Mid-Year Financial Check Up – Are You in Good Financial Shape?

What are your childhood summertime memories? Some may recall picnics on the beach and spending hours in the water, others reminisce long car rides on family vacations and many remember summer jobs. As we take a break and enjoy the sunshine, also take the time to do a quick self-exam and see if we’re on a good financial track within a few key areas:

Debt Reduction

Take a second and imagine the relief you’ll feel when you’re free of debt. Now, what if I said you can achieve that feeling sooner than you think? Paying off your 18 percent interest credit card is generally more advantageous than making minimum payments and investing the difference. Consider applying the “Snowball Method” to attack multiple debts (various credit cards, student loans, etc.) You start by designating a specific monthly amount in your budget for debt repayment then line up your debts in increasing order of balance owed. After you’ve reorganized, make minimum payments towards all of the accounts and apply the remaining amount in your budget towards the account with the smallest balance. Repeat the process until that account is paid off and apply the excess amount to the following account – hence, the snow ball.

Credit Rating

Keep this question in mind, whether you’re car shopping, hunting for a new job or refinancing your home: How’s my credit? Keep your financial house in order by checking your credit report. By law, you’re entitled to a free credit report every 12 months from each of the three rating agencies: Equifax, Experian and TransUnion. Always check for the accuracy of what’s being reported and take action to correct any mistakes. Visit www.annualCreditReport.com to request your free credit report.

Rainy Day Funds

A good rule of thumb is to always have an amount equal to three to six months’ living expenses stashed away in a competitive interest-bearing money market as emergency reserves or a “rainy day” fund. Or have enough saved to cover a year or two of living expenses, especially if you’re retired or have a fluctuating income. Your rainy day fund account may need to be “topped off” to replenish the funds used for your summer vacation, replacement vehicle or that pool table you’ve always wanted.

Tax Payments

Many people are not fond of surprises, especially when it comes to a larger than expected tax bill or an underpayment penalty. Some situations that may affect your tax filing status include the birth of a child, another child leaving the nest (no longer a dependent), marriage or divorce. How about a major transaction such as sale of a residence or business, bonus or stock awards or retirement payout? If any of these apply to you, then it may be time to schedule a meeting with your tax professional and adjust your tax withholdings and payments.

Retirement Savings

What are your plans for retirement and are you on track? Are you saving enough? Are you prudently invested to weather the periodic storms and to last you a lifetime of economic freedom, choices and not being a burden on anyone? Focus on taking maximum opportunity of company benefit programs including company matching contributions to 401k’s, maximum savings limits and catch up contributions. Also, don’t forget to review if you are you eligible to fund a Health Savings Account and are on track to fund the maximum.

Henry David Thoreau said, “One must maintain a little bit of summer, even in the middle of winter.” The warmth, fun and vivaciousness of summer help get us through the cold months and make us anxious for the coming year. Take a moment to assess where you’re at financially, adjust your plan as needed and don’t forget to celebrate the progress you have made. Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

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Tips for Parents and Students to Avoid Student Debt

The rising cost of college followed by poor education decisions can lead parents and students into a financial hole. With increasing tuition rates, even for public universities, investing prior to your childrens’ college expenses is an important factor to make the experience more affordable while trying to avoid debt. A recent study shows that from the late 1980s to 2018, the cost of an undergraduate degree has risen by 213 percent at public schools.

Mountains of student debt, deferred or underfunded retirement and misaligned career interests are only some of the severe financial consequences that can occur if parents and students don’t plan well for their future. Student loan debt represents the largest chunk of non-mortgage debt in the U.S. According to the Federal Reserve, the national student debt is approximately 1.6 billion dollars with the average student debt sitting at $37,172.

avoid student debt

The debate’s expanded from self-choice and accountability to making college education free and implementing student loan forgiveness. Currently, New York State is home to the nation’s first accessible college program where more than 940,000 middle-class families making up to $125,000 per year will qualify to attend college tuition-free at all CUNY (City University of New York) and SUNY (State University of New York) two- and four-year colleges per the Excelsior Scholarship. Bill Gates has even invested 1.7 billion dollars to try to fix the U.S. education system.

In the meantime, rather than speculating on the best way to fix the spiraling cost of college, how about doing something within your and my control – let’s avoid getting into or minimize our student debt.

Here are some helpful tips to avoid the student loan burden:

College Savings Plan

It’s never too early to start saving for college, so start now. Think about your options and decide if you can invest in your future by deferring college for a few years. If your child (or you) are already attending college, consider working simultaneously to reduce stress after graduation. Being a college student and working takes a lot of organization but prioritize your financial future and it’ll go far in helping you stay out of debt.

Choosing Your Career

Not all careers require a college education. Plan as far in advance for any career changes and go to college for the job you want to have. If college isn’t for you, there are less expensive career education options you can consider that don’t require a college degree.

Undergrad vs. Graduate School

If your goal is to attend grad school, then why not get your undergraduate at a reasonable cost? Consider saving money you would spend in a four-year university by completing the early years at a community college. This will take additional research on transferable credits, however, it may save you a significant amount of money and will help you avoid taking out large amounts of student loans.

Trade or Vocational Schools

There are plenty of fulfilling and rewarding careers that don’t require a degree. Trade and vocational schools help students develop a marketable skill that lead to successful careers in the workforce. Forbes identified 20 well-paying jobs including administrative service managers, construction supervisors, wholesale and manufacturing sales reps, electricians, plumbers, medical techs and more that don’t require a college degree.

Apply to Scholarships and Grants

Never settle and always explore your options. No two scholarships are the same and there are many scholarships/grants that are being unused due to a lack of applications. Some programs are merit-based, others are needs based and more are available after completing your first year of college. The possibilities for college scholarships are endless and there are many helpful sites that can research all U.S. scholarships available – for free!

Stick to Your Budget

Budgeting is a priceless life skill regardless of the amount of income you earn. It can be a simple spreadsheet or an online tool such as YNAB. Keys to budgeting include knowing where your money goes as well as reserving for future expected expenses and “surprises.”

Get Roommates

Although moving away to college or moving into the dorms might be fun, living costs are cheaper when you’re living at home or with roommates. Living off-campus might be more advantageous economically and will reduce dorm distractions.

Plan for Graduation

An estimated six out of 10 four-year college students don’t finish on time. Worse yet, those are students who pay the expense but don’t earn their degree. A prolonged college career from switching majors costs you in two ways: added expenses and lost earnings. Speak to guidance counselors and professors to get you on track to graduate.

High school students are expected to know what they want out of life, however, even at 25 they’re still trying to figure things out. Secure your life wisely by avoiding student loan debt today and 20 years from now. When you’re with a group of your colleagues having a drink, don’t forget to ask this question: “What did you major in college and what are you doing now?” Life is easier when you plan, budget and hold yourself accountable.

This article can also be viewed on the Reno Gazette Journal.

For additional insights on how to budget and pay for college, take a listen to NPR’s “Paying For College: What To Know Before You Go.”

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Interest Rates A-Comin’. The Ins and Outs of Debt.

The level and trend of interest rates impacts each of us differently. Generally, lower rates benefit us by stimulating the economy, equity and real estate investments. Borrowers are also big fans of lower rates. You can reduce your payments and possibly shorten your loan payoff date by refinancing. Or if you’re making a major purchase – car, home or business acquisition – you might be able to borrow more. However, re-read the prior sentence and reconsider before taking on new debt.

Here are four areas to consider before taking on new debt:

All rates aren’t equal

The news about the Feds raising or lowering interest rates may be misunderstood. Federal Reserve officials determine the federal funds rate – which is only the overnight interest rate that banks charge each other when doing inter-bank lending, in order to meet the required reserve levels. Changes impact short-term and variable (adjustable) interest rates – e.g. Certificate of Deposit (CD) rates, lines of credit and even some car loans. However, they don’t set mortgage rates that you’d be interested in for your home or an office building, for example. Those rates are determined largely on the secondary market where mortgages are bought and sold, and factors related to you – credit scores, home mortgages, down payments or equity, and loan terms. For example, the federal funds and prime rate for the year to date remain unchanged; however, the 10-year treasury yield has dropped about 0.7 percent.

Could housing be more affordable?

An important part of affordability is the determination of house-buying power: how much you can buy based on changes in household income and fixed 30-year mortgage rates. Lower interest rates should increase buying power. Using some national figures – the average 2018 household income of $65,400, five percent down payment, and a 4.5 percent 30-year rate – the consumer house-buying power was $372,060. Now, assuming a 0.5 percent mortgage rate decrease, house-buying power jumps by more than $20,000 or 5.8 percent. However, in hot real estate markets, that gain may be lost to escalating home prices.

Budget savings from refinancing

Mortgage applications are up about 15 percent from the prior year according to the Mortgage Bankers Association. This has been driven by refinances which are up about 31 percent annually as homeowners have taken advantage of lower interest rates. Here’s an example. Assume you have a 30-year mortgage of $250,000 and principal and interest payments of $1,419 a month. If rates were one percent lower and you refinanced, your payment would drop to about $1,266 and save you about 15 percent in interest payments over the life of the loan. Alternatively, you could refinance and maintain the same monthly payment and payoff the loan six years sooner, saving you about 39 percent in interest expense.

Be smart with cash outs

Real estate owned by U.S. households totals about $25 trillion. Net homeowner equity totals about $15 trillion after $10 trillion of mortgage debt. Home equity is an idle asset and available only if you sell or borrow against it. People can tap into home equity by taking a cash-out refinance. Freddie Mac estimated that the average “cash-out” borrowers increased their loan balance by five percent and represented 83 percent of all conventional refinances (Freddie Mac’s Quarterly Refinance Statistics, Fourth Quarter 2018). Cash-outs in the fourth quarter totaled $14.8 billion, down from $20.4 billion a year earlier, and significantly down from the peak quarterly cash-out of $104.8 billion in the second quarter of 2006.

This resembles a little déjà vu or scenes from the movie “Groundhog Day,” where some used their home equity as a personal ATM and the Great Recession hit. There are absolutely prudent cases or emergency needs for cash-outs where you need to finance something instead of using more expensive credit cards. But why would you turn a new ski boat that you’ll resell in 5 years, kitchen appliances, or wedding or college expenses into a 30-year debt? Instead, how can you be a savvy borrower and lower your interest expense over the long term and not risk your long-term security?

Perhaps design an aggressive debt repayment schedule or help your kid find a less expensive school that won’t put you/him/her in debt. An ancient proverb goes: “There are four things every person has more of than they know: sins, debt, years and foes.” Debt can be a menace, but it also can be a tool.

Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

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Learn How To Be Financially Prepared for a Natural Disaster

Why do people build or live in areas prone to natural disasters such as flood, hurricanes or wild land fires? This was the topic of conversation for a former Federal Emergency Management Agency (FEMA) Chief, Brock Long, at a recent financial planning conference. Mr. Long helped lead the development of a new emergency management road map for FEMA which included building a culture of preparedness which included financial wellness. He led through two tough years of some of the worst natural disasters – Hurricanes Harvey, Irma, Florence, Michael and Maria, and the California wild land fires.

Emergencies happen and FEMA and other agencies respond with community lifelines including safety and security, food, water and shelter, health and medical, power and fuel, communications, transportation, and more. However, individuals need to be prepared financially as well.

Most families don’t have $1,000 in savings to cover an emergency per Bankrate’s January Financial Security Index. About one in three respondents said they or an immediate family incurred at least one major expense in the past year and 36 percent of those said the largest unexpected bill was $5,000 or more. In addition, suppose you lost your home to a disaster – lost all possessions, had no insurance coverage and turned to FEMA. Did you know that the average FEMA grant to victims is $3,000 to $4,000 (to replace the house and contents), the maximum grant is approximately $33,000, and the homeowner still needs to pay off the mortgage? That’s a band-aid at best.

learn how to be financial prepared for a natural disaster

Many people live in disaster-prone areas because they have the belief that they won’t get flooded or a tree won’t fall on their house – “bad things don’t happen to me; they happen to other people.” Similarly, people assume life transitions such as job loss, illness, divorce, and death only happen to others. We like to believe that we make rational and logical decisions. However, we’re also human and thus can make decisions based on emotions or biases. We are rationally irrational. This type of cognitive bias that can distort our thinking – tree won’t fall on me – is called the optimism bias. We can overestimate the likelihood that good things happen to us, and understate the probability of negative events. Experts say we can’t always avoid our biases; however, we can be aware they exist, and they can lead to poor life decisions.

So, how can we be better prepared financially to achieve our goals in life, and protect us for the possibility of storms in our path?

Have a written plan

A comprehensive financial plan serves as your road map reminding you of your desired destination, the actions required to get there, and a process on making the occasional detour along the way. It also gets reviewed and updated.

Build emergency reserves

Sixty percent of people in the Bankrate survey did not have $1,000 in savings. Faced with a $1,000 emergency expense, 15 percent said they would put the charge on a credit card, 13 percent said they would borrow from a friend or family, and six percent said they would take out a personal loan.  Emergencies happen and building a rainy-day fund through budgeting can help keep household finances on track. Funds can be held in a savings or an online money market account paying competitive interest rates, or you can secure your cash in a safe place.

Maintain insurance

Have the right insurance coverage for the hazards you may face. Periodically review your plan as your situation may change and make sure it is competitively priced. Mr. Long also recommends reviewing flood and earthquake coverage. More damage is caused in a hurricane from rising water than by wind, and Mother Nature doesn’t recognize flood zone maps. Also, protect your earning potential with adequate disability and life insurance.

Diversify

This applies to investment strategies and developing multiple sources of cash flow. We have been drilled not to have all our eggs in one basket to (a) earn the required return to achieve our goals and (b) “smooth” those returns – trade “never make a killing” for the eternal blessing of “never getting killed.” Also diversify the cash flow sources whether it is in business, having a side gig, or multiple checks in retirement (Social Security, pension, IRA distributions, etc. and subject to various tax treatments).

Realistic expectations

Recognize that life changes (life stages and transitions, and business and market cycles) and adjust accordingly. For example, next month will mark the longest modern-day expansion but it has also been the weakest (cumulative post-recession GDP). Forecasters predict lower returns.

I respect the former FEMA Director’s push for Americans to develop a true culture of preparedness. I also better understand the frustrations of “the tree won’t fall on me” realities – outdated building codes, living in New Orleans without flood insurance, lack of three days of supplies, and those with “liquidity time bombs.” One of our roles as financial advisor is to continue to educate and nudge on best practices.

This article can also be viewed at the Reno Gazette Journal.

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Single Woman’s Guide to Retirement

Retirement planning brings challenges regardless of your marital situation. However, those flying solo face additional stress.

Roles People Play

The major phases of life include accumulation (saving and building wealth), independence (retirement and spending wealth), and finally, interdependence and dependence (the transition of increasing need of caregivers). Think about the following roles others may play in assisting you.

  • Emotional support
  • Financial management and decision making
  • Residential help and relocation
  • Daily living including food preparation, personal care, pet care, medical management and more
  • Legal representation and elder care
  • End of life planning

Ever Singles and Suddenly Singles

There’s a declining number of caregiving family members due to a fall in birth and marriage rates.

  • Today about one out of two adults are married compared to about three out of four in the 1960s
  • About 9 percent of those 50 or older have never married (U.S. Census)
  • One out of three Boomers do not have children, and others will age alone because of the death of a spouse or divorce (“suddenly single”), or have children who are unable to help them
  • Two-thirds of Americans age 85 or older live alone and only 15 percent of women were married at that age compared to 55 percent of men (Society of Actuaries 2017 report)

Have a Plan

A good financial plan can help guide you in building wealth to retire and stay retired and protect against life’s surprises. Protect yourself in your accumulation stage with sufficient cash reserves and consider disability insurance for protection in case of loss of job or sickness. Consult your attorney and have a Power of Attorney that designates the right people to help manage your affairs and make healthcare decisions should you become incapacitated.

Stay Connected: Create a Support Map

Social networks are crucial to your health and well-being. They can also serve as a resource pool. Designate the best people to serve the roles listed above. It’s best to get their approval in advance (no surprises). Prospects generally include your family members. What if you don’t have children (or don’t want them in the role)? Then consider siblings, nieces and nephews, and extended family, friends, members of your church or organizations, and talk with your advisors for recommendations.

Consider Where Your “Home” Will Be

Where do you want “home” to be and can you afford it as you age?

  • Home with design modifications and caregivers as needed
  • 55 and older retirement communities
  • Continuing care communities that help you make the transitions
  • Assisted living and skilled nursing facilities
  • New social and living models including Co-housing (separate homes with shared spaces for community activities) and Village concepts (promote aging in place)

Retirement planning has several components. One is about accumulation of wealth to fund a specified lifestyle. That part is generally straight forward. Another component is the personal side of retirement. Aging isn’t always a smooth process. However, life’s a lot better when you aren’t going at it alone.

Secure your future wisely.

This article can also be viewed on the Reno Gazette Journal.

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Moms Nurture Financial Health and Well-Being

Moms have a very special gift as nurturers. Nurturing is the process of caring for and encouraging the growth of someone or something. Security and comfort often top the list, and these goals transcend to their kids. Sometimes it is the hope that their kids do better and have a life better than she. If you are a mom with some of those hopes, we know that physical and emotional well-being, as well as being safe and secure are important to you. Planning for your kids’ education or helping with a first home might be on your wish list as well.

We believe that taking care of yourself should be your first priority so that you can better take care of others and your children. Here are some thoughts and tips on how to do so:

mothers dayUnique risks and challenges

Some moms have unique challenges that require more planning. These may include earnings disparity, a lifetime earnings gap, and longevity. The first two can result in lower savings (e.g. you earned less and left the workforce to raise your family) and lower Social Security benefits (based on your lifetime earnings). Longevity means that retirement monies need to last longer, and adjustments are required to cover longer periods of healthcare and assisted living costs. Other life disruptors include caregiving for aging parents or family members, and divorce.

Budgeting and building cash reserve

Spending less than you make and being real about what you can afford is a necessity. Changes in spending may be required today to maintain the desired lifestyle long term. Budgeting becomes a valuable tool. Also, building a cash reserve of three to six months of living expenses is commonly advised for emergencies such as a change in where you work or live, or unexpected major bills.

Protect yourself and your family

Old-timers tend to say: “If we don’t have the cash, then we can’t afford it.” This is generally good advice. There are exceptions for cars, homes and maybe student loans where the terms are reasonable, and returns are attractive. Payoff debt for good. And have adequate insurance to cover major losses – cars, homeowners (and umbrella liability if appropriate), medical, life and disability. Life and disability are to protect against loss of earnings. However, also consider life insurance for the stay-at-home spouse to cover the valuable services he or she provides – jobs that don’t end at 5 p.m. such as child care, transportation, keeping peace in the house, and more.

Earnings potential

Re-entry into the workplace may be difficult after a career gap from raising a family. Consider keeping a foot in the door. Keep your skills engaged or develop new ones and retain networks. Options include working part-time, consulting, volunteering or completing online certificate programs.

Saving for your future

Saving and investing are important. Building your financial knowledge is also key because it will help you make smart financial decisions and reduce anxiety and stress. Numerous tools are available including books, online resources, your partner, and of course, your financial advisors.

Helping your children

Wouldn’t it be nice to be able to write a check to help your child get their education or job training, or get them into his or her first home? But what if your nurturing taught them how to be financially responsible, showed them money lessons, and instilled in them values and beliefs that will pay them dividends for their lifetimes? Some of the greatest lessons I learned from my mom were life skills and independence.

Secure yours and your child’s future wisely.

This article can also be viewed on the Reno Gazette Journal

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Estate Planning Actions for the Small Business Owner

Two things people avoid talking about are death and money. Combining the two is estate planning—the process of arranging for the management and disposal of a person’s estate while minimizing gift, estate, generation skipping transfer, and income tax. Estate planning includes planning for incapacity, reducing or eliminating uncertainties over the administration of a probate, and maximizing the value of the estate by reducing taxes and other expenses.

Conversations about estate planning, though difficult, provide clarity and prevent conflicts. If you are a business owner, there are three estate planning conversations you need to have.

estate planning for small business ownersConsider What You Want

Would you respond with a blank look if a friend asked, “What do you want your estate to do?” Do you think someone else should figure it out for you?

Remember this: Your estate is yours, no one else’s. Think about what your legacy will be from your point of view—not your childrens’, not your employees’, and not your friends’.

Estate planning is not just about splitting up the goodies. Your legacy is about what makes you unique, what wisdom you picked up over the years, and what you want to leave to those who are here after you die.

Of course, your exit strategy will be a significant portion of your estate planning. If you decide to sell or transfer ownership of your company, you’re making an important decision about your legacy as your company will live beyond your lifetime.

Talk With Your Significant Other

If you’re clear on why you want certain things to happen, share them with your significant other. You and your life partner should have a real conversation about your reasons.

Don’t be surprised if there are some areas where you have different ideas. If both of you are clear on your reasons, it’s easier to find a resolution. If your reason is “just because,” then think harder. Consider those you’re leaving behind and the difference that your estate will make and the effect your exit strategy will have in their lives. After all, you’re going to be dead (sorry, but it’s true). This is about your legacy and their lives.

Share Your Thoughts with Your Heirs

The next step is one that too few actually do. That is to sit down with your heirs and let them know what you think and why. Listen to what they have to say. Your decision will affect their lives and the way you’re remembered. If you care about either of these issues, having this conversation is really important.

Our society doesn’t do a great job of respecting those who are older. That’s too bad. You have the opportunity to change this in your family by explaining your reasoning and making the right choice. This process helps those in your family learn about what your motives are and what you hope to accomplish.

Discussing your estate plan with your heirs also prevents unintended consequences. You might assume that the family business should be split equally between your children. This arrangement almost guarantees to end up in a major fight between children in the business and those who aren’t.

Clarity is what makes a good estate plan. You really want to ask lots of questions and have an open conversation about what you want. I know it’s hard to talk about death, but we’re all going to have one. Wouldn’t you rather be prepared?

Estate Planning 101

After talking with your loved ones, you need to start framing your plan. To simplify this process, it can be helpful to consider three estate planning essentials: organizing your financial information, communicating your plans and, of course, taking action.

Organizing your financial and estate information

Create an organized record that details your accounts and legal documents, so your family can easily locate them. Include items such as:

  • Professional and family contacts
  • Location of estate documents
  • Disability and life insurance
  • Home and auto insurance
  • List of financial institutions, accounts and account numbers
  • Credit cards
  • Beneficiaries of retirement accounts
  • User names and passwords (including those to social media websites or online photo storage)

We tell ourselves we can get organized later, when things finally calm down.

But sometimes later can be too late. Most people believe they will live a long and healthy life, but one never knows. A major illness or death may occur before plans are in order, leaving loved ones scrambling to make sense of incomplete information and financial unknowns during a very stressful time.

Discussing your estate plan with family members

Any time you update your estate documents, communication is key. When you name your friends or family members to any role in your plan, you should notify them right away. Confirm that they are willing to take on the responsibilities of the roles, and explain your intentions.

Discussing these matters with children can be sensitive. Here are tips on how to make the conversations age appropriate:

  • For children in high school and college, let them know that you have plans in place. Tell them who you name to important roles (grandparents, aunts and uncles) and why.
  • For young adult children, you may choose to name them to primary roles in your documents. Let them know if you plan to do so, and show openness to engaging them in this discussion in the years to come.
  • As children reach middle age, giving them full knowledge of your financial situation is important. Mature adult children can help parents navigate the challenges that come with aging.

Taking Action

Proactive planning requires careful consideration of possible future scenarios and a good understanding of yourself and your family. It also involves communicating your wishes to those close to you.

Finding the time to discuss death and finances in your busy life is difficult and unpleasant. But since one never knows what the future holds, it is best to be prepared.

Know that I’m available to help you create an estate plan that meets your wishes and should ease some of those uncomfortable conversations.

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Seven Savvy Gift Ideas for College Graduates

Every generation brings something unique, but this graduating class is very different. They are the last of the Millennials and eclipse prior generations in size, education level and diversity. Most live in urban centers, shun time-honored institutions such as political parties and religion, less likely to be military veterans, and defer marriage and having kids. They strive for a better work-life balance, yet they are entrepreneurial. They value life experiences, same-day delivery and absolute convenience, and they are digital nomads.

And while they have incredible wealth building opportunities, they have unique money challenges. One of their biggest financial concerns is massive student debt with an average of $48,000 driven by rising college costs or bad decisions. Finances are just one reason why some students choose associate degrees and vocational schools as an alternative. Some aren’t ready for four years of college, others have a specific job in mind, while others want to get a jump on earning a paycheck.

Before running out to buy a gift card or stashing some cash in a congratulatory card, consider these seven financial-savvy gift ideas for the college graduate in your life:

Match savings contributions

Help them develop good savings habits and open a savings account. You could make the initial deposit and match his or her savings. For 2019, you can give $15,000 to a recipient free of gift taxes (a couple can gift $30,000 per recipient).

Student loan payments

You could accelerate loan payoff or reduce monthly payments for the graduate by offering help during the six-month grace period following graduation. Many loans have a six-month deferment period as the student lands a job. Interest may or may not accrue during this period depending on the loan. Your payment options include writing a check, using a gift card such as GiftofCollege.com (can go directly to the student’s loan account), or spreading your gift in installments.

Assist with bills

What gaps can you fill in the graduate’s budget? Pay their health, auto or disability insurance for a specified time period? Contribute to the rent, buy a Trader Joe’s gift card, or assist with an upcoming expense (moving, furniture, etc.)?

Retirement contributions

Help them enroll in their company’s 401(k) plan, walk them through the investment menu and match their contributions. The contribution limit to your 401(k) plan for 2019 is $19,000.

Help them start an Individual Retirement Account (IRA). They may have a one-year wait for 401(k) eligibility, no employer plan or be self-employed. The contribution limit for an IRA this year is $6,000.

Give stocks with youth appeal

Did you get a Disney stock certificate from your folks when you graduated? Open an account for the graduate and seed it with familiar stocks. Here are some examples (do your homework though; I don’t know your specific situation) – Apple, Starbucks, TripAdvisor, Facebook, Amazon, Netflix, Chevron, etc. If your budget is smaller, checkout Stockpile where you can buy a gift card in the amount of $25, $50, or more, and buy fractional shares of stock ($50 card with say 0.025 shares of Amazon).

Give appreciated shares of stock

If there’s likely to be some wealth remaining when you die, then consider transferring some wealth to your graduate now by gifting appreciated stock. They can sell and reinvest the way they want or pay down student loans. The strategy is to transfer wealth tax efficiently and works if the graduate is in a lower tax bracket than you. And like all tax strategies, consult your CPA or enrolled agent for tax advice.

529 Plans

Investigate broader uses of these plans. They can be used for qualified expenses for college and vocational school expenses, including tuition and fees, books, computers and tools, and room and board. They were expanded with up to $10,000 for tuition to eligible public and private K-12 schools. Current bills in Congress have provisions permitting wider use of 529 monies – to pay down student loans, homeschooling costs and expanding qualified K-12 expenses.

These wide-eyed graduates are off to their new adventures. Help put things in their favor and guide them in their financial success.

They too can secure their future wisely.

This article can also be viewed at the Reno Gazette Journal

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Never Too Early: How to Plan for the 2019 Tax Season

How did April 15 go for you? Was your tax bill in the ballpark or was it a big surprise? Most financial decisions have tax impacts. You can ignore them or plan ahead, but we highly suggest tax planning for 2019 and beyond. Tax planning is about arranging your affairs to postpone or minimize taxes. Benefits include higher probability of achieving your goals and planning your cash flow with greater certainty. Live your life as you choose but do it in a tax-smart way.

Here are some tax-planning topics to discuss with your financial advisor and tax professional:

Coordinated planning and total wealth framework

Tax planning is a part of your personal financial planning. They are done together, not separately. Also, tax planning should incorporate your total wealth – your earnings, Social Security, pension (human capital) and your personal, business and retirement assets (investment capital).

smart plan for 2019 taxesA means to the end

Tax minimization is a worthy goal. However, there are other considerations in making life choices besides tax avoidance. I’ve seen this case many times: “This property is becoming a burden, but we can’t sell it now…the kids inherit a stepped-up basis after we die,” or “I can’t sell this heirloom stock… the gains will kill me.” Don’t let the tax tail wag the dog.

Complexity and uncertainty are common in long-term planning. Nevertheless, wise mentors coached me to generally plan under current legislation and adjust as tax reform occurs. Here’s an example – some mature investors want to convert their retirement accounts to Roth IRAs. They feel taxes are high or will continue to increase for the next three to five decades for them and their kids. That’s a long time for future Congressional tax reforms. Maybe Congress will eliminate inherited Roth’s except for surviving spouses. Do you prefer to pay income taxes for your kids or have them pick up the bill?

Life stages and tax effects

There are generally four major life stages for adults – three adult stages (young, middle and older) and retirement – and each has unique tax issues

  • Income sources generally shift from wages to investment income over time (plus Social Security and pension in retirement). Income is taxed differently – non-taxable, capital gains (zero, 10 or 20%), dividends (ordinary income or capital gains), ordinary income (max of 37%), and the 3.8% so-called Medicare Surcharge Tax. What’s the best way to shift to the lowest brackets?
  • Your asset base starts at ground zero, then grows and accumulates, and begins to deplete in retirement and investment strategies shift. Invest tax efficiently!
  • Adjusted gross income tends to start low, then higher and highest, and then lower.
  • Deductions often parallel with your adjusted gross income’s (AGI) path. Deductions are most valuable when AGI is highest. Do you maximize retirement contributions, payoff the mortgage or both?

Tax advantages support certain financial goals

Homeownership provides deductible property taxes and mortgage interest (with limits). Retirement savings are encouraged with tax-deductible contributions (limits) and tax deferral. And there are advantages for education and healthcare savings (e.g. 529 plans and Health Savings Accounts), as well as charitable giving strategies.

Unanticipated events

Inheritance or gifts generally do not create immediate tax consequences to beneficiaries, but investment income and capital gains do. Personal injury settlements can be non-taxable (physical damages) and taxable (punitive damages) depending on the case. Casualty and theft losses or medical expenses can have tax consequences.

Business owners

Numerous planning opportunities include employee benefits (healthcare and retirement savings), compensation design, structuring capital investments and succession planning.

Tax efficiency is important in financial planning. At the end of the day, you get to spend, gift or reinvest what remains after Uncle Sam takes his share.

Secure your future wisely.

This article can also be viewed on the Reno Gazette Journal.

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Mitigating Risks for Small Business Owners

Creating a Risk Management Plan

Small business owners make up most of the U.S. economy. While the statistics are not often reported by the media, according to the U.S. Small Business Administration (SBA), almost 50 percent of Americans either own or work for a small business.1

Further, the SBA states that small businesses account for:

That’s the good news. The not-so-good news of small businesses is as sobering as the good news is exciting. According to data from the Bureau of Labor Statistics2 about:

It’s important to note that these statistics reflect all small businesses, but the reality is that the facts are different when you look at business success and failure by industry. And while there might not be statistics to support this next statement, creating a risk plan that touches on four major categories should improve the chances that a small business will survive. Let’s examine the four major risk categories.

Market Risk

Market risk is a broad topic that can cover just about any aspect of your business. But it makes sense to focus your market research on two key groups: your consumers and your competitors. Marketing 101 suggests that you need to understand your consumer base and your competitors well before you launch a small business—and you probably do. But have you gathered empirical data to support your business ideas? Start by answering these basic questions:

  • First, is there a demand for your product or service?
  • If there is a demand, how many people would be interested in your offering?
  • Are there competitive options that are already available to your customers? And if so, what do people pay for these alternatives?
  • How is your offering different? The answers to these questions will lead you to additional questions and information. By taking time to answer them, you will better understand your opportunities and limitations for gaining customers.

Credit Risk

There are many reasons why 50 percent of small businesses fail by their fifth year, but there are a few reasons that seem to recur more often than others. At the top of the list is a lack of funding. In fact, according to an analysis by CB Insights, 29 percent of small businesses failed because they ran out of cash (interestingly, 42 percent failed because there was no market demand for their products or services).3 But cash flow is not just tied to start-up capital, it is also very much tied to accounts receivable— when your customers pay you. And since many business transactions are conducted on credit, it’s important for small businesses to understand their clients and their clients’ ability to pay. If you open a coffee shop and your clients pay with cash or a credit card, then your credit risk is not very high. But when you open a business where you don’t ask for payment before (or when) you deliver your product, then your credit risk increases. It sounds simple, but make sure that you check the credit of any customer that you’re extending credit to.

Operational Risk

Investopedia defines operational risk as “the risk not inherent in financial, systematic or market-wide risk” [and] “includes risks resulting from breakdowns in internal procedures, people and systems.”4 That’s a big one. Small business would do well to summarize operational risk as “human risk” and recognize that:

  • It changes from business to business and industry to industry; and
  • A business with less human interaction will by definition have lower operational risk.

Do you know the operational risks in your business? You might have the best product, but are there weak links in your supply chain or internet security or with your aging (or young) sales force?

Reputational Risk

Reputational risk is the one that probably keeps most small business owners up the at night. It’s also the one that can be very challenging to manage. Reputational problems often begin inside the organization. But third-party relationships also heighten reputational risk as more companies are being held accountable for the actions of their vendors or other business partners. In addition, perceptions will often vary from location to location, so an issue that threatens a location in Connecticut, for example, might not matter in Arizona. But as Warren Buffet said, “it takes 20 years to build a reputation, and five minutes to ruin it.”

Create a Risk Management Plan

Owning and operating a business—no matter its size—will bring you a number of risks that can dramatically alter your business and potentially cause you financial hardship. But you can protect against those risks by creating a risk management plan in a few very simple steps:

  • Identify the risk.
  • Assess the likelihood of the risk.
  • Attack the risk.
  • Periodically monitor and review the risk.

Ways of Dealing with Risk

There really are just four ways of dealing with risk. You can:

  • accept it;
  • transfer it;
  • reduce it; or
  • eliminate it.

And good risk management will improve the likelihood of your business succeeding.

Let me know how I can help you build a customized risk management plan for your business.

Secure your future wisely.

Download “Mitigating Risks for Small Business Owners”

SOURCES

1 https://www.sba.gov/sites/default/files/advocacy/All_States.pdf
2 https://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm
3 https://www.cbinsights.com/research/startup-failure-reasons-top/
4 https://www.investopedia.com/terms/o/operational_risk.asp

 

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