admin August 29, 2019 No Comments

5 Steps to Financial Success

Whether you are about to graduate college, just landed a new job, decided to review your finances, or simply stumbled upon this post (hi!), it’s the perfect time to take a look at your spending and saving habits and make sure you’re taking these FIVE steps to reach financial success and live your best life ever!

Step 1 – Spend Less than you Make

The number rule in adulting is to learn to spend less than you make and save a little for the future.

Read more about how exactly to do this HERE. If you are blessed with nailing this concept from the beginning: what’s next?

Step 2 – Save Money

The main planning you need to worry about next is where to put your “saving money”. You have retirement plans, non-retirement investment accounts, the bank/savings/checking, and possibly debt to pay.

If you have debt, you do want to address that first. How much is the interest you’re paying? If it’s credit card debt, it’s probably 18% – 27%. That’s A LOT! There’s not much that will get you a better return than paying that debt. It’s sort of like having a bond in reverse. If you pay $1,000 extra, you will be saving 18%-27% which is like a $1,000 bond paying you 18%-27% or $180 – $270. That’s a great return!

The only thing that is a better return is if you can put money in a retirement account, a 401(k) or 403(b), and have your employer match it. If you put in $1,000 and your employer matches and puts $1,000, that’s 100% return! I don’t know of any “sure thing” investment that will do better than 100%. The problem is that it’s hard to get that money out. And if you need to take it out, you’ll pay taxes (at your tax bracket for federal and state) and a 10% penalty. So still a great deal but it’s not “liquid” or available money.

Step 3 –  Build an Emergency Fund

Why does having easily available money matter? If you get a traffic ticket or a flat tire or sick and have to pay for care, you’ll need cash in hand. The money in your retirement account won’t help you much. So you’ll need an emergency fund. How much do you put in an emergency fund and how big should your emergency fund be?

Well, this is where it gets tricky. If you can save 10% of your pay check and you have matching funds, consider putting 5% in your retirement account and 5% in your emergency fund until your emergency fund is half full.

What’s half full for an emergency fund? If you have a corporate job with a steady pay check, 3 months of expenses. Keep your emergency money either in the bank, in a savings account, earning interest or in a brokerage account (like a non-retirement Vanguard or Fidelity account) in a money market. Either will hopefully be paying 1% – 2% right now. If your emergency fund is in an account that’s earning less than 1% consider moving it.

If you are a freelancer that has fluctuating income (one month is a boom month and the next a bust), you need a larger emergency fund. Think more like six months to a year saved up. We suggest having a year in cash or cash equivalents.

Step 4 – Take a Deep Breath + Deal with your Debt

What if you have debt too!?!? Then it gets even more complicated! But don’t worry, YOU GOT THIS. You just HAVE to save for emergencies. If you don’t, you’ll be raking up even MORE debt when you get that flat tire or surprise trip to Urgent Care. And you really don’t want to miss out on your company’s matching funds either. So like many things, we recommend balance here.

Just like protein is good for you but you don’t want to skip your fat or carbs (fruits and veggies). With the retirement, emergency fund, debt trio, you need to balance your savings among all three until you’ve gotten on your feet.

If you have credit card debt, you have to pay the minimum. No debate about that. Figure out how much that amount is and look at how much savings you have left to allocate. At that point, if you are dividing up 10%, if you have matching money from your company for your contributions, I would continue to put 5% into your retirement account. And split the rest between your debt and emergency fund until you have at least half your emergency fund filled or you pay off your debt.

What about if you don’t have matching funds? Skip the retirement savings until you have your debt is under control and at least half of your emergency fund is filled. Why? Your debt is losing you money now. Your retirement fund is hopefully going to save you money in the future. It probably will but how much and when is uncertain. The 25% you will not be paying in interest on your debt is a sure thing now.

Also, debt is like an anchor that prevents you from living your dreams. A retirement and emergency accounts are the sails that helps you reach your dream destitution. But just like a ship that has it’s sails up but anchor down doesn’t move far, you also will be stalled in your progress until the debt is under control.
If you can save 20% or 30% or more now, do it! Believe it or not, the younger you are the easier it is to cut your expenses. As you get older, you have more expenses and expectations. It’s easy to live frugally and get your financial foundation rock solid.

On the other hand, if you’re getting off to a rocky start with low wages, that’s a bummer. You’ll also have to watch your expenses but will make less progress on your emergency fund, retirement savings, and debt. Keep working hard, looking for a better job, and find side gigs. Persistency can get you really far. Don’t give up and keep working hard to improve your income opportunities. We truly, truly believe in you.

Step 5 – Have Fun!!!

When planning your day to day budget, do set a little aside for some fun. A weekend away, a night out with friends, a concert or sports event. You do need to live your life and planning for fun will help you feel fulfilled. Don’t spend money on things that don’t matter to you, just because others are spending money (that perhaps they don’t even have) or it sounds good in the moment. Spend on purpose.

And there you have it, FIVE steps to reach financial success and live your best life ever!

If all of this sounds easier said than done, schedule a FREE 15 minute call with us. We are here to help!

admin August 29, 2019 No Comments

What the Heck are 401(k)s, HSAs, and Other Confusions

If you hear the words 401(k), HSA, and deductibles and you look like this…

You’ve come to the right place.

Whether you’re reading this because you just landed your first job (congratulations 🎉) or you’re just looking for some clarification, we’re here with all of the answers to make sure you find success in your career, finances, and life!

Let’s get started.

So, what the heck is a 401(k)?

A 401(k) is your employer sponsored retirement plan.

They come in many different forms, but this is the most common and most well known. It’s an opportunity to save for retirement in a tax advantaged way. I’d say the first step is to figure out if your employer matches and how much you need to contribute in order to take full advantage of the matching schedule.

You may have two types of 401(k) accounts offered, a Traditional and a Roth.

Traditional 401(k)

Everyone will have a Traditional available and that allows you to put money into the retirement account BEFORE taxes are taken out. If you put in $1,000, that’s $1,000 off the top of your pay before taxes are taken out. But don’t worry, the government won’t let you NOT pay taxes. You’ll pay taxes on those dollars when you take them out during retirement. This is called “Traditional” because it was the way retirement accounts worked when they were first designed back when your grandparents were probably still working. The idea was that you would be in a lower tax bracket when you retire and therefore you would pay less taxes in the long run.

Roth 401(k)

Roth plans were introduced recently because it was discovered that people often are NOT in a lower tax bracket when they retire. Many people take as much out of their retirement plan after retiring as they were getting as salary before retirement and therefore they were in the same tax bracket. All that great planning was for naught. But the government realized the errors of their ways and designed the Roth plans. In these plans, the money you put in is AFTER taxes are paid. (The IRS wants taxes one way or another. No getting out of taxes completely!)

With a Roth plan, when you contribute $1,000 from your paycheck, you will first pay taxes on that money. Say you’re in the 20% tax bracket and your state taxes are 5%, you will have $250 go to taxes and $750 will be deposited into your Roth IRA. That may seem like a bad deal BUT, you will never pay taxes on that money again. Ever! Hopefully, that $750 grows for the next 10, 20, 30, 40 years. And say you have interest, dividends, and growth of $2,000 on that $750, you get to take out $2,750 in retirement and not pay a penny in taxes. Sweet deal, right!?

How much should I contribute?

It’s difficult to give blanket advice here about how much to contribute to Roth versus Traditional because there are so many variables involved. Our rule of thumb is 50/50. When you’re younger and in a lower tax bracket, you may want to put in more than 50% and when you’re older and in a higher tax bracket, you’ll want to put in less. But 50/50 is a good all purpose target.

Most employers that offer 401(k)s are now offering a Roth option so it’s important to make sure you are also taking advantage of this option, especially if you are in a lower tax bracket right now.

Some resources:

How to Set up Your 401(k)

3 Things to Consider before Maxing out Your 401(k)

Next, Health Insurance

What is health insurance?

In Julia Kagan‘s easy to understand words, “Health insurance is a type of insurance coverage that pays for medical and surgical expenses incurred by the insured. Health insurance can reimburse the insured for expenses incurred from illness or injury, or pay the care provider directly”.

When it comes to health insurance, Step 1 for young adults is to figure out whether you need to stay on your parents (if you are fortunate enough to have been on it to begin with) or switch to your own. Find out if your employer has a health insurance offering and if they do figure out how much, if any, of the cost that they cover. Do a quick cost comparison of how much the premium is on your parents versus how much your premium is through your employer. Make sure you compare prices for the same deductibles. Employers may pay half or even all health insurance premiums. Some will even put money into an HSA. We’ll discuss HSA in a minute.

What are copayments?

A copayment is the amount that you have to pay when you get medical services. Sometimes insurance plans require you to pay a percentage like 20% of the visit cost and the insurance pays the rest. Other times, you’ll pay a flat fee like $10 or $20 dollars. It’s typical for you to have to put “skin in the game” when you use medical services.

What is a deductible?

When you go to the doctor, your health insurance expects you to pay for the first dollars paid. If your deductible is $500, and you go to the doctor that charges $250, you’ll pay the whole bill since you are under the deductible. If you end up going to the doctor three times for a total of $750, you’ll pay $500 and the insurance may pay $250 (or more likely a little less because of the copayment).⠀

With a high deductible insurance plan, you pay a high deductible (hence the name) but you have the tax advantage HSA to help you save to pay for that deductible. After you finish paying the deductible, you then pay only the copayment, if you have one, for the rest of the year. Each year the deductible goes back to $0.

High deductible health insurance can work well if you are young and healthy. Again, this depends on the individual, their personal and family history, and financial situation. Most young people have low medical expenses and only need insurance to cover big bills.

What is an HSA?

An HSA is a Health Savings Account connected to health insurance that has a high deductible.

When you have a high deductible, a HSA may come in handy. Your HSA allows you to keep your insurance costs low but still have coverage for those emergencies that would otherwise wipe out your bank account and put you in debt. Employers who offer plans with HSA’s may put money into your HSA or match funds that you put in. It’s important to know what your employer does and what you can do to maximize your benefits.

More Resources:

https://www.nerdwallet.com/blog/health/health-insurance-guide/

https://www.nerdwallet.com/blog/insurance/disability-insurance-explained/

https://www.nerdwallet.com/blog/health/dental-insurance/

https://www.nerdwallet.com/blog/health/vision-insurance/

https://www.nerdwallet.com/blog/health/what-is-an-hsa/

We hope we’ve helped you understand all of this a bit more. If you’re still feeling confused, we invite you to join our private Facebook group and ask all of your questions there.

Tara Unverzagt August 29, 2019 No Comments

How I started Adulting

Hi all, Tara here! Recently a friend reached out and asked for some advice on how to best navigate post grad finances and “adulting”. Like so many other young adults, he was wondering how start working toward financial success while managing student loans, new jobs, and all of the other exciting, but overwhelming things that come after college. So, we wrote a few different blog posts to answer his questions (jump to the bottom of this post to find the list of these posts).

But his inquiry also inspired me to share my story with all of you. So without any further ado, this is the story of how I started “adulting” and navigating MY finances. Enjoy! And yes, that is me on the left!

I remember when I first graduated college.

I was super excited to start a real job. I had been freelancing through college and interned at a software company. All that seemed like small fries to this new, big job at Xerox Corp! The only problem (and I’m the only one who is going to see this as a problem!) was that it was in Los Angeles. I really wanted to go to the east coast, Boston in particular. Somehow I took a wrong turn and ended up on the left coast.
I was anxious to get started. The week after graduation, I got everything home from college. My furniture consisted of moving boxes, milk crates, plywood, and a foam fold out couch that served as a bed. I lived “ready to move” because I moved a lot in college.

At home, I filled a quarter of a moving truck (I have no idea who was in the other three quarters) and headed west. About a week after graduation, I had moved in with my grandmother who lived in the OC. That was handy. She drove me around looking for a car. There is nothing worse than negotiating a good deal with a car dealer with your grandmother all dressed up in high style and lots of jewels on. We had to explain “No, I’m paying for this. Grandma isn’t ‘helping out’!” I got a Doge Colt with no radio, no air conditioning, and no power anything. But it was CHEAP! and I could pay cash.

I was lucky enough to work my way through college, got a one-year Air Force ROTC scholarship (I just couldn’t sign away six years of my life going into Junior year), and lived like a starving college student. All that effort meant I graduated with the $10,000 that my parents had given me to pay for college.

I would love to take credit for great planning but the fact is the $10,000 was in a Treasury Note (earning about 15% interest, I might add!!! Compared to today’s 1.3% – 2% interest that Treasuries are paying!) I had forgotten about the money my folks were giving me and worked and saved through college. It wasn’t until years later that I realized I had put myself though college (with the help of the Air Force and generous employers/clients).

I was lucky to start debt free.

Starting out debt free was a fantastic advantage to me. Not many parents and students have that luxury today. Although, I find a lot of people end up with more student debt than they intend because they just aren’t paying attention or planning for the future. Both are easy traps to fall into that everyone does fall into at some point in their life. And I say this now just because if you are reading this and IN college or about to go to college (or parents of college students), you still have an opportunity to pay attention and plan (read more in our student loan 101 blog post HERE).
Once I got my car and started my job, about two or three weeks after graduating, I was working a full day and living in a hotel trying to find a place to live. I grew up with a financial planning mother, so I knew I wanted to keep my housing under 25% of my pay check. Not an easy feat in the LA area. And made harder because I just didn’t feel like I had enough time after work and on the weekends to do the research and find a place. I didn’t have the luxury of internet. I was looking through the paper’s want ads and driving around. Today it would be far easier and can have more work done remotely. But I can’t imagine that it’s “easy” even with technology.

I was also having an issue because the places I was renting from wanted a check with a local address on it. And I couldn’t get a local bank account until I had a local address. How is that supposed to work!?!? A family friend in the area helped me out. But I wonder to this day, how would I have resolved this without my network stepping in to help?

Luckily, I had enough money after buying my car to pay for first and last month’s rent. I also had a little extra to buy bare necessities in my new apartment. I was up and running but looking forward to that first pay check to fill my bank account a little more.

The first days of work were filled with filling out paperwork. Today it’s even worse because corporations back then paid for medical insurance, disability insurance, vision and dental insurance, and they had a pension plan. There was no 401k when I first started working. But there were IRAs. My financial planning mom said “Put $2,000 in every year. Buy one stock and in no time you’ll have a diverse portfolio.” I did that and still have many of those same stock in my portfolio today. And yes, they are worth far more than $2,000 today.

What would I have done without a financial planning mother?

I probably wouldn’t have started investing as early. And if I did, I certainly wouldn’t have known what to invest in. I was a computer programmer, not an investor. I did go to a financial advisor when I first started my job. He asked “What are your goals?” I said I didn’t have any. He asked “Do you want to buy a house, have a family, when do you want to retire?” I had no idea if I wanted any of those. I could just as easily see myself staying single and traveling the work picking up odd computer programming jobs as any of that. The advisor said he couldn’t help me. Hmm…

Today my kids and their friends are going through all this and it’s so much harder. Just getting a job today is hard. You can’t get a job unless you have previous experience, but how are you supposed to get previous experience if you never had a job. It certainly takes grit and planning to navigate today’s adulting process. And if you’ve successfully landed a job out of college, kudos to you! And if you’ve taken the freelancing path and have work (maybe not in the black yet, but have work), also kudo for the bravery and hard work to get there.

If you’re still looking for work, you are not alone and do use all your resources: college placement offices, county and state services, networking events, your family and friends. And keep busy, volunteer anywhere or do odd jobs/consulting/freelancing. Show that you can show up every day, meet deadlines, and put in a good day of work. That will take you far. You’ve got this!

Read more from our blog posts on how to best navigate post grad finances and “adulting”:

– How to Calculate your Cash Flow

– Five Steps to Financial Success

– New Job Confusions (What are 401ks, anyway??)

– Student Loans 101

What next?

Have you joined our FREE Elite Facebook Group that’s all about opening up conversations about money for Millennials? If not, what are you waiting for?

We understand that many financial problems start because most individuals DON’T talk about money and therefore DON’T know how to approach money decisions. But we’re different. We LOVE talking about money! And we are here to talk about it with you! So, we’ve created a safe space where we can talk all. things. money.

Want to join us? Click HERE -> http://bit.ly/SBFPMoney-Join