rather than spending them down, think about how you can invest some of your assets to create income.

One possible goal of retirement income planning is to create both fixed and flexible income. Fixed income is income you can rely on to arrive at predictable times and in predictable amounts. Social Security is fixed, for example. Ideally, you would create enough fixed income to cover all your fixed, must-pay monthly expenses like housing, transportation and food.

Ways to create fixed income besides Social Security

Pension annuity: Most pension plans have distribution options that include several level monthly payment options as well as a lump sum distribution. Choosing the annuity will offer you level monthly payments, which you cannot outlive in most cases. Married couples can choose a “joint and survivor” option, which makes monthly payments until the death of the second spouse. Not sure if it makes sense to take the monthly annuity or the lump sum? See this blog post for guidance.

Create your own pension by buying an annuity: The traditional pension is an endangered species, so if you don’t have one, you can create your own personal “pension” by purchasing an immediate annuity with some of your retirement savings. Per ImmediateAnnuity.com, a 65-year old man in North Carolina would receive $527/month in exchange for $100,000. This turns your lump sum into a monthly income stream.

Immediate annuities vary from insurance company to insurance company, so run the numbers and do your research before you sign on the dotted line. Remember, you’re looking for consistent monthly income that covers just your fixed expenses. Don’t use all your assets to purchase an annuity. Otherwise you may not leave yourself enough flexibility to meet variable expenses like vacations and entertainment, or unexpected larger expenses like a dental emergency, a new car or a new furnace. Click here to learn more about the ABCs of annuities and here for some situations where they might make sense.

Bonds: A bond is a fixed income investment where the investor is essentially loaning money to a corporation or government entity for a fixed period of time at a fixed or variable rate of interest. There are many types of bonds, with different features and different levels of investment risk. You can invest in them directly or through bond mutual funds, closed end funds or exchange traded funds.

Bond interest is often paid semi-annually, so retirement income investors typically look for a diverse portfolio of bonds so there is some interest coming in every month. The base of a diversified bond portfolio should be “investment grade” bonds, which are issued by companies with a high credit quality, and U.S. Treasury securities, which are bonds issued by the U.S. government. Click here to learn more about how bonds work and how to build a bond ladder.

Dividend-paying stocks: Dividends are a share of company profits paid out regularly to shareholders. High quality, dividend-paying stocks can provide quarterly income, as well as the potential for appreciation. Like bonds, there are several types of dividend-paying stocks, with different features and different levels of investment risk. Dividends from preferred stock (which generally don’t have voting rights) tend to be higher than dividends from common stock.

You can invest in dividend-paying stocks directly or through stock mutual funds, closed end funds or exchange traded funds that focus on dividends. Funds in this category are usually described as “dividend income,” “dividend,” or “preferred stock” funds. Make sure to do your research and read the prospectus before investing.

If you hold dividend-paying stocks in a taxable brokerage account, look for shares which pay “qualified dividends.” Those are taxed at lower long-term capital gains tax rates of 0 to 20 percent, depending on your total income. Learn more about dividend-paying stocks here.

Real Estate Investment Trusts: A Real Estate Investment Trust (REIT) is a company which owns or finances income-producing real estate. Most REITs are publicly traded on major stock exchanges, but some are private. By law, REITs must pay out 90% of their taxable income in dividends annually. REIT dividends are usually taxed as ordinary income. You can invest in publicly traded REITs individually and through closed end funds, exchange traded funds and mutual funds.

While REITs hold portfolios of rental real estate or mortgages, remember that they have many of the same risks as investing in stocks. Generally, it’s a good idea to limit your REIT exposure to 5 to 10 percent of your portfolio, and just like stocks, REITs aren’t a fit for every investor. Adding real estate to a diversified portfolio of stocks and bonds can usually reduce portfolio volatility though.

Maintain purchasing power over the long term

Inflation has been low for the past two decades, but it hasn’t always been that way. Remember the interest rates on passbook savings accounts in the seventies? When you were working, you could rely on your salary increasing (at least somewhat) to keep pace with inflation.

In retirement, if you don’t include investments that generally move up when inflation does, you’ll be losing purchasing power. Click here to read more about protecting your portfolio from the effects of inflation. Investments that can help your portfolio from the inevitable rising cost of living include:

Stocks: A well-diversified portfolio of individual stocks, stock mutual funds or exchange traded funds that grows in value over time can offer a hedge or partial hedge against inflation. Some of the hedging effects come from dividends and some from growth. Wharton School professor Jeremy Siegel suggests that to best insulate a portfolio against inflation, it is necessary to invest internationally. For many retirees, some growth will be required to maintain purchasing power given that a typical retirement could last twenty to forty years.

Treasury-inflation protected securities: TIPS are treasury bonds that are indexed to inflation. The interest rate remains fixed, and the principal increases with inflation and decreases with deflation. It’s best to hold TIPS in a retirement account to protect against paying taxes on phantom income if the bonds adjust upwards.

Inflation adjusted annuities: If you have chosen to purchase an annuity, consider purchasing one where the payment is indexed to inflation. Like a traditional annuity, an inflation-protected annuity pays you income for the rest of your life, but unlike a traditional annuity, the payment rises if inflation rises. Consequently, the initial payout is likely to be lower than with a traditional annuity.

Rental real estate: Real estate tends to perform well with rising inflation. Rental income generally keeps pace with inflation, and inflation can increase the value of your property. However, being a landlord is not for everyone, and it’s difficult to get a diversified rental income portfolio without a large investment. Direct real estate investing has both advantages and challenges. If you are considering rental real estate, take this quiz first.

Prepare for longevity

According to the Social Security Administration, the average 65 year old man today is expected to live until age 84.3, and the average 65 year old woman until age 86.6. Since these are averages, that means some of these 65 year olds will live longer. That’s going to cost some money.

A longevity annuity is a new financial product that helps protect you against the risk of outliving your money. It typically requires you to wait until very late in retirement to begin receiving payment – e.g., age 85 or later. Once the payout period begins, it offers income for the rest of your life. The IRS permits the purchase of longevity annuities within retirement accounts, subject to certain limitations, and they are excluded from the calculation of required minimum distributions (RMDs).

 

A version of this post was originally published on Forbes

Everyday Things You Can (& Should) Negotiate

October 18, 2018

Is everything negotiable? It’s not a part of the American culture to negotiate much, but you’d be astonished at what you can bargain for if you think outside the box. Negotiating prices is both an art and a learned skill. Those who do it the best often pay less than the rest of us for typical expenses.

Recently Katie Warren, a reporter for INSIDER, asked me for some ideas on costs you can negotiate, and I crowd-sourced responses from our team of CERTIFIED FINANCIAL PLANNERS™. I was floored by what they suggested: who knew you could negotiate so many things? Read Katie’s article for Nine Surprising Things You Can Negotiate To A Much Lower Price and check out these amazing money-saving tips from our planner team:

Auto repairs

When our blog/content editor and planner, Kelley Long, recently learned that she needed a new hose for her beloved MINI’s air conditioning, she debated making the repair versus trading in the car. When she took it in for the repair and before signing the estimate, she decided to risk asking, “is that the best you can do on price?” “I was pleasantly surprised when the manager stepped right in, played with some numbers and came back at about 75% of the previous estimate,” observed Kelley.

“I was at a dealership service center too, not a mom-and-pop place. I will never again pay the first price I’m quoted!”

“Mechanics regularly mark up parts costs from 10% to 100%. Challenge them on this mark up,” suggested fellow planner Teig Stanley. Stanley, who is a world-class negotiator, recommended, “If you do some research and find the same quality part elsewhere for less, offer to purchase it and have it shipped directly to the mechanic. Be sure the mechanic still honors their labor warranty, and that the part still comes with a warranty as well.”

Home improvements

Larger home projects are almost always negotiable, such as a bathroom or kitchen renovation, painting, landscaping work or building a deck. Make sure to get three quotes on any project.

If your preferred contractor has a higher bid on the project, see if you can negotiate with them by sharing competitor’s bids. Once you collect bids, let your decision wait for a week or two if you can. A contractor who is really interested in the work may come back to you with a lower bid. Don’t lower your overall budget, though, since you’ll need to create some wiggle room for contingencies. We’ve done several projects on our home and each one has had unexpected expenses.

Rental agreements

Are you willing to sign a multi-year lease? As a landlord, I’ve occasionally accepted negotiated offers from tenants who offer a rent lower than the listing, in return for signing a 3-year lease. Keep your offer reasonable (5-10 percent below listing).

Another alternative would be to propose a lower rent in the first year, with rent increases in year 2 and 3. If you’re in a rental unit which doesn’t accept pets but you really, really want that dog or cat, consider trying to negotiate with your landlord by offering to pay a non-refundable cleaning deposit (typically $250-350) and a slightly higher monthly rent ($50-75).

Elective medical procedures

Kelley wrote a moving blog post last year, Should You Go Into Debt To Get Pregnant? about how she and her husband made financial decisions around pursuing IVF. “It’s big business and everything is negotiable – the cost of the procedure, the meds, and even refunds in certain cases when the procedure doesn’t result in the wished-for outcome,” she shared. “It took tenacity, but we ended up being compensated not only for unused services when IVF failed, but we also got our clinic to reimburse us for meds they had us order that we never needed.” 

Teig insisted that medical and dental expenses are always negotiable. “I may not know the going market rate, but I start by offering up either a ‘here’s what I’ll pay for that,’ and/or request a long term 0% interest payment plan.” Teig added, “Remember, in the U.S., medical care is a business. It’s not rude to ask a business owner (usually the doctor or dentist in this case) what their cost is before profit and then offer a reasonable premium over cost.” He said he’s paid a lot less than others for medical and dental services over the years with this strategy.

Cell phone plan

Carriers are competitive and most of the representatives at the local store are on commission, so asking for everything the competitor is offering at a lower price is a good way to start, noted Teig. If your carrier can’t at least meet it, consider heading to the other carrier. That’s what our Think Tank Director, Greg Ward, does.

He negotiated his family’s satellite TV bill. “Basically, I called and asked to “cancel” my service,” he explained. “The customer rep transferred me to an accounts specialist who actually has the power to negotiate fees and expenses. I said I’d like to stay (having been a loyal customer for several years), but other service providers were offering me better deals. I gave them a choice: either decrease my bill, increase my level of service, or terminate my contract. They offered me more services at a reduced price to keep me loyal.”

One hiccup, he added, is that he must call every 3 to 6 months to request the same discounts. Greg said that’s a small price to pay for his $360 annual savings.

Credit card fees

Teig offered that he has yet to pay an annual fee on the points cards he uses for travel. “I call a month before the annual fee comes around and ask the company to waive it,” he described. “As long as I’ve been using the card and paying on-time (these are the reasons they give) I save myself at least a $100 per year per card.”

Big ticket purchases

“Always ask for at least 10% off at a “big-box” store whenever you shop there. It’ll take a few more minutes because a manager has to approve, but this approach never fails me and sometimes leads to even bigger discounts when I uncover hidden manufacturer incentives,” advised Teig. My husband, Steve, impressed me early in our relationship when he walked into a car dealer with a cashier’s check and announced that’s how much he was willing to pay for the make and model of car he wanted to buy. It worked.

Lessons and personal services

I’ve negotiated 10-20% discounts on personal training, language learning and sports lessons by being willing to pay up front for a package of multiple lessons. Teig says he does the same thing. “It annoys my wife sometimes, but I always offer to pay less when I’m buying products or services. For example:  My wife and I are ballroom dancers and occasionally engage in expensive coaching for competition. We recently bought a coaching package of lessons through a world-renowned studio system, and I offered to pay the company 20% less than they requested. They negotiated to 10% down, which saved me hundreds of dollars just because I asked!”

Give negotiating a try

What’s the worst that could happen? The person with whom you are negotiating could say, “no.” However, if you don’t ask, you’ll never know! For more tips on how to bargain, see this article. Do you have a successful negotiating story you’d like to share? Send it to me at [email protected].

 

Life Hacks To Make Life Easier For Working Moms (& Dads)

October 05, 2018

When you’re a typical working mom with school age kids, daily life can feel like a rush from one urgent task to the next. Balancing the demands of your job and your kids can feel like juggling cats and flaming torches at the same time. Your mastery of the two is richly rewarding, but it requires practice. I checked in with other working mothers at Financial Finesse to compare notes on what they did to optimize their time. Here are some life hacks that we use to make the day easier:

1. Keep a family calendar

Air traffic control of activities and schedules is essential. We all keep a central family calendar somewhere – and we are the ones who keep track daily of what’s in it. “An online calendar is an absolute lifesaver,” says fellow planner Tania Brown. Don’t forget to schedule money maintenance tasks like regular “money dates” with your spouse to review financial decisions and time to review and pay bills (see #5) and rebalance your retirement investments. Some calendar tools we use include:

Cozi Family Organizer: Tania suggested this genius, free app, which lets you coordinate schedules and activities across devices, track grocery lists, plan meals and manage shared to do lists. Since everyone in the family with a smart phone can use the app and manage shared calendars and activities, this is the perfect app for people with teenagers. One constraint: you can share a “read-only” feed from your work calendar into Cozi, (and your Cozi calendar into your work calendar), but you won’t be able to modify your work calendar from Cozi.

Outlook: Both my husband and I use this popular Microsoft tool at work, so after exploring other options, I settled on it for keeping all my work and family obligations color coded in my work calendar. My work version syncs with my Outlook phone app, so I always know what’s coming up. Steve uses Outlook at work, too, so we can send each other reminders for our travel and for kid events/chauffeuring that we need to track.

I also share my calendar with colleagues who need access to my schedule and can import my work assignments from our company planner schedule. The downside of this for someone who likes their privacy would be that others at work can see your family schedule. That doesn’t bother me, though.

This free online calendar and app allows you to share and update your calendar with everyone who has permission to access it. You can sync Google calendar with your Outlook calendar at work or Apple iCal as well as access it on your phone. If you’ve got a Gmail address, you won’t need any additional sign-on to start using it.

2. Give your kids chores and pay them for it

“Have the kids handle a chore and pay them for it. Even if they don’t do it perfectly, they are learning how to do it and participating in the family business,” said fellow planner Daphne Winston. She paid her twins (now adults) for doing extra chores, and her mother paid her when she was a child.

I grew up this way, too. Now my kids get an allowance, for which they have certain chores they must do like keeping their rooms tidy and helping in the kitchen or laundry – but there are some kinds of things we’ll pay extra for like pulling weeds in the garden. Paying your kids for chores can help them learn the value of money and how earning income relates to work.

3. Prep meals in advance

“Prep as much of lunch and breakfast as possible the night before to make things run extra smoothly in the mornings,” says Vekevia Tillman-Jones, who has two young children. Tania, who loves to find ways to save on food that don’t require extreme couponing, makes peanut butter sandwiches in bulk and freezes them. I swear by my slow cooker.

Planning and prepping meals can save you money (by not resorting as much to take-out) and time. Home cooking has secret financial power! We all make a little wiggle room for takeout on our busiest days, though, and don’t beat ourselves up if we order a pizza or take-out Thai food.

4. Hire a responsible teenager – or retiree

Daphne explained that friends hired her teenage daughters to drive their kids to after school activities. “My friends then could work and be around to pick their kids up afterwards,” she noted. “Of course, you must make sure you choose responsible teenagers to haul your precious cargo around, but it was a lifesaver for my friends.”

I’ve got a retired neighbor who will take kids back and forth to activities. She charges a higher rate than a teenager but she is a more experienced driver! Senior consultant Lisa Painter uses a student au pair to help with kids, which is more affordable than a nanny in pricey Los Angeles. Operations manager Jill McLane relies on her village. “We really depend on our friends and they do the same with us.”

5. Pay your bills on the 1st of the month

Auto-pay is wonderful, but it’s easy to forget to review your bills before they are paid. We’ve all got our utility and cell phone bills on auto-pay. Many of us travel for work, so reviewing expenses on key credit card bills before paying them is a best practice. If something on the bill looks weird, there’s time to check into it before paying.

6. Put a load of laundry in every morning

This is my go-to mom hack to keep on top of the never-ending laundry that comes with having kids. I work from home when I’m not traveling, but you don’t need to work from home to practice this. I put a load in the washer in the morning, switch it to the dryer before dinner, and fold clothes before bed. When I got my first bonus from Financial Finesse, I asked brilliant space maximizer Evelyn Cucchiara (The Toy Tamer) to redo my laundry and play rooms so they were easier to keep tidy (working mom priorities, right?!). Nearly three years later, I am happy to report that both rooms are still tidy.

7. Let the kids sleep in their clothes

If you have a child who has challenges getting ready in the morning, consider letting them sleep in their clothes. After a nighttime bath or shower, let your child pick their clothes for the next day. This can be quite helpful if you have a late sleeper or a very early start on school or childcare. We’ve used this life hack in our family and it works.

8. Buy birthday party and hostess gifts in advance

Buying gifts in advance can save money as well as time. Whenever I see a good birthday party gift on sale, I buy several. This way, I avoid that last-minute trip to the closest toy store, which makes my child a half hour late for the party.

I like to shop at my local toy store, where they will wrap them all for me, but I’ll also snag a bargain on Woot when I see one. If I’m heading to Marshall’s or Home Goods to browse and see a good deal on a great host/hostess gift, I’ll stock up and keep it in my gift closet. That way, when we get invited to someone’s house for a meal or a party, I’ve got something on hand.

9. Outsource grocery shopping

Going to the grocery store by myself can be a vacation, but bring along two kids and it’s an obstacle course. I try to shop with each of my kids individually at least once a month (so they know how to shop and to teach them about financial choices). The rest of the time, I’m looking for hacks.

“Use a grocery shopping service,” recommended Daphne. Services like Peapod or ShopRite From Home will delivery groceries for a nominal fee. This helps you stick to your budget (no impulse buying!) and saves lots of time. Vekevia likes to order groceries online and set it up for pick-up so all she has to do is drive there and they load her groceries into her car. Jill said, “we use an app, Grocery IQ, that syncs our grocery list so whoever runs out of something adds it and whoever shops has the full list.”

10. “No” is a complete sentence

Tania said “So many of my friends feel guilty for saying no to anything – school events, volunteering, their kid’s requests. PTAs can be relentless. I believe in the power of the word “no” and that it is a complete sentence – no explanation required. This includes saying no to a culture that believes your kids should be in 100 activities a week. We limit the number of activities so we have a life on the weekends.”

You can say no to financial commitments as well, not just time commitments. Make sure you have an up-to-date family spending plan so you can decide whether something is in line with your financial priorities. Then be willing to say no as a complete sentence.

The big idea? Aim for work-life integration, not work-life balance

On some days, work demands more from me than expected, and on other days, the kids demand more. I’ve learned through trial and error that the goal is where I’m creating synergies between my work and family life. Instead of trying to block my time proportionately between competing goals, leaving work at work and home at home, I am learning to weave the two together to optimize my time most effectively with lower stress.

I take an afternoon hour with my kids when they get off the school bus and when everyone’s in bed, I’ll write a blog post. It certainly helps that our CEO is a working mom herself and that she’s set up a business model where the planner team works from home. But there are ways to do this if you have to go to the office every day as well. It’s about making it work for you and your family.

 

A version of this post was originally published on Forbes

How You Might Be Making 40% More Than You Think At Work

September 28, 2018

Are you overlooking the real value of your benefits when you think about your compensation? Probably. According to a recent report, employer-paid benefits improved wages for private industry workers by 46.6% ($11.50 average benefits costs for average wages/salaries of $24.72 per hour). Did I mention that most of those employee benefits are not taxable to the employee?

Your benefits are worth more than most of us appreciate

While you’re making decisions about your health insurance and other employee benefits for the upcoming year during this open enrollment season, I invite you to take some time to calculate and appreciate their value. Think of it this way: if you were self-employed, you’d have to earn more than 50% more per hour to pay your own benefits costs plus the employer’s share of FICA taxes (Social Security and Medicare).

That’s assuming you could get similar pricing on insurance, which is unlikely. While there are many advantages to being your own boss, lack of access to group insurance coverages and retirement planning contributions aren’t in the plus column.

How to estimate the financial value of your benefits

Health insurance (typically $5,000 – $30,000)

Your health insurance is probably the most significant component of your benefits. How can you value what your employer contributes for you and your family, as well as the discount you receive on coverage for participating in a large group plan?

According to the 2018 Milliman Medical Index, the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $28,166, with employers typically picking up 56% of the cost. That means that participation in their company sponsored health care plan is worth at least $15,788 for that family.

Of course your insurance costs may be different, and your employer may subsidize more or less of that. In my case, my employer pays 100 percent of my individual health insurance premium. My husband’s employer pays most of the coverage for him and our kids. Don’t dismiss the enormous financial value of company-subsidized health insurance just because it’s a common benefit in large companies. You’d have to earn nearly twice as much as the premium costs to pay for that insurance on your own after taxes.

Health Savings Account (HSA) (typically $500-$1,500 plus current and future tax savings)

More and more employers are also offering high deductible health plans in conjunction with a health savings account (HSA). In many cases, they’re contributing to the employees’ HSAs as well. Financial Finesse, for example, contributes $1,500 to my HSA, and I contribute additional funds pre-tax to get to the annual limit.

HSAs are a widely misunderstood and underrated benefit, and if you fully utilize your HSA, the long-term tax advantages can be significant to you in retirement. Whenever possible, I use other funds to pay my deductible and out-of-pocket expenses, so I can invest my HSA funds to grow tax-free. I save all my receipts for future reimbursement. If I follow that strategy for ten years and earn an 8 percent return, that HSA account would be worth around $50,000, which could be withdrawn tax-free by submitting accumulated medical and dental expenses.

Retirement plan (typically 2-6 percent of your salary in matching contributions)

According to the Society for Human Resource Management (SHRM), 42% of companies with employer-sponsored 401(k) plans match employee contributions dollar for dollar up to a certain amount. 56% of companies require workers to save 6% or more in order to receive the full employer-matching contribution. Your company may also make additional profit-sharing contributions to your account.

A typical employee with a $50,000 annual salary who earns an 8% annual return on their 401(k) contributions and has a 3% employer match would see an additional $73,628 in their account from the matching contributions after twenty years. (See calculation here.)

There’s also the value of having an employer-sponsored retirement plan in the first place. If you don’t have one as an employee, you won’t be able to save as much for retirement in tax-advantaged accounts. The consequence: employees without a work-sponsored retirement plan are far less likely to save for retirement. In fact, according to the National Institute on Retirement Security, 45 percent of working age households in the U.S. have zero retirement account savings.

Dental insurance ($1,500 – $4,500 annually)

The next time you have a cavity filled or need a crown, you’ll be grateful you have coverage to pick up some of the costs. Typically, dental coverage pays for half of certain procedures, as well as for preventative care, up to a certain limit per family member per year. Some dental coverage also includes benefits for orthodontics.

Disability insurance ($2,000 to $5,000 per year)

Premiums for insurance that replaces a portion of your income if you can’t work due to a non-work-related illness or injury can be paid for by the employer, employee or both. Purchasing this insurance as individual policies would be quite expensive.

Group policies are much less expensive per covered employee, so even if you’re paying some or all of the premiums yourself, you’re a getting a good deal — if you have access at all. According to the Bureau of Labor statistics only 25% of U.S. employees have access to both short and long term disability insurance benefits through their employer.

Life insurance ($250 to $500 per year)

Many large employers cover their employees with term life insurance at one times their annual salary. Supplemental term coverage is often available for a low, additional cost. The first $50,000 of group life is not taxable to you. The imputed value of coverage over that amount will show up on your W-2.

Employer contribution to FICA (7.65 percent of salary)

What is FICA and why does it get so much money from my paycheck?! FICA stands for Federal Insurance Contribution Act, e.g., Social Security and Medicare, and your employer pays just as much as you do towards both programs. The employer contribution adds up to 7.65% of your salary and bonus (up to a max on the Social Security tax). When you are retired and draw Social Security and utilize Medicare for health insurance, know that your employers were partners in getting you there.

Employee Stock Purchase Plan (ESPP) (typically 10% to 15% of market value per share purchased)

In a typical stock purchase plan, the employer offers employees the opportunity, but not the obligation, to purchase publicly traded company stock at a discount from the market value. Depending on how much you contribute, that can add up to thousands in discounts annually. Remember that your discount is taxed like income and taxes are withheld on it from your paycheck.

Tuition reimbursement (typically $1,500-$5,000 annually for approved coursework)

Many large companies offer tuition reimbursement for degree programs, professional certifications and courses related to your job. Reimbursement levels may depend on your grades. The first $5,250 of what your employer pays is excluded from your taxable income, but you may have to pay taxes on tuition paid in excess of that amount. (See the IRS guidelines here.)

Student loan benefits (typically $1,000-$2,000 annually, with a lifetime maximum)

Student loan repayment as an employee benefit is growing in popularity as the average student debt loan for those with a bachelor’s degree has hit $37,172. What’s that worth? For a student loan of $10,000 with a 6.75% interest rate, an extra $100 per month in company paid student loan benefits applied towards the principal could help pay off the loan in 55 months instead of 120 and save $2,144 in interest. (See calculation here.)

Unemployment insurance (0.3% – 1.5% of salary)

Under the Federal Unemployment Tax Act (FUTA), employers pay your unemployment insurance, not you, as well as most states. If you lose your job through no fault of your own, and you meet your state’s requirements, you can file for unemployment benefits for some period of time (which varies by state). Like all types of catastrophic insurance, you hope you won’t have to file a claim – but it’s comforting to know that it’s there if you need it.

Financial Wellness benefits ($500 – $2,500 annually)

If you’re fortunate to have access to employer-paid financial coaching and guidance, that’s like having a financial planner on retainer all year long. That could easily cost hundreds or even thousands of dollars a year. Use your financial wellness benefit to understand and maximize the value of your other employee benefits, as well as to take your personal financial plan to the next level.

Other great voluntary benefits

Your company may offer other voluntary benefits such as voluntary life insurance, gym membership, pre-paid legal assistance, commuter benefits, employee discounts, pet insurance, health and wellness programs, access to group long term care insurance, etc. The value can vary a lot. You will pay a cost for voluntary benefits, but because they are group plans, the cost is often much lower than what you would pay if purchasing them individually.

Adding it all up

What’s your estimate of what your employee benefits are worth? Add up the items and divide the total by your salary and bonus to see what percentage it actually makes up. When you look at those numbers, my guess is that you’ll appreciate those benefits more.

 

A version of this post was originally published on Forbes.

How Your Employee Benefits Can Help You After A Natural Disaster

September 25, 2018

Have you recently been impacted by a natural disaster, such as Hurricane Florence or a fire out West? Employees in many parts of the country are reeling from the effects of Mother Nature’s wrath. If you’ve been affected by a natural disaster, you may be at a loss on where to turn to begin to recover or rebuild. Your employee benefits can offer some resources to help you:

Reach out to your Employee Assistance Program (EAP)

Your Employee Assistance Program (EAP) is the first place to start for online and 1 x 1 resources, including:

  • Housing challenges;
  • Help dealing with trauma or emotional effects of the disaster;
  • Legal guidance;
  • Child care or eldercare resources; and
  • Dealing with emergency financial problems, such as loss of income due to the disaster.

Call your Financial Helpline  

If your company has a workplace financial wellness benefit, call your Financial Helpline or schedule an in-person consultation to review your situation with a financial coach. Your financial coach (like one of our CERTIFIED FINANCIAL PLANNERS™ or a financial counselor in your EAP program) can give you guidance on ways to:

  • Triage what bills to pay;
  • Handle your mortgage lender or creditors;
  • Manage a loss of income;
  • Deal with your insurance company;
  • Figure out if you should file for short term disability if you’ve been injured;
  • Weigh the pros and cons of taking unpaid leave under the Family Medical Leave Act; and
  • Determine whether you should take a 401(k) loan or hardship withdrawal.

Find an attorney through your legal benefit

If you have a legal benefit at work, this is a great place to find an attorney to help you navigate any legal issues like:

  • Disputes with your insurance company;
  • Problems encountered during rebuilding; or
  • Difficulties with your mortgage lender or landlord.

Open enrollment is coming up soon, so if you anticipate legal issues, consider enrolling in the voluntary legal benefit for next year – it is usually not expensive. If you don’t have a legal benefit at work, ask your EAP if they make legal referrals to an attorney.

Get extra PTO from employee time-off donations 

If your home has been damaged, or you’ve been displaced, you will need time off to deal with this. Your company may offer emergency paid leave after a disaster, or access to PTO donated by fellow employees. Check with your HR department to see if your company has a supplemental Paid Time Off policy or a bank of employee time-off donations, and what the procedure is for applying.

File for short term disability 

If you have been injured in the disaster, you may not be able to work while you are recovering. Check with your HR Department about your short term disability insurance benefits. Keep in mind that short term disability insurance often covers only 50-60 percent of your salary, so you will need to downsize your expenses while you are away from work.

Ask for unpaid leave under the Family and Medical Leave Act 

If you need an extended period off to care for an injured family member or your own health issues, you may need to ask for unpaid leave under Family and Medical Leave Act (FMLA) of up to 12 work weeks. You’ll be required to use all your available PTO before the leave kicks in, as well as pay for your employee benefits, such as health insurance, during the period of leave.

Access a retirement plan loan or hardship withdrawal

If cash is tight because you’ve been displaced, as a last case scenario you may consider borrowing against your 401(k). In a worst case scenario, you would also be able to take a hardship withdrawal to make emergency repairs. Before you apply, make sure to talk through the pros and cons with a financial planner (see above) as there are downsides to this strategy. There may be alternatives if you need cash immediately.

Find emotional and health support through your wellness program 

You may be so busy dealing with your enormous list of things to do that you have not taken time to process your emotional reaction to what happened. Check with your company’s wellness program to see what resources are available to you to help you cope, such as:

  • Support group for employees for dealing with the disaster;
  • Meditation and mindfulness;
  • Exercise and yoga; and
  • Health screenings.

Not sure where to start? Ask your HR Rep

If it’s all too much and you’re not sure where to start, call your HR Representative. They will be able to steer you in the right direction, and let you know what company resources are available to you.

Should You Pay Off Your Credit Cards With A 401(k) Loan?

September 07, 2018

Are you making payments on your credit card balances but not making much progress in paying them down? If high interest debt is causing you to lose sleep, it can be really tempting to take a loan from your retirement plan to pay it off. It could be the step that gets you back on track financially or sends you off the financial cliff. This is a high-risk decision. How do you decide if it makes sense for you?

Many employees ask themselves this question

Every day, my fellow planners and I talk to employees on our Financial Helpline who are contemplating taking a retirement plan loan to pay off debts. There’s no “one size fits all” answer to whether an employee could benefit or be hurt. Is it ever OK to borrow from your 401(k)? I’ve worked with employees who used a retirement plan loan to gain some financial wiggle room and pay off their debt for good. I’ve also talked to employees who took loans, only to call again for another a loan in a year because they built up large credit card balances again.

When to even consider a retirement loan to pay off debt?

The first question to ask yourself is whether you’ve exhausted your other options. A 401(k) loan should be the last thing you consider, not the first. Strategies you could try before taking a retirement plan loan include:

  • Sell something. Use the proceeds to pay off some of the debt. So many of us have a lot of stuff we don’t use anymore. Is there anything you can sell to raise some extra cash? My fellow planner Kelley Long once sold almost everything she owned online, including her car, to raise cash before a big move. Another strategy I mention a lot: have a garage sale.
  • Find a side gig. Do you have some time during a typical week to earn a little extra cash? Even $50 or $100 dollars per month can help you pay more than the minimum on your cards and blast your debt down. (Use this calculator to see how this works.)

Benefits of a 401(k) loan to pay off credit cards

If you’re considering a 401(k) loan to pay off credit cards, chances are that you think your credit card debt has gotten out of hand. Wouldn’t it be great to get those balances down to zero or at least to a point that’s manageable? If you’re up to your neck in credit card debt, the benefits of borrowing from your retirement plan look pretty attractive:

  • You’ll pay interest to yourself, generally at a much lower rate than your credit card interest rates.
  • Loan payments come out of your paycheck, so as long as you’re working for the same company, repayment is automatic.
  • You’re likely to pay off the total balance sooner, since regular 401(k) loans have a maximum five year term.
  • Your loan will not be reported to credit bureaus, so there’s no effect on your credit score.

The high risks of using a 401(k) loan to pay off other debt

This sounds too good to be true, right? Before you initiate that loan, make sure you know all the risks. There are many:

  • Big taxes and penalties if you leave or lose your job while the loan is outstanding. If you’re planning to leave your job during the loan period, it’s usually best not to take the loan. Most retirement plans require that retirement plan loans be paid back within a short time frame after an employee is no longer employed with the company. If you can’t pay it back, the unpaid loan balance is reported to the IRS as a retirement plan distribution and is taxable to you plus an additional 10 percent penalty if you’re under age 59 1/2. However, you may be able to salvage the situation by contributing the balance amount to an IRA rollover before you file taxes for that tax year.
  • You will lose out on growth if the market goes up. Think of 2017, when the S&P 500 increased nearly 19 percent. The power of compounding grows the longer a profitable investment is held. You’ll have the most success if you contribute, invest wisely, and let your investment returns compound over a very long period of time.
  • If you don’t radically change your cash management habits, you could run up big credit card balances again. Then you’d have the 401(k) loan and new credit card balances to pay. It could be a slippery slope. If you’ve got access to financial coaching in your company’s workplace financial wellness program, make sure to take advantage of it. Working with a financial coach can help you get a better handle on your cash flow so the situation that prompted you to take a retirement plan loan doesn’t happen again.
  • You could be stuck with the 401(k) loan even after bankruptcy. If you aren’t able to pay off all your debt with the loan and end up having to file for bankruptcy protection, you’ll still have to pay off your 401(k) loan. Retirement plan loans aren’t discharged in bankruptcy.

It’s a last resort, not a first source of cash

Before taking a retirement plan loan to pay off credit cards, make sure you’ve done absolutely everything you can to get on top of your credit card debt and that you understand the substantial risks involved. If you’ve got access to a financial wellness program at your company, work with a financial coach to evaluate your situation clearly and weigh the pros and cons. Consider limiting yourself to one loan – and make a commitment to get a handle on your cash flow so you won’t be compelled to consider another one.

One way to really get ahead

By the time you’ve paid off your retirement plan loan, you’ve probably gotten used to the loan payments coming out of your paycheck. Now that you’re done, set up automatic deposits from your paycheck to a savings or money market account for the same amount. That way you’ll build up emergency savings so you hopefully won’t have to build up credit card balances or take a retirement plan loan again!

 

A version of this post was originally published on Forbes.

Should You Take Out Student Loans For Graduate School?

August 02, 2018

Are you considering graduate school? If you’re like most American graduate students, you’re probably going to borrow at least a portion of your tuition and other costs. The student loan debt from graduate school piled on top of undergraduate loans can be intimidating. According to research from the New America Foundation, the median debt for graduate students is $57,600, with one in four borrowers owing about $100,000 or more.

What are the consequences of borrowing that much?

“I won’t know what it’s like to earn a full paycheck until my 50s and that’s discouraging, because by then I’m sure I’ll have other debt to pay off (mortgage, etc),” said a younger co-worker who is frustrated by her graduate and undergraduate debt. I struggled to pay off my own undergraduate student loan debt (the equivalent of about $35,000 in today’s dollars), so I hesitated on borrowing for graduate school.

Both my sisters have graduate degrees, so I’m the odd duck. I waited until I could pay my fees myself and chose to pursue professional designations instead of a university program. My former employer reimbursed me for obtaining my CFP® and ChFC® designations, and I paid for my CFA® courses myself.

My youngest sister, Caitlin Bauer, who has worked in multiple higher education institutions — and who is paying off her own graduate student loans – likes the idea of working for a company with a tuition benefit. “On a personal level, I’ve often advised acquaintances with whom I’ve spoken about grad school to maybe not go directly from undergrad unless absolutely necessary, but to try to find a job with an employer who will offer tuition benefits or even with a university where they could take at least part of their program for free or reduced cost,” Caitlin observed. She reminded me that, “going to school full-time while working a full-time job is often not possible or practical, but it can be a more financially-savvy option.”

How graduate school loans affects life milestones

Caitlin still has six figures of student loan debt, and most of it is from graduate school. “Unfortunately, the interest rates for direct loans were sky-high when I attended.” She can’t refinance them for a lower rate because she is on an income-based repayment plan and pursuing public service loan forgiveness as she works in the public sector, so she needs to keep her debt in the federal program. “I feel very much held hostage by my loan debt. Buying my own home is out of the question at this point in time, and I’m unable to contribute as much to my retirement savings as I would otherwise.”

But there’s generally a salary boost

Graduate school, if done right, can help you substantially increase your income over time. According to this article in the Financial Times, the financial rewards of an MBA are rising but so are the tuition fees. In 2018, over two-thirds of MBA cohorts doubled their salaries within three years after completing their degree, the article reported.

Across all disciplines, Bureau of Labor Statistics data show that Americans with a master’s degree earn 19% more than those with a bachelor’s degree only, and those with professional degrees earn 57% more.

Figure out your ROI

A useful guideline is to limit total student loan debt to no more than the average salary for your field for someone with a similar degree. If the average salary of a lawyer in your state is $120,000 per year, then that’s the absolute max you should borrow, inclusive of your undergraduate school loans. That means if you’re thinking about getting a masters in social work, where the program costs $70,000 and the average social worker’s salary is $46,000 and you have $30,000 in undergraduate loans, your return on investment is going to be negative if you borrow the entire cost of school.

Not sure how to begin? Use this graduate school ROI calculator.

Think of graduate school like home ownership

I propose that you think of it like buying a house. It’s such an expensive investment, few people can afford to pay for it in cash. Using the law school example, at today’s mortgage rates, that monthly payment of $1,187 is like paying a mortgage of around $227,000. No wonder it’s an investment most people must finance.

You’d also never pay more for a house than comparable neighborhood prices suggested it was worth. “There are a lot of factors to consider when even choosing where to go for graduate school, so it’s important to do the homework and find a program that’s a good match in terms of what you want to get out of it,” cautioned Caitlin. “Otherwise, what are you paying for? Make sure your program is reputable, because you are making an investment.”

Avoid private student loans if possible

I frequently talk to employees on our Financial Helpline who are struggling with student loans, often because they took higher interest private student loans only to later find out that they can’t get a break from paying them during a period of unemployment. “There can be very little wiggle room or willingness to negotiate smaller payments for private loans,” explained Caitlin. If you can, avoid private loans. Generally, private loans are more expense and a lot less flexible than a federal subsidized or unsubsidized student loan and are not eligible for income-based repayment, forbearance, deferral or loan forgiveness.

If you have private loans which you are already repaying and have a good credit score, you may want to look into loan refinancing with one of the new crop of student loan refinancing sites such as SoFi, Earnest or Common Bond. Do your homework and compare terms and risks before you choose. It’s generally not a good idea to include your federal student loans though, as the flexibility of repayment plans can be useful in the event of a financial upheaval, such as a layoff or illness.

Borrow only what you need

Students can get themselves in hot water later by borrowing what’s offered, instead of only taking what’s needed. The goal is to graduate with the absolute minimum in student loan debt. While it’s tempting to borrow for all living expenses, remember that you’re borrowing against your post-graduate quality of life.

“When you do borrow, never borrow beyond what you absolutely need,” warned Caitlin. “Budget carefully! I wish I’d done this better.”

Pay interest early

“Try and pay even a little on the interest if possible while in school (it’s not always possible – wasn’t for me) because it’ll a) help keep it down and b) it’s a tax deduction!” said Caitlin. Most student loans don’t require repayment until you’ve been out of school for six months. If you are working full or part time while you’re studying, pay as much as you can afford on your highest interest rate unsubsidized loan. Remember, unsubsidized loans accrue interest while you’re studying. For a success story on how one MBA student did this, see this article.

Work while you’re in school

I asked another family member, who has her PhD and masters, whether she had paid off her student loans yet. “My loans were reasonable because I worked during graduate school,” she explained. She taught at her university, and at secondary school, so she was able to borrow less and repay the loans more quickly. As long as you can keep up with the school workload, the way work helps you structure your day might even help you get better grades, according to this study. That’s not always a practical solution, however, for an intense professional degree such as medical school.

“It’s a balancing act,” said Caitlin. “I always worked part time throughout grad school, and when I coupled that with a full-time internship and full-time classes for even just part of one semester, I came pretty close to experiencing burnout. I would advise working part time if possible. It can help pay for rent, groceries, and other expenses that are necessary to having a decent quality of life, even if that income doesn’t make a huge dent in your tuition — which it likely won’t” she added.

“Plus, it always looks good to have something to add to your resume. You never know where it could lead you! The part time job I started my first semester in graduate school led me to discover what I wanted to do for my career after I graduated.”

What if you go to graduate school and find out you don’t like your field?

I recently spoke to a couple who had borrowed extensively for expensive professional degrees at private schools, only to find out after graduation that they were happier working in lower-paying non-profit jobs. Their loans were the cause of enormous financial stress. I asked Caitlin for her guidance, as she works in a different sector than she originally intended.

“For some people, this is harder if their graduate degree is more specialized. I am not working in the exact field my master’s degree is in, but I still apply things I learned in the program to my job. Also, having a master’s is becoming more and more necessary to be competitive in the job market today. Having completed any graduate degree is a significant accomplishment and becoming increasingly important to employers in some areas.”

The bottom line: make an informed decision

Graduate school isn’t something to be entered into lightly because you’re not sure of what career to pursue or your parents are pushing you towards a certain profession. It’s an investment. Like any investment, you will benefit from carefully weighing the costs, the risks and potential rewards.

 

A version of this post was originally published on Forbes.com

How To Buy A House In An Expensive Area

July 12, 2018

Owning a home is a financial goal for many Americans. For those who live in the most expensive real estate markets, like the New York City area, the D.C. area, the Boston area and pretty much the entire states of California and Hawaii, that goal may appear hopelessly out of reach. Median housing prices in these regions are astronomically high compared to the U.S. median home price ($264,800 as of May 2018). How do you save enough for a home down payment when you are already paying very high rent as a percentage of your income? It can be done, but it’s not likely to happen the traditional way.

Make sure it makes sense to buy

Buying a home is likely to be the largest financial commitment you make in your life. Make sure that it really makes sense to buy instead of continuing to rent. As I’ve said before:

“Real estate is like marriage. The wrong choice can really mess up your life. Renting, on the other hand, is like dating. It’s something you should keep doing until you are sure you want to settle down and are ready for a committed relationship. Many people are happy dating – and renting – for a long time before they decide to commit.”

If you are ready to commit to a geographic location (and school district, if you have kids), the next step is to evaluate if it makes sense in your geographic market. Is it cheaper to rent or buy? Use this tool from the New York Times to run the numbers.

Calculate your home budget from your rent

If you are renting, you may already be paying a mortgage, interest and property taxes – your landlord’s. Use your monthly rent as a starting point for how much you can realistically afford to pay every month in total housing costs. Last week, I spoke to an employee on our Financial Helpline who wanted to buy her first home in Southern California. She and her husband paid rent, not including utilities, of $2,800 per month. We ran some numbers (see the calculation here) and determined that if their housing costs were similar, they could support a mortgage of $460,000 to $510,000.

You can run your own assessment with this calculator. Make sure you include assumptions about down payment, mortgage term, mortgage interest rate, private mortgage insurance (mandatory with a low down payment mortgage), homeowner’s insurance and property taxes. Don’t forget:

  • If your current rent includes utilities, make sure you back out the average cost since you’ll be paying those directly as a homeowner. Keep in mind that if you’re increasing your home size (e.g., from a 2-bedroom apartment to a 3-bedroom single family home) your energy costs will probably increase.
  • If you’re looking to buy a condo or home, your current rent must support a mortgage, interest, insurance, taxes – and possibly HOA fees.
  • Home maintenance will be extra. Be prepared to budget an additional 1 to 4 percent of your purchase price annually for the care and upkeep of your home.

Don’t fixate on one neighborhood

You may love where you are living now, but there is more than one neighborhood for everyone. You may find that looking outside of your current area opens the possibility of lower home prices, better schools or a more spacious home. I suggest you house hunt in a minimum of three different neighborhoods before you settle on your top target location.

Look at your trade-offs

For example, if you live closer to your workplace so you can walk to work and to the grocery store, you might be able to give up one car. Conversely, it may be worth paying more to keep your child in their school. Consider the commute time and the effect on family life. As the saying goes, you can have anything you want but not everything you want.

Explore first time homebuyer programs

Lenders typically require that home buyers pay at least 20 percent of the home’s purchase price and will offer a mortgage of up to 80 percent of the appraised value of the home. In an insanely expensive real estate market like Southern CA or the NYC region, where median home prices are very high, a 20 percent down payment could amount to several years’ salary.

Accumulating that large of a down payment may not be realistic while you are paying high rent each month, but that does not mean you can’t buy a home. You could be eligible for a low down payment mortgage backed by the FHA, VA, USDA, or Freddie Mac, with some as low as 3 percent of the purchase price. Explore all the first-time home buying programs summarized in this article.

City, county, and state governments may also offer down payment assistance programs, so check and see if you qualify. For example, I encouraged the helpline caller I mentioned to check out the CA Housing Finance Agency for down payment assistance as it appeared that she might qualify based on her household size and income. A similar family in NYC could check out their Home First Down Payment Assistance Program.

Downsize your lifestyle while saving for a down payment

During the 1-3 years prior to your home purchase, consider downsizing your lifestyle to save as much as possible for your home down payment, closing costs, and moving expenses. If you can shave off just $10 per day by eating at home more and put that money away in a savings account or money market fund, you will have $10,800 after three years. (See calculation here.)

Let’s say you downsize from your 2 bedroom to a studio apartment and save $600 per month. After 3 years, you’d have $21,600. (See calculation here.)

Do both? That’s $32,400 after 3 years. (See calculation here.)

Perhaps you have kids and it’s not realistic to move into a smaller space? Consider downsizing other areas of your financial life, such as going from two cars to one. I gave up my car in my thirties when I lived in an urban area and our Forbes blog editor Erik Carter went carless as well. We both saved thousands in transportation costs. If you’ve got kids, it may be impractical to get around everywhere without a car, but do you really need two?

Even if you can’t downsize your housing or your transportation, you may be able to downsize other areas of your lifestyle, such as cooking more at home, managing the high costs of your children’s sports, and foregoing some small luxuries while you prioritize home savings. Need more ideas? Check out my post on 11 Easy Ways to Save Money Without Changing Your Lifestyle.

Maximize your credit score

The higher your credit score up to a certain point (about 760), the better the mortgage interest rate you will receive. Those homebuyers with better credit will be more likely to be eligible for a lower down payment program than those with poor scores (although programs are available for both). A lower mortgage interest rate also means you’ll be able to buy more home for what you can afford every month. While it can take 5-7 years to dramatically improve your credit score if it’s very low right now, you may be able to improve your credit score incrementally and quickly by using these tips.

Consider multi-family housing

Are you interested in also being a landlord? Both conventional (20% down) and flexible down payment FHA or Freddie Mac backed loans are available for owner-occupant duplexes and small (up to 4 units) buildings so you and your family could live in one unit, and you could rent out the remaining units. If you have long term leases in place before purchase on the other units, you may be able to use the projected rental income to help qualify you for the loan. If you think you have landlord potential (take this quiz to find out), a multi-family home may help you get in your own home and build a portfolio of investment properties.

 

This post was originally published on Forbes.

4 Different Ways To Rebalance Your 401(k)

July 05, 2018

When the stock market starts going wild, it can cause you to second guess your investment choices in your 401(k). Perhaps all those aggressive funds that made you so happy these past few years are letting you down. You could ignore this roller coaster and focus on your financial life goals and maybe you should…or maybe you shouldn’t because that sick feeling in your stomach every time you look at your statement is trying to give you a message: you may need a portfolio rebalancing strategy.

What is rebalancing?

Everyone loves a mutual fund winner and dislikes a losing investment. It’s natural to want to keep funds that have increased in value and to sell out of funds that have fallen in value, but that can be a losing strategy. Rebalancing turns that natural tendency on its head. It means periodically selling a portion of the funds which have gone up, then buy more shares of your funds which have gone down to maintain your target mix of investments over time.

Rebalancing helps you buy low and sell high

Rebalancing back to a target mix of investments helps you keep the level of risk in your portfolio stable by taking some profits from those funds that are now taking up more space in your portfolio than originally intended – usually because they grew in value – and buying more of the funds that are now taking up less space than you intended, possibly because they fell in value.

Since stocks, bonds and other investments tend to move up and down at different times, implementing a regular rebalancing strategy with a diversified portfolio mix helps you “buy low and sell high” over the long haul. (In a tax-sheltered account like a 401(k), selling profitable shares to rebalance doesn’t have any tax consequences. However, keep in mind that rebalancing in a taxable investment account could generate short-term and long-term capital gains.)

Start by defining your target investment mix

Let’s say you were going to take a vacation in Europe. You’d plan your itinerary in advance, choosing which countries you’d like to visit, what sites you’d like to see, how you’ll get there, how much you plan to spend, etc. When you actually go on your trip, you may find that things change along the way that cause you to adjust your plans – a delayed flight, lost luggage, bad weather, etc. Then you have to adjust.

Investing is the same. First, you put together your itinerary, called your “asset allocation” strategy in investment jargon. Asset allocation is how you split up your savings between different types of investments such as stocks, bonds, real estate and commodities.

By diversifying your investments, you minimize the risk that they will all fall in value at the same time. For example, a 35-year-old who’s got 30 years to go until retirement and a moderate risk tolerance might target a mix of 60% to 70% in stocks and 30% to 40% in bonds.

How to create an asset allocation strategy

Don’t have an asset allocation strategy? Start by completing this risk tolerance assessment and following the guidelines for your risk profile. You can also use this calculator to develop a basic strategy and this worksheet to put together something more detailed.

Four ways to rebalance

Once you’ve begun your investing trip, you may find that there are unexpected detours along the way like a stock market downturn or interest rate cuts that cause a bond rally. Don’t let them throw you off your plan. Here are four ways to rebalance your investment mix to get back on track:

1. Rebalance according to the calendar

How it works: With calendar rebalancing, you pick a regular date where you will rebalance your investments to their target weights. Sell enough of what’s gone up to get back to the target weight and buy more of what’s gone down. You could do this monthly, quarterly, semi-annually or annually, but don’t forget to do it at regular intervals over a long period of time.

Many 401(k) plans have begun to offer automatic calendar rebalancing features at no additional cost, so research if your plan has one. You may also have access to “hands off” investment strategies like target date funds or asset allocation funds, where rebalancing is handled by the fund manager and you don’t have to worry about it.

An example: John is trying to maintain a constant mix of 65% stocks, 25 bonds and 10% real estate. He begins the year with a $10,000 balance, so he puts $6,500 in a stock fund, $2,500 in a bond fund and $1,000 in a real estate fund. He plans to rebalance his investment mix on the last business day of each quarter.

At the end of the first quarter, his balance is higher at $10,300 but the percentages have changed:

Stock fund $6,386 (62%)

Bond fund $2,678 (26%)

Real estate fund $1,236 (12%)

To rebalance his portfolio, John will sell $103 of his bond fund and $206 of his real estate fund and buy $309 of his stock fund. If he has enrolled in the automatic rebalancing feature in his 401(k) plan, it would happen automatically on the scheduled date.

2. Percentage of portfolio rebalancing

How it works: Not sure you want to rebalance that strictly? Percentage-of-portfolio rebalancing involves setting a tolerance band stated as a percentage of the portfolio’s value. When an investment falls below or rises above the tolerance band, it triggers rebalancing back to your target asset allocation for the entire portfolio.

An example: A 40% weighting in bonds with a +/- 5% tolerance band means that bonds could make up between 35% and 45% of the portfolio without rebalancing. If they rise to become 46% or fall to 34% of the portfolio, that triggers rebalancing of all the investments back to their target percentages.

It’s best to do some research when setting the tolerance band. Too narrow means normal market volatility will lead to excessive rebalancing and too wide makes it easy to take on extra risk. You’ll also need to check the percentage weights at regular periods to see if the need to rebalance is triggered. Percentage of portfolio rebalancing is a strategy that requires more frequent market monitoring, so it’s best for a more “hands on” investor.

3. Constant proportion portfolio insurance (CPPI)

How it works: Do you have an amount below which your portfolio must not fall? Consider a constant proportion portfolio insurance (CPPI) rebalancing strategy. Stock holdings are held to a constant proportion of the predetermined cushion – the difference between the total portfolio value and the floor value:

Target investment in stocks = target proportion × (current portfolio value – floor value).

CPPI rebalancing is expected to do well in bull markets, when the increasing cushion leads to purchasing more stocks. It could also be helpful in bear markets because when the cushion is zero, there are no holdings in stocks. In a volatile market with frequent reversals of short term trends, however, CPPI tends to underperform.

An example: Let’s say Susan has already saved $500,000 towards her goal of retiring in 5 years. Based on her conservative risk tolerance, it’s important to her to maintain at least a $450,000 value in her 401(k). She is comfortable putting 60 percent of her surplus over her floor value in stocks.

Target investment in stocks = 60% x ($500,000 – $450,000) = $30,000

At the end of year one, the total portfolio value is $510,000.

Year 2 Target investment in stocks = 60% x (510,000 – 450,000) = $36,000

Year 2 turns out to be a recession and horrible year for investors. Susan’s stock index fund has a 40% negative return and her bond funds lose 10 percent. Her total portfolio value is now $448,200.

Year 3 Target investment in stocks = 60% x ($448,200 – $450,000) = $0

4. Rebalance with future contributions

How it works: As an alternative to selling some investments which have increased in value and buying more of what has decreased, you could add more cash to your portfolio to buy more underweighted shares. For taxable accounts, this is a more tax-efficient strategy since you won’t incur capital gains by selling any shares.

In a tax-sheltered 401(k) plan, this would mean changing the investment mix of your future contributions so that you’re buying enough of the underweighted fund to get you back to your target percentage.

An example: Taylor began the year with a $100,000 portfolio and a target investment mix of 70% in stocks and 30% in bonds. At the end of the year, Taylor’s portfolio is worth $120,000: 78 percent in stocks and 22% in bonds. She plans to contribute $10,000 this year. In order to move towards her target 70/30 asset allocation, she would need to allocate all of her $10,000 contribution towards buying the bond fund.

The downside of trying to rebalance with new money in a 401(k) plan is that it may not be a perfect recalibration. Depending on the size of your balance, the amount you’re contributing may not be sufficient to fully rebalance. There’s also the risk that the markets could continue in the same direction.

Which rebalancing strategy is right for you?

What’s the best rebalancing strategy for your retirement journey? It depends on your risk tolerance, how “hands-on” or “hands off” you are with your investments, and whether you have perseverance to stick to it consistently over a long time period. Finally, don’t forget to check with your 401(k) provider as many have automatic rebalancing options available or offer fixed asset allocation funds where the rebalancing is done for you.

Learn more about rebalancing

Interested in learning more? New investors can try this free online course from Morningstar. More experienced investors may enjoy this Vanguard brief on best practices in rebalancing. The quantitatively-inclined can check out this article from the CFA Digest.

How To Invest In Real Estate

May 25, 2018

Once you’ve decided that you’re ready to invest in rental real estate and taken the quiz to see if your personal finances and real estate knowledge are solid, you need to decide what kind of investor you’ll be.

Know your investor personality

When it comes to managing your real estate investments, would you prefer to be heavily involved in the day to day or a passive investor that puts their trust in someone else to manage things?

If you want to be a “hands-off” real estate investor, then you’ll have little to no involvement in the selection and management of investment properties themselves, and instead will be putting your money and trust in a team of real estate professionals to make those decisions for you.

Alternatively, if you have the time, knowledge and interest in the real estate world, you may choose to be a “hands-on” investor. That means you’ll be actively researching, selecting, and managing individual investment properties, although you may choose to hire a property manager to handle the day-to-day work associated with any of your investment properties.

Evaluating Your Real Estate Investing Options

ACTIVE REAL ESTATE INVESTING OPTIONS FOR HANDS-ON INVESTORS

Single family home

A single-family home is a standalone house meant for one family.

Pros

  • Families can be long term tenants
  • Most potential for appreciation
  • Easiest to sell

Cons

  • Maintenance is more expensive
  • Lots of capital is required to develop a diversified portfolio

Condominium/Townhouse/Co-op unit

Single unit condos and townhouses have similar investment characteristics as single-family homes. Co-op units are similar, but may have additional community regulations for owners and tenants.

Pros

  • Generally less expensive
  • More urban opportunities
  • Condo association pays maintenance

Cons

  • Condo or co-op association fees and assessments
  • Co-op board must approve tenants (but not condo boards)

Fix and flip

A fix and flip involves buying a house that needs updating, making renovations, and then selling quickly (hopefully for a profit).

Pros

  • Potential for a quick profit
  • Flipping looks so fun on HGTV
  • Get paid for sweat equity

Cons

  • Unanticipated renovation costs
  • It could take longer to renovate or sell
  • Carrying costs if the home doesn’t sell

Multi-family (2-4 units)

Multi-Family Housing contains independent dwellings from more than one family. This could be a duplex (2 units), a threeplex (3 units), a fourplex (4 units) or an apartment building (5 more units).

Pros

  • Multiple monthly rents
  • You can be an owner-occupant and investor
  • Owner-occupied 2-4-unit buildings can be financed with lower down payment loans

Cons

  • Increased landlord responsibilities
  • Maintenance more expensive
  • Apartment buildings (5+ units) are financed by an apartment loan

Manufactured/Mobile/Tiny homes

A manufactured home is ready once it leaves the factory. A mobile home is a standard sized trailer which is placed in one location.

Pros

  • Inexpensive
  • Lower maintenance
  • Easier to purchase multiple units

Cons

  • Lower rent
  • Hard to finance
  • Higher tenant risk

Commercial buildings

Commercial buildings house businesses such as offices, retail stores, restaurants, etc.

Pros

  • Comes in many sizes and purposes (office complex, shopping center, medical building, industrial, warehouse, etc.)
  • Multiple monthly rents and flexible lease terms (e.g., tenants pay maintenance)
  • Objective standards for valuation
  • Tenants have strong incentives to maintain the property

Cons

  • Increased landlord responsibilities
  • Requires professional help to maintain property
  • Specialized commercial loans which may require a personal guarantee (recourse)
  • Large down payment

PASSIVE REAL ESTATE INVESTING OPTIONS FOR HANDS-OFF INVESTORS

Real Estate Investment Trusts (Publicly traded REITs)

Pros

  • Funds must pay out at least 90 percent of income in dividends
  • Publicly traded – easy to buy and sell during market hours
  • Own real estate without the headaches of managing it

Cons

  • Need to invest in many REITs to have a diversified REIT
  • Stock market risk
  • Requires faith in management to pick the right properties
  • Rising interest rates affect profitability

Mutual funds and exchange traded funds (ETFs)

Pros

  • Actively managed or passive index funds available
  • Diversification across real estate sectors
  • Publicly traded – easy to buy and sell during market hours
  • Own real estate without the headaches of managing it

Cons

  • Mutual fund trading can pass unexpected capital gains to shareholders
  • Stock market risk
  • Requires faith in portfolio manager if buying actively managed
  • Management fees

Crowdfunding sites

Crowdfunding sites match real estate investors looking for funding for their real estate project with investors looking to invest.

Pros

  • Invest in real estate loans
  • Crowdfunding site does the underwriting
  • Easier to build a loan portfolio

Cons

  • Poor investor protections/higher potential for fraud
  • Hidden fees
  • Loan risk and bankruptcy risk

Private placements – REITS and Real estate limited partnerships

Higher net worth (“accredited”) real estate investors have access to private real estate funds through private placement.

Pros

  • Potentially higher dividends or net income
  • Diversified portfolio of properties or loans
  • Funds which specialize (e.g., hospital properties, manufacturing, apartments, etc.)

Cons

  • Only available to higher net worth investors
  • High fees
  • Illiquid

Know your exit strategy before you invest

When investing in real estate, you must begin with the end in mind — before you even make an offer or purchase a fund, you need a plan for if and when you will dispose of your investment.

Decide ahead of time under what circumstances you will sell — after a certain number of years? Once the property has appreciated a certain amount? When you need the capital for something else? It’s important to establish this up front so that you aren’t at risk for emotional selling.

No matter what type of investor you are, or what type of property you would like to buy, if a short-term loss of value is something that would cause you to “cut your losses” and liquidate, you may not yet be ready to invest in real estate.

 

 

 

Are You Ready To Invest In Real Estate?

May 22, 2018

Owning homes, apartments or commercial buildings can be an excellent source of current and future income. Rental properties can help diversify your portfolio, generate cash flow, and build your overall net worth. However, successful direct investment in real estate, such as buying residential or commercial properties, or making a private investment in a fund which does, requires that you know the financial risks as well as opportunities and are in a good position to take them.

To know if you’re truly ready to invest in real estate, here are some questions you should ask yourself:

Why are you investing?

Make sure you know why you are looking to invest in real estate. Typical reasons include:

  • Wanting to own your own real estate business
  • Rental income
  • Investment gains through “flipping” (buying a property, improving it, then selling it quickly)
  • Buying a vacation home both for your use and for rental
  • Portfolio diversification

What type of real estate investment are you targeting?

The type of real estate investment you choose depends on your ultimate goals, your tax situation, your capacity for financial risk and your net worth. There are many ways to invest directly in real estate, such as single-family homes, 2-4 unit buildings, apartment buildings and commercial buildings. There are also privately managed real estate investment funds, such as real estate investment trusts and limited partnerships, where you can invest in a diversified portfolio of properties. To dive deeper into types of real estate investments, see this article on what to look for in an investment property.

Do you have the cash?

You’ll need a fair amount of cash, a good credit score and a stable financial position to invest directly in real estate. Make sure you have:

  • Zero credit card or other high interest debt
  • Cash for the down payment (typically 30 percent for an investment property)
  • Additional cash savings to cover any property improvements
  • Cash savings to cover a minimum of one year of the property expenses (taxes, utilities, property manager, maintenance, etc)

Realistically, to invest in and maintain a $200,000 property, you’ll need at least $60,000 – $80,000 in cash savings. To evaluate if you are financially ready to invest directly in rental real estate take this quiz.

How will you finance the purchase?

Investment property mortgages are generally not insured, so buyers are expected to put down 20-30 percent of the property’s value as a down payment. The FHA and Freddie Mac do have lower down payment mortgage programs for owner-occupants of multi-family properties, so check those out if you’re planning to live in the building.

You’ll need a high credit score (740 or above) to get the best mortgage interest rates. Before you speak to a lender, check your credit scores for free at annualcreditreport.com or an app like Credit Karma and if needed, take steps to try and improve your credit score quickly.

Are you able to accept the risks?

While real estate investments can help you build your net worth and generate income, there are substantial risks. Make sure you’re protected. Risks include:

  • Market risk – the real estate market is unpredictable and has a slow cycle
  • Vacancy risk – the property doesn’t rent or rents for less than you projected
  • Liquidity risk – you can’t sell the property or your share of the investment fund easily
  • Location risk – you pick the wrong location or something happens which changes location value
  • Diversification risk – you don’t have enough capital to build a diversified real estate portfolio
  • Tenant risk – your tenant doesn’t pay the rent or trashes the place
  • Legal risk – you face litigation from a tenant, neighbor or local government

What’s your exit strategy?

You can’t walk into an investment like this with the mindset of, “I just want to make as much money as possible.” That’s a recipe for disaster. Before you invest, make sure you begin with the end in mind with a clear picture of what your exit strategy will be.

Under what circumstances would you sell your investment? How much time will you give it? What does success look like, e.g., rental income, appreciation, etc.? When would you want to cut your losses if they occur? This is a very important and often overlooked step in the process, but it can make a big difference in the ultimate success of your venture.

Not sure if you’re ready yet?

If you’ve evaluated your situation and real estate knowledge and decided you’re not quite ready to be a hands on investor in real estate, that does not mean you must refrain from all real estate investments. If it fits your financial situation, you can invest in real estate mutual funds or exchange-traded funds (ETFs) in your retirement or brokerage accounts. That way you’ll still be exposed to the diversification that real estate provides, without exposing yourself to the financial risks you’re not ready to take.

Let’s Stop Calling Student Loans ‘Financial Aid’

May 03, 2018

One of the more common calls we take on our Financial Helpline these days is young professionals looking for guidance on paying down massive student loans. One recurring theme we’ve noticed is that many of these people didn’t actually understand what they were getting into when they accepted these loans. They had completed the Free Application for Federal Student Aid (or the FAFSA), which by its very name leads you to believe that it’s “aid” you’re receiving and not just a loan application in many cases. This leads me to state what seems obvious, but is often missed in this process: student loans are NOT financial aid. They are a financing mechanism. Those are two different things.

Defining ‘financial aid’

What is financial aid? Aid is money directly applied to reduce the tuition and related costs of a college education that does not have to be paid back if the conditions of receiving the aid are met. For those families with a zero or low expected family contribution (EFC) as determined by the FAFSA formula, they may be eligible for federal student aid in the form of a Pell Grant up to the annual limits. For those Pell-eligible students, their university may also determine that they are eligible for a Federal Supplemental Educational Opportunity Grant of $100-$4000. There is also a federal work study program where the student can earn money to cover books and incidental expenses.

Some colleges and universities offer additional direct aid, either needs-based or merit aid (scholarships). Keep in mind that non-federal aid, especially merit-based aid, often requires that the student maintain a certain grade point average (GPA) in order to be eligible. In general, the lower the family’s EFC, the more likely the student is to be eligible for direct, needs-based financial aid.

When not enough aid is offered (if any)

However, direct aid is often not enough to cover the full cost of tuition, housing and expenses, and the student and/or parents are offered the choice of borrowing the difference. Most university financial aid departments describe student loans as financial aid, but yet a loan is something that has to be repaid by the borrower. Even studentaid.ed.gov, the federal website on student loans, describes federally-backed student loans as something to, “help cover the cost of higher education.” It would be more accurate to say, “finance the costs of college or career school.”

The different types of student loans

Under certain circumstances, Federal Direct Student Loan interest may be subsidized, meaning that interest accrued on the loan is paid while the student is in school. There are also federally backed PLUS loans for parents with good credit. In addition, a parent or student may seek a private loan through a bank to meet financing requirements.

In almost all cases, the borrower must repay the loan plus interest. There are certain exceptions such as loan forgiveness for students who enter public service. Student loans stick with the borrower forever and generally cannot be discharged in bankruptcy. According to a U.S. News and World Report study, 68.8% of students who graduated in 2014 have student loan debt, with an average balance of $28,077.

Let’s call that for what it is – financing. That’s not aid. So what can students and parents do to maximize their eligibility for aid, as opposed to just financing?

Maximizing your eligibility for receiving aid

Start the financial aid application process early. Create your FAFSA ID and begin assembling a file as soon as financial aid season opens, which is October 1st of the year prior to your student starting the school year. Earlier is better, especially for applying for merit-based aid and scholarships. Your target school may have internal deadlines that are sooner than federal deadlines.

Run some numbers, and discuss them with your student. You can forecast your expected family contribution and even run a net price calculation for a particular college. Make sure your student fully understands the costs of college and what borrowing will mean for your child’s financial future.

Cast a wide net. Financial aid officers say that the most merit aid goes to students who will be in the top 25% of their class in terms of grades and test scores. Your student may get a much better financial aid package, with more aid and less loans, from a good school where they are a strong recruit. It’s normal for a student to fall in love with their top school, but if their second choice gives them a much better deal, that is well worth considering. Check out these tips for maximizing merit aid.

Research alternatives for paying for college. It pays to do your homework. Websites like Fastweb.com and ScholarshipExperts.com are helpful online tools. Check out your school’s guidance department, your local library, and community organizations for additional resources.

Most importantly, judge a financial aid package offered to your student by the amount of actual aid, not including student loans. Let’s stop calling student loans “financial aid.” After all, would you rather get a gift or a loan?

 

 

6 Ways To Make The Most Of Your Workplace Financial Wellness Benefit

April 17, 2018

As an unbiased financial wellness coach, one of my personal missions is to help people realize that much of what they need to make the most of their finances is available through work by using their financial wellness benefit. Many of the employees I talk with via the Financial Helpline aren’t even aware of the full suite of benefits they have. Even if you don’t work for a company that offers our programs, chances are you have some type of benefit that can help.

What can you do with a workplace financial wellness benefit? A lot – and it doesn’t cost you a dime to get help tackling your debt, getting ready to buy your first home, running a retirement projection or understanding the difference between a Roth and Traditional 401(k). You may have access to a wide range of resources, including financial coaching, workshops, webcasts, peer-to-peer groups and online learning tools, all paid for by your employer.

Even just using your benefit may put you in better financial shape

What’s the upside of participating over time? Our research found that those employees who were repeat users of their workplace financial wellness programs had higher overall financial wellness, were better prepared for retirement, managed their cash flow more effectively and were more comfortable with their debt levels. Here’s a summary of the progress participants made between taking their first financial wellness assessment and their most recent one:

1st assessment Last assessment
I have a handle on my cash flow. 67% 77%
I have an emergency fund to cover unexpected expenses. 51% 59%
I check my credit report on an annual basis. 54% 71%
I am on track to reach my income goal in retirement. 18% 39%
I feel confident that my investments are allocated appropriately. 31% 51%
I have taken an investment risk tolerance assessment. 43% 65%
I rebalance my investment accounts to keep my asset allocation plans on track. 33% 58%
I carry enough life insurance to replace my income. 46% 60%
Average overall Financial Wellness score 4.85 5.96

6 ways you can take advantage of the benefit

1. Find a financial mentor

Navigating financial issues has become increasingly challenging, with employees facing more and more complex decisions about health insurance, tackling debt and student loans, saving for retirement and balancing competing priorities. A workplace financial wellness coach can help guide you through all that “life stuff,” helping you understand your options, weigh the pros and cons of each and assess the impact on your financial trajectory.

Depending on your company’s financial wellness program, you may be able to talk to someone on the phone and/or in person. That coach becomes your financial mentor – someone to cut through all the jargon and help you clarify the actions needed to move you towards your most important goals.

Mentoring from a financial coach is different from advice. A financial mentor empowers you to make wiser, more confident financial decisions for yourself. Questions to ask your financial coach/mentor include:

  • Can I speak to you on the telephone, in person, or both?
  • Can I email you my questions?
  • Is there any limit to how many times we can work together?
  • Do you have a professional designation, such as the CERTIFIED FINANCIAL PLANNER™ designation or CPA credential?
  • Is this completely unbiased with no sales pitch?

Heads up: make sure that your financial coach is truly unbiased and isn’t just trying to use the phrase “financial wellness” to sell you investments, insurance or anything else. A real financial wellness program won’t sell you anything.

2. Grab a life line

If you are living paycheck to paycheck or feeling overwhelmed by bills, your financial wellness program can help. Debt and cash flow issues are primary drivers of financial stress. Reach out to a financial coach, who can brainstorm with you on ways to get a handle on your cash flow to free up resources to tackle debt and save for emergencies.

Many companies who offer workplace financial wellness programs encourage employees seeking retirement plan loans and hardship withdrawals to talk through the advantages and disadvantages with a financial coach and work through alternatives, if there are any. You’ll find that your financial coach or credit counselor listens without judgment, offers a practical process for coping with financial stress and anxiety as well as achievable action steps. That can be a lifeline when financial stress has become unmanageable.

3. Maximize your benefits choices

If you aren’t taking full advantage of your employer-sponsored benefits, you could be leaving as much as $1 million on the table over the course of your career. Before you make your benefits elections during open enrollment this year, schedule some time with one of your workplace financial wellness program’s financial coaches to do a complete benefits review with you, asking these kinds of questions:

  • Am I earning the full employer match in my 401(k) or 403(b) plan? How can I contribute more? Should I sign up for the automatic rate escalator?
  • What health insurance plan makes the most sense for me? How can I get the most out of it?
  • Am I leaving any money on the table in benefits I could be using?
  • Am I taking full advantage of all the ways to minimize my taxes?
  • Am I making the best use of the insurance benefits my employer offers?
  • Should I put more in a health savings account and/or a flexible spending account?
  • Can you help me understand all my voluntary benefits (e.g., legal, commuter, tuition, etc.)?
  • Can you help me calculate the value of my benefits as part of my overall compensation?

4. Run a retirement projection

Have you run a retirement projection yet? If not, you’re not alone. Half of all employees (51 percent) in 2016 didn’t know if they were on track or not for a comfortable retirement and only about one in four (27 percent) knew they were on track to reach their goals. Those who interacted with their financial wellness program over time, however, were nine percentage points more likely (58%) to have run a retirement projection and 11 percentage points more likely to be on track (38 percent).

The single most important step

The simple act of running a retirement projection may be the single most important step you can take to reach your retirement goals, per our research. If you find out you’re on track, this will reduce your financial stress and increase your confidence that you can meet your retirement goals on time or sooner. If you find out you’re not on track, you have the opportunity to change your saving or investing or adjust your assumptions, such as your target retirement date and how much you’ll need for expenses.

5. Get an unbiased second opinion on your investments

There are lots of great financial advisors out there, but there is also a small percentage that just wants to charge you high fees or worse, make off with your money. An unbiased financial wellness benefit – where there is zero selling of products or services – offers you the opportunity for a second opinion on your financial plan or investment proposal.

A financial coach can help you work through questions to ask your financial advisor and help you evaluate if your advisor’s recommendations fit your risk tolerance, time horizon and financial circumstances. They can help you check the credentials of any financial advisor you are considering hiring. Plus they should be able to help you understand the investment choices in your retirement plan in light of your financial goals and situation.

Remember, most financial wellness providers cannot offer you investment advice. They can’t tell you what to do. Rather, they can assist you in understanding your options and empower you to make the wisest choice for your situation.

6. Measure your progress

Making financial progress is a lot like losing weight. Getting physically or financially fit are both about making small changes in your behavior which you can sustain over a long period of time – preferably for life. The people who are the most successful are those who set a benchmark and track their progress.

If your financial wellness program offers you a tool for assessing where you start and a mechanism for tracking your progress, make sure to use it at least once per year. Check if your employer offers peer-to-peer learning opportunities (e.g., women and money, new employees group, etc). These offer accountability and encouragement. Having the support of a group of like-minded people is like having your personal cheerleading squad, and you’ll be more likely to “weigh in” on a regular basis.

Not every workplace financial wellness program is a true workplace financial wellness benefit, but it still may be able to help. Some companies only offer online tools, while others offer comprehensive programs which include unlimited 1 x 1 coaching. Check with your HR department on what’s available to you and how you can take advantage of it.

How To Be A Skating & Hockey Mom Without Going Broke

January 15, 2018

If you’re reading this, chances are you are you can relate to the way I spend many of my weekends: bundled up, bad cup of coffee in hand, watching your child skate at a ridiculously early hour of the morning. You’ve just paid a coach $80 for a private lesson and the rink more for the ice time. The team fees, tournament fees, lessons, extra ice time, skates, travel costs, equipment and apparel for your hockey player or figure skater are growing more expensive by the day.

Many of our rink friends are like us, juggling hockey and skating schedules for multiple children. Realistically, can you pay for all of this and still have enough to retire or send the kids to college? Here’s how we do it.

Buy used

Consignment and resale websites are the rink parent’s secret weapon in managing the high costs of their children’s sports.

  • I buy many of my daughter’s figure skating dresses from other skate moms whose kids have outgrown them. We find them from her coach, or at competitions for her synchronized skating team.
  • Skating tights can run $18-$25 per pair at the skate shop – but only $15 on BrokeSkateMom.com.
  • I’ve purchased much of my son’s hockey equipment on consignment. I use two local stores but you can find used equipment online at sites like Sideline Swap.
  • Look for hand-me-downs. Your child needs good skates ($300-$500) but they are growing out of them every six months! Find a parent with a child 1-2 years older and buy their used skates or hockey equipment. You’ll save hundreds. “Have three children that play and pass down equipment,” quipped the hockey mom of three, Kirsten Bennett Neville.
  • Buy helmets new though, recommended hockey parent Alison Cafferty. “I always get the best because the concussion rate is so high.”

Take advantage of public skating and open stick time

The more time your child has on the ice the more powerful of a skater they become. Both hockey players and figure skaters can benefit from unstructured practice time, independent of games or freestyle sessions. Public skating sessions ($6-$15) and open stick time ($15 – $25) are inexpensive ways to boost ice time. I skate with both my kids and my husband Steve goes to open stick time with my son so we get lots of family time on the ice as well.

Put the math to your sacrifice

I won’t kid you: hockey and figure skating are expensive sports. A fellow synchro parent wrote me recently that they had spent nearly $8,000 last year on individual figure skating and team costs – and their daughter’s only been skating for a few years. “Be realistic about how far your kid will go. Put the math to your sacrifice,” suggested fellow planner Brian Kelly, who coaches and plays hockey. “What percent make it to the NHL or to professional figure skating?”

It’s difficult to keep the cost of hockey down,” says veteran hockey mom Wendy Wippert Klein. “This is due to the fact that the biggest cost is ice time.” The same goes for figure skating, where competitive skaters practice in “freestyle” ice sessions ($12-30/hour), which is ice time devoted to more advanced skaters who can use the full rink for jumps and spins.

My friend Michelle York, whose son is a promising goalie at the AAA Squirt level, said she has “dished out approximately $10k this season in membership fees, tournament costs, hotel and gas.” Michelle sets a budget for the year and has these tips:

  • Choose an organization that has complementary clinics. (That’s a side benefit, too, of my daughter’s synchro team.)
  • Book semi-private instead of private lessons. Sometimes your child will be the only one who shows up to that semi-private slot!
  • Weigh the pros and cons of playing at an elite level when your child is young. It’s a lot of money and pressure.

Beyond that, a few more things to consider:

Skip the pictures

Hockey tournaments and figure skating competitions always seem to have a photography service, taking individual photos and video of all the athletes. Skip the $100 packages and take your own photos and video.

Accept that you may not be going to Disney anytime soon

If your child is dedicated to an ice sport, there are going to be some financial trade-offs. Make sure your child understands that you can’t have it all. Your family may have to choose a less expensive vacation or car so that the kids can play what they love  Show them your sports budget and discuss the trade-offs it entails.

Follow your child’s lead

Follow your child’s lead on the level participation they are ready to handle. Don’t be the Crazy Sports Parent, as tempting as it is! My teenager, for example, skates for herself – not to make her parents happy. She is compelled to practice daily if she fit it around school. My primary school son plays for fun, but he’s not ready to skate every day – and may not ever be.

Remember the benefits of ice sports

There are wonderful benefits to ice sports, though. Cafferty and Klein say it’s been worth every penny. “My son’s commitment and love of the game keep him on the straight and narrow, off all social media, good grades and incredibly health conscious,” she shared. Klein agreed, “Our out of town tournaments are our vacations. I wouldn’t have it any other way.” As someone who spends most early mornings, evenings and weekends at the rink watching at least one child skate, I agree.

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7 Steps You Can Take To Adapt To The New Tax Law

January 08, 2018

Tax laws have just changed, and that is likely to affect you. Whether your see a net benefit in your paycheck (which I hope you do) or end up paying more is a function of personal factors like your mix of income sources, your overall income, what you currently deduct, how many children you have and where you live. Here are some steps you can take now to adapt to the new law:

Step One: Run a tax projection

How will the new tax legislation affect you? Will your taxes go up or down? The only way to know for sure is to run a tax projection – an estimate of what your tax return will look like for 2018. Several sites have tax projection calculators up now which incorporate proposed major changes, including CalcXML, CNN, and MarketWatch.

If you’ve got a complex situation and you think you may owe more or need to make estimated tax payments, consider asking your accountant to run a “pro-forma” tax projection early in 2018 to gauge your tax liability for the remainder of the year.

Step Two: Update your tax withholding

You may need to withhold more or less going forward. Unfortunately, it’s going to take some time for payroll departments – and the IRS – to put out new forms and rules. If you think you may owe less in taxes, keep your withholding allowances the same for now until the withholding guidelines are updated. You may not need to make any changes to see more in your paycheck once your payroll department has implemented the new standards.

If you think you may owe more, consider reducing your withholding allowances. Remember, it’s better to overpay and get a refund than underpay and get penalized. When updated for the new law, use the IRS withholding calculator to estimate how many withholding allowances you should claim for the remainder of the year. Contact your payroll department to change your elections (Form W4) if needed.

Step Three: Losing employer-subsidized commuter benefits? Increase your own contribution to your commuter account

The GOP tax plan eliminates the tax incentive for private employers that subsidize their employees’ transportation, parking and bicycle commuting expenses. If you’re using this benefit and your company has been paying for all or some of it, make sure you increase your contribution to your commuter account. Your contributions will still be pre-tax. The max is $255 per month.

Step Four: Consider the impact on buying or selling a home

The deduction limit for mortgage interest drops to $750,000 of debt on your primary residence. If you have a larger mortgage and are planning to stay in your home, no worries. It remains $1 million for homes purchased before Dec. 15 of 2017.

However, if you are buying a new home, a jumbo mortgage is not as financially attractive. Thinking about a vacation property or second home? Your mortgage interest will not be deductible over the limit of $750,000, including your primary residence.

If you are selling your primary residence, you can still exclude up to $500,000 for joint filers or $250,000 for single filers of capital gains if you have lived in the residence for two of the past five years. Moving for work? You may no longer deduct your moving expenses.

Step Five: Review the Roth/pre-tax decision

Generally, the lower your income tax rate and the further away you are from needing your savings in retirement, the more sense it makes to contribute to a Roth 401(k) and/or a Roth IRA.  However, if you’re losing itemized deductions with the new $10,000 cap on deducting state and local taxes (SALT), run some numbers to see if a pre-tax 401(k) contribution can help lower your tax rate. Conversely, if you don’t itemize and the standard deduction exceeds what you could take in previous years, it may make more sense to change from pre-tax to Roth. Compare your two options with this calculator once the new rates are incorporated.

Step Six: Rethink home equity loans

The deduction of interest on home equity loans has been suspended through 2025 unless the loan is used to substantially improve your home. This can make home equity loans more expensive. You may want to think twice before taking out a home equity loan and perhaps give higher priority to paying off existing ones.

Step Seven: Rescue your 401(k) loan if you leave your job

Up until now, if you left – or lost – your job while you had a 401(k) loan outstanding, any unpaid loan balance would be taxable and penalized at an additional 10 percent. Under the new law, it appears that you have until the April filing deadline to basically contribute the unpaid balance to an IRA and call it a rollover.

For example, if you had a $2,000 loan balance outstanding when you left your job in June, you would have until the following April to contribute $2,000 to an IRA rollover in order to avoid the income taxes and additional 10 percent penalty. That’s a good deal if you can find the money

Keep reading. There’s more in the tax bill that will have implications for individual taxpayers. If your income is complex or you have questions about your personal situation, please consult a professional tax advisor.

This post was originally published on Forbes.