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Financial Planning: Helping You See The Big Picture

As a financial planner, it always shocks me to hear some of the reasons people have for not having a financial plan in place.

“I don’t have enough money yet”

“I’m too young”

“It’s too expensive”

The question I usually respond with is: “Do you picture yourself owning a new home, launching a business, starting a family or retiring comfortably?”  These are just a few of the financial goals that may be important to you, and each comes with a price tag.

This is where financial planning comes in. Financial planning helps you target your goals by evaluating your whole financial picture and outlining strategies that are tailored to your individual needs and available resources.

Why is financial planning important?

A financial plan serves as a framework for organizing all of the pieces of your financial life. With a financial plan in place, you'll be able to focus on your goals and understand what it will take to reach them.

One of the main benefits of having a financial plan is that it can help you balance competing financial priorities. A financial plan will clearly show you how your financial goals are related--for example, how saving for your children's college education might impact your ability to save for retirement. Then you can use that information to decide how to prioritize your goals, implement specific strategies, and choose suitable products or services. Best of all, you'll know that your financial life is headed in the right direction.

The financial planning process

Creating and implementing a comprehensive financial plan generally involves working with financial professionals to:

 
  • Develop a clear picture of your current financial situation by reviewing your income, assets, and liabilities, and evaluating your insurance coverage, your investment portfolio, your tax exposure, and your estate plan

  • Establish and prioritize financial goals and time frames for achieving these goals

  • Implement strategies that address your current financial weaknesses and build on your financial strengths

  • Choose specific products and services that are tailored to help meet your financial objectives

  • Monitor your plan, making adjustments as your goals, time frames, or circumstances change

 

Why can't I do it myself?

If you have enough time and knowledge - you absolutely can. Keep in mind that developing a comprehensive financial plan typically require expertise in several areas. It is also difficult to give yourself objective advice. A financial professional can give you, fact-based information and help you weigh your alternatives, saving you time and ensuring that all angles of your financial picture are covered.

Staying on track

The financial planning process doesn't end once your initial plan has been created. Your plan should be reviewed at least once a year to make sure that it's up-to-date. It's also possible that you'll need to modify your plan due to changes in your personal circumstances or the economy.

Common questions about financial planning

 

What if I'm too busy?

Don't wait until you're in the midst of a financial crisis or 10 years out from retirement before beginning the planning process. The sooner you start, the more options you may have.

Is it expensive?

This a typical assumption based on some stereotypes that are quickly becoming outdated. If you envision an older man in a fancy office who profits off the financial products you buy — well, it’s probably time to take another look. We’ve redesigned the cost to be more affordable for the younger generations. 

Is the financial planning process complicated?

Each financial plan is tailored to the needs of the individual, so how complicated the process will be depends on your individual circumstances. But no matter what type of help you need, the goal is to make the process as easy as possible.

What if my spouse and I disagree?

This is more common than you would think, but I’ve been trained to listen to your concerns, identify any underlying issues, and help you find common ground.

 

Conclusion

Your financial health — just like the physical or mental kind — takes time and effort. We all have financial goals and, in many cases, there are several that require our attention at any given time. Having a well-designed financial plan in place will help you navigate those important decisions and keep you on track. By starting earlier in life, you have the advantage of time. Don’t let your “fears” stand in the way of making real progress.

As a financial planner, my goal is to make every effort to help you make smart financial decisions and hopefully avoid making crucial mistakes. I’m invested in your success. If you’re on the fence, please reach out and ask me questions.

Take Charge of Your Student Debt Repayment Plan

Student loans are a lot like a ball and chain, slowing down what could be a perfectly good financial plan. Outstanding student loan debt in the United States has tripled over the last decade, surpassing both auto and credit card debt to take second place behind housing debt as the most common type of household debt. Today, more than 44 million Americans collectively owe more than $1.4 trillion in student debt. Here are some strategies to pay it off.

Look to your employer for help

The first place to look for help is your employer. While only about 4% of employers offer student debt assistance as an employee benefit, it's predicted that more employers will offer this benefit in the future to attract and retain talent.

Many employers are targeting a student debt assistance benefit of $100 per month.3 That doesn't sound like much, but it adds up. For example, an employee with $31,000 in student loans who is paying them off over 10 years at a 6% interest rate would save about $3,000 in interest and get out of debt two and a half years faster.

Understand all your repayment options

Unfortunately, your student loans aren't going away. But you might be able to choose a repayment option that works best for you. The repayment options available to you will depend on whether you have federal or private student loans. Generally, the federal government offers a broader array of repayment options than private lenders. The following payment options are for federal student loans. (If you have private loans, check with your lender to see which options are available.)

 

Standard plan: You pay a certain amount each month over a 10-year term. If your interest rate is fixed, you'll pay a fixed amount each month; if your interest rate is variable, your monthly payment will change from year to year (but it will be the same each month for the 12 months that a certain interest rate is in effect).

Extended plan: You extend the time you have to pay the loan, typically anywhere from 15 to 30 years. Your monthly payment is lower than it would be under a standard plan, but you'll pay more interest over the life of the loan because the repayment period is longer.

You have $31,000 in student loans with a 6% fixed interest rate. Under a standard plan, your monthly payment would be $344, and your total payment over the term of the loan would be $41,300, of which $10,300 (25%) is interest. Under an extended plan, if the term were increased to 20 years, your monthly payment would be $222, but your total payment over the term of the loan would be $53,302, of which $22,302 (42%) is interest.

Graduated plan: Payments start out low in the early years of the loan, then increase in the later years of the loan. With some graduated repayment plans, the initial lower payment includes both principal and interest, while under other plans the initial lower payment includes interest only.

Income-driven repayment plan: Your monthly payment is based on your income and family size. The federal government offers four income-driven repayment plans for federal student loans only:

 
 
  • Pay As You Earn (PAYE)

  • Revised Pay As You Earn (REPAYE)

  • Income-Based Repayment (IBR)

  • Income-Contingent Repayment (ICR)

 
 

You aren't automatically eligible for these plans; you need to fill out an application (and reapply each year). Depending on the plan, your monthly payment is set between 10% and 20% of your discretionary income, and any remaining loan balance is forgiven at the end of the repayment period (generally 20 or 25 years depending on the plan, but 10 years for borrowers in the Public Service Loan Forgiveness Program). For more information on the nuances of these plans or to apply for an income-driven plan, visit the federal student aid website at studentaid.ed.gov.

 

Can you refinance?

Yes, but only with a new private loan. (There is a federal consolidation loan, but that is different.) The main reason for trying to refinance your federal and/or private student loans into a new private loan is to obtain a lower interest rate. You'll need to shop around to see what's available.

If you refinance, your old loans will go away and you will be bound by the terms and conditions of your new private loan. If you had federal student loans, this means you will lose any income-driven repayment options.

Watch out for repayment scams

Beware of scammers contacting you to say that a special federal loan assistance program can permanently reduce your monthly payments and is available for an initial fee or ongoing monthly payments. There is no fee to apply for any federal repayment plan.

Still Need Help?

Student loans can be complicated and can have a significant impact on your long-term financial success. It’s important to develop the right plan for your unique situation. Don’t let your student loan debt derail your financial progress Contact Us for a free consultation.

How Accurate is Your W-4 Withholding?

As you are probably aware, in most cases federal income taxes are withheld from your paychecks. But did you know just how much control you have over the amount that is actually being withheld? In this blog post we’ll discuss the importance of having an accurate W-4 holding, including how recent changes to the tax code present a unique situation for taxpayers in 2018.

W-4 Breakdown

Let’s start with how the W-4 actually works. In a nutshell, your employer adjusts your gross pay and calculates how much federal income tax to withhold from your paycheck based on the withholding allowances you claim on Internal Revenue Service (IRS) Form W-4 (Employee’s Withholding Allowance Certificate). Each allowance you claim exempts a portion of your income from federal tax withholding and thereby increases what you receive in your paycheck. So, if you claim too many allowances, not enough tax will be withheld from your paycheck, and you will owe the IRS come April 15. If you claim too few allowances? An unnecessarily high amount of tax will be withheld from your paycheck, and you will get a tax refund.

Of course, no one wants to get hit with a large tax bill. But getting a tax refund is not necessarily a better option. It simply means you have paid more than your share in federal income tax and essentially have given the federal government an interest-free loan. As such, the optimal result from a cash flow and financial planning standpoint is to land right in the middle: maximizing income received in each paycheck without owing additional taxes when you file.

Time to check your W-4 Withholding

Best practice is to review your W-4 annually. It is especially important to check when you experience a major life event, such as marriage, birth or adoption of a child, a spouse getting or losing a job, or a significant pay raise or pay cut. Each of these events can directly affect the amount of tax you will owe. This year presents a unique situation, however, because the implementation of the Tax Cut and Jobs Act means that everyone’s tax situation has changed in 2018. With seven new income tax brackets, many people, making the same income in 2018 that they did in 2017, will find themselves in a lower tax bracket. This means more money in their paychecks in 2018 compared with 2017. The new tax law also increased the standard deductions across the board and eliminated miscellaneous itemized deductions.

So what does this mean to you?

The amount you will owe in federal income tax, the deductions you will be able to take, and the amount that should be withheld from your paycheck will have all likely changed.

Finding your “Sweet Spot”

The simplest and most accurate way to determine your appropriate W-4 withholding election is to use the IRS Withholding Calculator, available on the IRS’s website. Keep in mind that this calculator is designed for most taxpayers.

The calculator will ask for your filing status, your family situation, your income, your current withholding, and other information that could affect your 2018 taxes. If the calculator recommends adjusting your withholding, there’s no need to wait! You can adjust your W-4 withholding with your employer at any time, and the change will be reflected in your future paychecks.

Want to learn more?

Of course, this is a general discussion of ensuring accurate W-4 withholdings. If you have additional questions or would like more in-depth information about your withholding, feel free to reach out to me for a free consultation.

 

2018 Commonwealth Financial Network®

Building Your Budget: Start With The Basics

A budget is an estimate of income and expenses for a set period of time. Creating a budget can help you get control of your finances and achieve important financial goals, including buying a car, saving for college, purchasing a home, and providing for a family. It can also be beneficial in meeting unexpected financial challenges, such as losing a job. Honestly I know this doesn't sound fun or exciting, but budgeting will help you improve every aspect of your financial life, and the earlier you begin, the better off you’ll be.

Write down your financial goals.

Before you start evaluating how much you can actually save each month to achieve your important goals, you should consider setting some near-term financial goals. This is essential to tracking your progress. So you need to:

 

· Determine what percentage of your paycheck you would like to save.

· Decide how much money you would like to save each month or how much money you need to save in order to achieve one of your longer-term financial goals.

· Consider how much money you want to allocate to future purchases, as well as how much you want to contribute to an emergency fund and a retirement plan.

 

Whether your goal is to put away a couple of hundred—or a few thousand—dollars every year, you need to know what that amount is. Once you have a realistic idea regarding how much you’d like to save, review the steps below, which can help you determine precisely how much you actually can save.

Next Steps

 

1. Track your income for a month. Figure out how much you make per month. Think in terms of your net income, that is, the amount of money you actually take home (i.e., your net pay) after federal, state and local taxes; contributions to employer-sponsored health insurance; and so forth have been subtracted from your gross pay.

2. Track your expenses for a month. This is the most important step to budget creation. You should record every purchase you make—without exception. No dollar should escape accountability. If you bank online, it is extremely easy to track noncash expenses and debit card charges by simply exporting the information from your user login to a spreadsheet.  

3. Create spending categories. Split your expenses into luxury items and necessities. Necessities would include rent, groceries, car payments, insurance, utilities, and so on. Luxuries would include dining out, entertainment, and other unnecessary items (e.g., extra trips to Starbucks).

To be safe, you should include your saving goal as a necessary item, so you would be less likely to sacrifice saving for other luxuries. Excel is a wonderful tool for this because you can color code your expenses, making it more obvious to tell which type of expense is which.

4. Evaluate your budget. This is the final step in budget preparation. Take a good look at your expenses. Do you see numerous luxury items that you can live without? One benefit to having expenses displayed on an electronic spreadsheet is the ability to make quick and easy calculations. You can set limits on your spending based on the results of your calculations. 

 

Besides preparing yourself for big purchases later in life, your budget can help save you from going into debt in the event of an emergency that requires you to unexpectedly spend a large amount of money.

Check your budget frequently

Keep in mind that it’s important to check your budget frequently to be aware of any changes that may have occurred in your financial situation. Every three months is a good rule of thumb for tracking your spending habits. Not doing so could result in overspending, under saving, and therefore delaying your big financial goals.

What are you waiting for? Get started now!

Now that you know how valuable a budget can be to your financial future and achieving your dreams, what are you waiting for? No doubt you’ll want to begin a savings program as soon as possible. Begin by considering the steps outlined here. Our Wealth Wise Plan program would provide you with personalized financial portal to help you track, monitor and improve your budget and cash flow situation. Contact Us today!