Financial Checklist Fall 2022

Five Tasks for Fall Finances

• Quick and Dirty Tax Planning Check your W4, review your year to date retirement contributions, update year to date business expenses, check for any tax losses in your taxable investment accounts
  • Catalysts for Action: Did you welcome a new family member? New job? Second job?
• Speaking of Retirement Contributions: what about planning to Save More Tomorrow^TM ? This simply means to up your retirement deferral percentage next time you get a raise or COLA. Or you can increase your automatic contributions to savings in a similar manner.
  • Catalysts for Action: new job, promotion, COLA, side hustle
• Organize Your Files for yourself, your business, your family. If you are hit by the proverbial bus, where is everything kept? Online in a folder labeled _____, in a home safe, safety deposit box, behind a password vault, under the mattress etc. This means life and death papers, but also the financial minutiae of daily life.
  • Catalysts for Action: a broken shredder, new caregiving tasks, becoming self employed, working from home
• Mitigate Risk Did you have a big life event this year? (marriage, divorce, birth or adoption, commitment, new business etc.) Check for proper insurance coverage (s) and confirm that your written beneficiaries match your wishes. Retirement accounts and life insurance policy designated beneficiaries take precedence over a different designation in your will. (meaning they will supercede your written will wishes)
  • Catalysts for Action: How old is my will? Do I have a will? Do my children have guardians?
• Check Your Spending [Plan] Winter family holidays can be expensive, as they can involve family obligations (real or perceived), special food and drink, travel, and gifts. What is your spending plan? Experiences, gift cards, or wish list items from an online shopping cart? Practical, homemade, high quality, fast fashion? Do you tithe or make additional charitable donations at the end of the calendar year? Are any of those decisions made by the entire family? Some families involve their children in their charitable choices, which allows for immersion, learning, and connections to the world around them.
  • Catalyst for Action: What holidays are celebrated on your family calendar?

Want the experience or the items?

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After Mutual Funds & Merlot

German wine humor!

Mutual Funds and Merlot was so much fun last Friday. We drank a great Merlot from Columbia Crest (Grand Estates). Topics included your objectives for your investment funds and how those should match up to your mutual fund choices. We looked over the Vanguard portfolio allocation charts (seen here) from 1926-2014 to learn how asset allocation adds to or decreases average return.
One question asked,”what would it look like if the Depression (1930’s) years were left out”? Those years have the largest declines. Declines were pretty dramatic in 2008, a popular Standard and Poor’s 500 fund from Vanguard (VFINX) was down 37.02 that year. When looking at mutual funds returns now, be sure to check the ten year as well as the five year returns; as the 2008-2009 numbers have dropped out of the five year averages.

We also reviewed fees and terminology (no-load, load etc.) and I shared that when I began in this business (mid 1980’s) the highest front end mutual fund charges were 7.75%!

We did not cover all of the types of mutual funds; only open-ended mutual funds and index funds (a subset of open-ended funds). I also reviewed a decision tree of sorts:

• Money to Invest (how long)
• Tax Treatment (Taxable or non-taxable)
• Diversification (individual issues or pool of securities e.g. mutual fund)
• Objectives for your funds (growth, income, combination)

My next class will be Riesling and Retirement

(February 3, 2016)

German wine grapes in June 2015 by DCT

Employer Retirement Plans: The Power of 1%

Did you fail to grab some cash last year?

Here’s the scoop on how many people left employer matches on the table last year. I read this study from Financial Engines and was astounded at the billions of dollars unclaimed.

What if you can’t set aside even the minimum for the employer match? Then what?

I would not be living up to this blog’s title, if I didn’t address this issue. Here are some reasons I’ve heard for not participating in an employer retirement plan:

• I can do better on my own.  Really? Tell me about it then.

Wring out your own retirement dollars….and show me the money.

• The plan is too complicated. That could be true, but there is no excuse for not asking for guidance in order to figure it out. Sometimes the guidance, advice, information is free. Begin with your company resources, then go outside the company if their resources and/or people cannot help you make sense of it all.

Seek assistance, whether it is virtual or from a live human!

• I don’t have enough money. If you are living in a basement, eating noodles and drinking Mountain Dews [for the calories] , this could be true. However, even 1% in the traditional 401(k) or federal thrift savings plan (TSP) will lower your taxable income and you might not miss it. At $15.00 per hour, or $30,000 per year gross income, let’s see what that looks like over 45 years (67-22) until retirement, with minimum salary increases (1% annually). See chart below:

Results Summary
Current 401(k) balance	$0
Years to invest	45
Annual rate of return	7%
Annual salary	$30,000
Expected annual salary increase	1%
Percent to contribute	1%
Your 401(k) contribution*	$300.00 per year
Your employer’s 401(k) match	$0.00 per year This is a 0% employer match to a maximum of 0% of your annual salary.
Total you will contribute over 45 years	$17,113.77
Total your employer will contribute	$0.00
Total at age 67	$100,836

(chart constructed with Index of Retirement Calculator)

With minimal effort, while not making much money, you could save $100,836 for your future. Note: this example assumes an average annual return of 7%, which would mean not being in a bank account, but at least in a mutual fund composed of a combination of stocks and bonds. (Posted rate for illustration purposes only. Not FDIC insured…)

Visit your company intranet or HR department now. No time like the present to begin saving!

Hire a Professional: 6 Steps to Prepare

One of the most common questions every financial adviser hears is,”What shall I bring to a meeting?

In order to maximize your time with a professional (visit www.letsmakeaplan.org to find a CFP® ), I suggest six steps to take first:

 

1. Pull a truly free copy of your credit report at www.annualcreditreport.com  (your scores are based on the report information)

2. Pull a copy of your accrued Social Security Benefits ( Yes, you will be able to receive a benefit in the future)

3. Gather up your employee benefits books or intranet site, last year’s tax return (first two pages is a good beginning) and any company retirement plan/bank/credit card/student loan statements.

4. Write down some family lessons that you learned about money (take 5 minutes and see what you come up with). For example, never borrow money, save 10% of everything, always buy on sale, etc. Walking up and down every grocery aisle was one of mine.

5. List your expenses (all of them), and then your income. See how they match up to the 50/30/20 rule. 50% needs/30% wants/20% savings.  (from the book called All Your Worth by Warren and Tyagi)

6. What are your financial hopes and dreams? Retire at 50, travel around the world for one year, start your own business…do share those with your adviser as well.

Now you are more knowledgeable about your financial past and present, so that you can use a professional to discuss your financial future.

PS: You may decide to interview more than one person. Prepare these items and see who asks questions on any of the topics.

What Your Mother Said…about Money

I don’t always quote other people’s mothers, but when I do, it’s usually about money.

My last work conversation on a recent day ended like this. Me to former colleague: Are you in the 401(k) plan in your new job?

Him: “I know, I know, I should be, my mother keeps reminding me!”

Me: “Well?”

What else did your mama say to you? She may not have said “a penny saved is a penny earned”, a la Ben Franklin, but I bet she had a few words to say about money over the years.

Taken in Philadelphia, Pennsylvania, in April 2006. Sculpture of Benjamin Franklin at the University of Pennsylvania. (Photo credit: Wikipedia)

Whether Mom gave you advice or not on your retirement savings, she probably would agree that you should not overlook free money. And many people do. If your boss offered you a 3% raise-in addition to anything else, you wouldn’t turn it down, would you?

Here’s the benefit my colleague is currently passing up:

100% match of 401(k) contributions of up to 3% of your gross income

Now this company has some other wonderful benefits, but let’s focus on the extra 3% of compensation that I allude to above.  This is the same number as the predicted average raise in the US for 2013.

Some numbers:

• 3% of $75,000  = $2250 each year
• 3% of $50,000  = $1500
• 3% of $40,000  = $1200

This will become your money quickly. Usually you are fully vested in employer matching contributions in three years. Plans do vary, so ask your 401k administrator:
When do the matching contributions vest (or when will I own these contributions?) 

Money – Black and White Money (Photo credit: @Doug88888)

There may be some free money lying on the floor right in front of your desk. Reach out and take it!

Related articles

• 401k: A Great Way to Save (creditrepair.com)
• Why Saving for Your 401(k) Matters (allstate.com)
• 401k vs Roth 401k: Calming the Confusing Chaos (fatwallet.com)

New College Grads: Money to Invest?

This post is about investing long-term funds if you are just beginning the post college journey and  are not too worried about debt to income ratios.  Here’s one way to begin.

Do a little reading. I like to recommend several books. None of these are boring (you’re here aren’t you?) , they are all well written, and feel free to read small portions.

Your Money or Your Life – 9 Steps to Transforming Your Relationship with Money (first published in 1992, a NYT  best seller and recently revised)

The Wealthy Barber [The first 50 pages or so of The Wealthy Barber are a great introduction to mutual funds in general. I got my copy from the library.]

The Little Book of Common Sense Investing by John Bogle is good for a beginner. It has the story of index funds from the pioneer in the field.

I also enjoyed reading All Your Worth, by Professor Elizabeth Warren and her daughter Amelia Warren Tyagi. Here’s a review from The Simple Dollar blog.

Identify your investable funds.

Here’s what funds are not investable-just to review-funds allocated for short-term goals, such as a laptop upgrade, a used  car, a bicycle, or a trip overseas. Those funds need to be kept in a savings or money market account, or a short-term Certificate of Deposit, to shelter them from stock market ups and downs.

What are your investment goals and how far out are they?

1. short-term (less than one year)
2. medium-term (1-5 years)
3. long-term (5 or more years)

For the long-term funds: choose a taxable investment account or consider funding your first Roth IRA.   The Roth allows you to save on a tax-free basis, up to a $5000 annual limit (or the amount of your earned income, which ever is less).

For 20-somethings that have earned income either from a small business or employee wages (and you are already getting the match from your employer 401(k) plan) you can deposit your investable funds inside the tax-free structure of a Roth IRA. That way-when you remove funds later-there will be no taxes due on the income. (Please do take part in your employer’s retirement plan if they offer one.)

Roth IRA (Photo credit: Philip Taylor PT)

• Here is a good blog post on Roth IRA’s from the Get Rich Slowly blog
• Be sure to check with your tax advisor or the IRS on any deduction limits for higher earners
• Choose asset classes to invest in. (Stocks, bonds, and their sub classes-socially responsible stocks, dividend paying or smaller companies, global funds, corporate bond funds etc.)
• What will keep you awake? Check this link so you can see how different combinations of stocks and bonds have done since 1926. Source: Vanguard

How to begin – lump sum and add to the fund monthly (a great habit to get into), or select a couple of funds (there are usually minimum investment requirements) to begin with and invest $1000 in each one, for example.

Educate, Allocate, and Accumulate, that’s my motto!

Related articles

• Investing: Young? Working? Start a Roth IRA. Here’s how (usatoday.com)
• 5 Reasons to Consider a Roth IRA (money.usnews.com)
• Nine Compelling Reason to have a Roth IRA

Student Loan Debt … Debt Sentence?

In the Wisconsin public university system, the average student graduated with 5 times the student loan debt in 2011 than they had in 1982.

The amount went from $5,000 to $27,000 in just under 20 years. Let’s check that number against inflation. Between 1982 and 2011, the buying power of $5000 more than doubled to $11,654.87. Let’s review:

• Wages increased 2.4x
• Consumer Price Index: increased 2.3x
• College Costs: increased 5x

We all have heard that higher education inflation is higher than “regular inflation”. For example, in 2009, the price of higher [public] education increased by an average 6.5%, despite a 2.1% decline in the Consumer Price Index (CPI) during the same time.

In 1981, I graduated from a different UW (University of Washington in Seattle) with that same amount of debt-$5000. At the UW today, the average student debt load is $23,000, $4000 under the other UW.

University of Washington Campus & Vicinity (Photo credit: AvgeekJoe)

What happens after the end of the “formal education”? You might have a job, you might be a boomerang child and move back home with your family, or you might get an “internship” that pays $10 an hour for a job that used to be given to a college graduate. That graduate may have made $20,000 in 1982. Last year, a college graduate or a worker of any age needed to make $46,619 to equal that 1982 buying power.

I know people who have $15,000, $25,000 and $50,000 in student loans. Even if they have “good jobs”, as opposed to a paid internship [formerly a permanent a job with benefits], it is hard to pay your bills.

Here’s a website for everyone to check out as their kids graduate from college this spring.  http://www.thecalculator.org/ This one is for Washington State only and illustrates how much they need to make to cover expenses in every Washington county. For information on other state self-sufficiency calculators, please click here.

For an interactive graph on student debt in the entire US, check out this chart at truthdig.org.

Please be careful as you check the cost of higher education for yourself and family members. Bankruptcy is not an option for student loan debt (or medical expenses).  Trick question:

1. Who will loan you money to retire?

I’m not saying don’t do it, but really dig into the post-graduate numbers to see how much your graduate will need to earn to cover their debts. Ideally, they are by your side as you engage in this process!

Related articles

• Student Loan Bankruptcy Fears Drive Congress to Rethink Law – WSJ.com (policyabcs.wordpress.com)
• Class Notes: Law School, Student Loans and More Education News (newsfeed.time.com)