Personal Finance

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.

4 Tips for Secure Holiday Shopping

Although the holiday season is known for gift giving and good cheer, it’s also known for an increase in cybercrime and identity theft. Before you get a jump start on your holiday shopping, follow these four tips to ensure that you’re protecting yourself this season.

 

1.  Watch out for gift card scams.


Lately, there’s been an increase in gift card phishing scams. Typically, an attacker pretends to be someone you know and asks you to purchase a gift card on his or her behalf and e-mail back the redemption code. Don’t fall for this common scam.

 
 

2. Make smart decisions about your smart device.


Internet-connected home devices (e.g., smart security cameras, smart light bulbs, smart speakers, Amazon Echo, Google Home) are all the rage this year, but they may not be as secure as your typical “up-to-date” computer, potentially leaving them vulnerable to attacks. When setting up your new device, be sure to check out the settings or manual to enable any helpful security features it comes with.

 
 

3.  Check your online accounts manually—without clicking on links.


Holiday season is peak time for fake delivery notifications, order confirmations, and password reset e-mails. Rather than clicking on links from within the confirmation e-mail, open a new browser window and log in to your accounts that way.

 
 

4. Consider freezing your credit.


Don’t let identity theft ruin your holidays. Now that credit freezes are free, it may be worth placing a freeze on your credit file to prevent any unauthorized accounts from being opened.

 

If you have any questions about safe holiday shopping this year, feel free to call me at 919-463-0018.

Wishing you and your family happy holidays!

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®

Should You Consolidate Your Retirement Accounts?

If you’re like many of the young professionals I work with every day, myself included, you’ve probably had a few different jobs at this point in your career. In many cases you may have started saving for retirement using the available employer plan or even an individual retirement account (IRA). As you change jobs, it may make sense to consolidate all of your savings into one account to achieve a coordinated investment plan.

Why consolidate?

Consolidating your retirement accounts offers several potential benefits:

 

Less administrative hassle. You’ll receive just one account statement, making it easier to keep track of your funds. Consolidating your accounts also simplifies required minimum distribution calculations and tracking. You’d be surprised how often we discover clients have additional accounts they forgot they even had.

No overlap. If you have multiple accounts, that doesn’t necessarily mean that your investments are properly diversified. In fact, your money may be invested in similar asset classes with significant overlap. Consolidating your retirement accounts gives you a clearer view of your asset allocation picture, as well as any adjustments you may need to make.

Easier rebalancing. Any retirement savings account requires periodic rebalancing to keep it in line with your objectives. By consolidating your accounts, you’re more likely to achieve a cohesive investment strategy.

Proper Beneficiary Management. I can’t tell you how often we see clients with multiple IRAs and 401k plans, all with different beneficiary designations. Even more shocking is how often that information is incorrect or outdated. Consolidation makes it much easier to keep these up to date and accurate.

 

How to consolidate

Moving a retirement account to a new employer plan or to an IRA can be done via direct rollover or trustee-to-trustee transfer.

With a trustee-to-trustee transfer, the funds are sent directly from one plan to another. The plan administrator will make the check payable to your new IRA custodian (never to you directly). That is why this type of transfer is often referred to as a direct rollover. Unlike regular rollovers, there is no tax withholding requirement for this type of transaction. When requesting a transfer from your employer’s plan or another retirement account, be sure to use the right terms to avoid unwanted tax consequences. If you’re unsure, contact your financial planner for assistance.

Should you move your employer plan to an IRA?

A former employer will generally let you keep your money in its retirement plan for as long as you want. You may also choose to move those savings to an IRA. Before making the switch to an IRA, however, it’s wise to consider the following factors:

 

Investment choices. An employer’s 401(k) plan may be lower cost, but your choice of investments will be limited, as 401(k) plan sponsors tend to simplify the investment decision for employees by reducing the number of options. With an IRA, you have a potentially unlimited choice of investments, including individual stocks, mutual funds, and alternative investments rarely offered by employer plans.

Control over distributions. Another benefit of IRAs is that you have more control over when your retirement savings are paid to you. Distribution requirements vary among IRA providers, so be sure to understand the choices available to you and your beneficiaries.

Creditor protection. If creditor protection is a concern, both employer plans and IRAs safeguard your retirement savings from creditors to a certain extent. Employer plans generally offer better protection than IRAs do, however. The level of protection an IRA offers depends on your state laws.

Early withdrawal. One reason to keep funds in an employer account, at least temporarily, is that you may need to tap into your retirement savings before you reach age 59½. There is no tax penalty for taking a distribution from your former employer’s plan after you reach age 55. Although you’ll still pay income taxes, you will avoid the 10-percent penalty for early withdrawal, which would be assessed if you withdrew funds from an IRA before age 59½. Exceptions to the penalty on early IRA distributions include:

 
 
  • Unreimbursed medical expenses that amount to more than 10 percent of your adjusted gross income
  • Disability
  • Distributions from a beneficiary IRA upon the death of the original IRA owner
  • Qualified higher-education expenses
  • Qualified first-time home purchase
  • Distributions under a “substantially equal payment” plan, per Section 72(t) of the Internal Revenue Code
 

A Retirement Strategy That Works For You

As you can see there are some great benefits to consolidating your retirement accounts, however, there are many factors that should be considered. I recommend working with a financial planner to determine what is right for you. Please feel free to reach out to me if you have questions. I'd rather develop the best strategy for you and help you implement it properly, than you potentially creating issues trying to do it yourself.

Emergency Fund: Preparing For The Unexpected

You’ve probably heard how important it is to establish and maintain an emergency fund. Unfortunately, most people don’t fully realize how important this is until a financial emergency strikes. Are you financially prepared for a leaky roof? How about a broken-down car? If you lost your job, how long would you be able to support yourself and your family until you got a new one? 

An emergency fund is money that you’ve set aside to be used in these critical situations, whether its to handle a minor home repair or to pay for something more serious, like medical bills. Despite the importance of having an emergency fund, however, more than three in five Americans have accumulated no savings for unforeseen expenses, according to a recent Bankrate report.

So what do you do? 

Set a goal

How much you need to save depends on a variety of factors. Generally speaking, your emergency fund should cover three to six months of living expenses. I always tell clients to start with three months and aim to work your way up to six months. There are plenty of free online tools that can help you figure out how much you should have on hand.

Keep your funds accessible

It’s important to pick a bank and a savings vehicle that will give you easy access to your emergency fund when you need it. Consider keeping a portion of your money in a regular savings account, as it will provide some return and you’ll be able to withdraw it at any time without penalty. Online banks such as Ally Bank offer significantly higher interest rates when compared to your local banks. For longer-term funding, you might want to use a savings vehicle with higher interest, such as a certificate of deposit (CD) or multiple CDs.  

Avoid savings pitfalls

Naturally, there may be obstacles to overcome as you build your emergency fund. Take a look at some of the most common pitfalls and ways to avoid them:

 

Using your credit card as an emergency fund.

Although credit cards may be convenient, there is a lot to consider before turning to plastic. Using your credit card will likely resolve the immediate need, but when you think about interest on the debt and possible penalties, it may not be worth it in the long run. 

Cheating other accounts to fund your emergency stash.

Withdrawing money allocated to other resources, particularly your retirement savings account, can do long-term damage to your financial picture. If you borrow from your retirement account and default on the loan, you could face serious tax implications and penalties. Think of it this way: taking cash out of your retirement account is like stealing from your future self.

Thinking that you can’t afford it.

The most common excuse for not maintaining an emergency fund is that you don’t make enough money to save. Although your budget may be tight, you don’t need to put away hundreds or thousands of dollars all at once. Starting small works just as well. You might try making your morning coffee at home instead of buying it or bringing your lunch to work instead of going out. The savings may not be dramatic initially, but it will add up.

 

Start today!

Establish your savings goal, figure out how much money you need to put away every month, and stick to the plan. Remember: it’s better to have an emergency fund and never use it than to face hard times with no means to support yourself and your family! If you have questions or want help, please don't hesitate to send me a message.

 
"It's not how much money you make, it's how you save it"
                                            -Anonymous