admin March 12, 2020 No Comments

What does Financial Independence Mean to You?

What do you think of when you hear the phrase financial independence?

Do you think of being able to afford to move out of your parents’ house and pay for your own things? Do you think of living in your dream house, going on great vacations, and doing what you want – when you want. Or, do you think of not working at all, and instead spending your days on the beach sippin’ something sweet? Maybe for you the “independence” part of the phrase just means being able to find a decent home, put acceptable food on the table, have fun with your friends, and live a happy and comfortable life.

The point is that financial independence means different things to different people.


And it may mean different things to the same people at different points in their life. Sarah Newcomb, Director of Behavioral Science at Morningstar, found that people are more likely to have a satisfying life if they choose reasonable role models.

For example, the Kardashians probably are not the best role models to help you feel like you’re living a satisfying life. They have an unusual situation that most people can’t attain. If you choose to spend like the Kardashians and have 0% ability to earn the income they do, you will be miserable.

Warren Buffet on the other hand, is not a bad role model. He has lived in the same modest (depending on your definition of modest) home for decades. He has spent less than he makes and invests a lot for his future. If you follow his lead, you may not live as successful a life as he, but probably just as satisfying.

Even better would be your Aunt Sue who has a good job that pays a middle-class wage. She spends less than she makes and invests the rest for her future. She’s apt to retire at some point with an adequate nest egg to maintain her lifestyle for the rest of her life.

Aunt Sue has an emergency fund to take care of those unexpected issues that come up like someone crashing into her two-year-old car. Yes, she has insurance but they don’t pay for 100% of her replacement car. She has to make up for the difference from her emergency fund.

Her vet bill for her dog never taps her emergency fund because she plans for two emergency visits to the vet a year. Often that line item in her cash flow rolls into her opportunity fund at the end of the year because her dog has been well every year after the first year. (That first year as a puppy used up all of the money allocated for her baby.)

She has an opportunity fund that allowed her to take six months off from work to travel when she turned 30, her dream after graduating college. She came back with a little left in her opportunity fund and her emergency fund full.

Aunt Sue has lived a full life. She’s done what she dreamed of, live in a home that’s very comfortable, and was able to retire from work when she wanted to and maintain her lifestyle. Aunt Sue is a great role model for how to do life successfully and reach financial independence. Nothing fancy, but she found comfort, happiness and had little heartache and disappointments.

Looking into your future, how do you want to live your life? What does success look like? What would disappointment look like? How realistic are you? Who do you know that is living a “good life” in your opinion? What are they doing “right”? How can you apply that knowledge to your own life so YOU can live your amazing life?

Taking some time to reflect on this will set you up not only for financial independence but for a fulfilling life. And everyone here at South Bay Financial Partners want to help you live your AMAZING life!


Because life is too short to not spend it doing the things you love, and your finances should support that.

So, we’ve created a community for passionate young adults to master the intimidating world of money, simplify confusing financial decisions, and manage their expenses all while hanging out with fun, like-minded people working towards one common goal (the best goal in our opinion): living an AMAZING life.

To do this, our community, Your Amazing Financial Life, features…

  • Access to the SBFP team’s advice, guidance, and support
  • Monthly topics (with conversations, learning, and planning)
  • Monthly Q&A video calls with the team
  • Monthly wine and cheese events
  • Special access to courses, office hours, challenges, and events
  • A book club
  • Personalized ADVICE from us and STORIES from others that can’t be found anywhere else
  • And so much more!

Our mission is to provide financial advice and information to as many people as possible, at as low of a price as possible, and we’ve finally found the best place to do it. We do hope you’ll join us over there!

And even better? This month we’re talking all things financial independence (and how to reach it) in the group!

>> It’s time you start living Your Amazing Financial Life!! Come join us! https://yafl.southbayfinancialpartners.com <<


Tara Unverzagt December 3, 2019 No Comments

This Giving Tuesday, Don’t Forget to Give Some Time to Yourself

We love Giving Tuesday and all the generous activities that come with this special holiday – investment advisors paying off layaway bills for their clients, communities donating time and money to those in need, large companies donating their proceeds to charities. It’s a day to think of others and how to help them out.

In the spirit of giving, we’d like to help YOU by reminding you that your financial health depends on you giving time to yourself, your dreams, your income, and your expenses.

 

Spending a little bit of time every week reviewing your spending will go a long way to making you more financially healthy. People with good financial health are like people with good physical health, they take the time to focus on making themselves healthy.

Things to review each month:

1. Were my bill(s) paid correctly?

Did I pay my bills on time? Do I know how much I paid? Some people sit down once a month to pay bills while others have their bills paid automatically. Either way works, but those who pay automatically often don’t take the time to review their finances at all. Make sure you do!

2. How is my checking account balance looking?

Do I have enough for next month? Do I need to cut back? Do I have a little extra to put into investing so my money starts working for me?

3. What bills are being paid next month?

How much do I expect them to be? Am I prepared? Do I need to change my day to day spending to cover the big bills coming? Am I saving for future expenses like insurance every 6 months, a car in four years, being financially independent at some point in the future?


And once a year, take a look at your big picture. How much money are you spending? Look at the outflow on your checking account balance AND look at the growth in your credit card balances. Add them together and that’s how much is flowing out.

Keep track of the monthly inflows and outflows.

Do this by using an app like You Need a Budget or Mint, or create a spreadsheet. Is more flowing in or out?

If you see that more is flowing in, that’s great! Go one step further and look at how much you’re investing in your future. Do you have an emergency fund? An opportunity fund to go to the wedding or visit the friend that moved to India for a year? Are you accumulating wealth that will allow your investments to pay your paycheck one day and give you the freedom to choose not to work for someone else if you want?

If more money is flowing out, oops! Where are your big expenses? Housing? Car payments/repairs? Eating out? You can make a huge impact by having a roommate or becoming a roommate or moving to a smaller apartment or cheaper area. And just because you MADE a decision about that car doesn’t mean you can’t change your mind. Even if it costs you more in the short term, if it saves big bucks in the long term it’s more than worth it.

Before giving money on Giving Tuesday, make sure you give yourself the time to be financially healthy, the money to invest in your future, and then give what you can afford to others and feel good that you didn’t bust your budget doing it. And maybe that means giving your time volunteering at a charity instead of giving money. Time is precious and very much needed at charitable organizations! Just remember, whatever you give will be appreciated! 

Happiest of Giving Tuesdays from team SBFP!

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

Tara Unverzagt February 8, 2019 No Comments

3 Spending Best Practices to Help You Feel Less Uncomfortable with Your Financial Situation

“How am I doing financially? Am I ok?” I hear these questions frequently. And there are other frequently asked questions. “Do I have enough money for emergencies?” “How will I pay for college for my kids?” “Can I afford to spend money for [fill in name of your dream money sink hole] now?” Whether they want to buy a new car or remodel their kitchen or they get a sinking feeling when the stock market drops, most people are uncomfortable regarding their finances. Frankly, being a little nervous about your finances is a sign that you’re paying attention which is good.

“If I buy this car now, will that impact my vacation plans?” Maybe. It’s not a simple question to answer. If you have read past articles, you’ll know that I’m a big proponent of “spend less than you make,” a concept that’s easy to understand and, oh, so difficult to execute. If you spend less than you make, you should have a stash of cash to use for things like buying a car — without needing to take out a car loan. Okay, so far?

Three concepts to consider when spending money

1. Money in the bank is for spending, right?

“If I have enough cash in the bank to pay for the car, I can afford it, right?” I used to run the numbers for people to see how reducing their net worth by $XX,XXX will impact their goals. Even that seemingly simple question may not have a simple answer. Sometimes, it’s easier to reach long term goals if you move the money for it out of your bank account and into a long-term saving account.

2. Don’t just consider THIS purchase.

Sharon and Steve like to cook. They spend all their free time in the kitchen. A big part of their budget is spent on food and pots & pans. They spend less than they make and have a budget that works for them. They asked me whether they can afford to remodel their kitchen to make it a really wonderful place to cook in. I looked at their lifestyles and how that expenditure might impact their overall objectives. The numbers said yes, they have been saving money and have no debt; they should be able to afford the new kitchen and still meet their other goals.

I also knew that, if they remodeled the kitchen, there was a good chance they’d go out for dinner and entertainment less because they’d be enjoying their new kitchen. I knew they wouldn’t be back next year asking whether they could afford to buy a fancy car or go on a luxury trip. Cooking is their passion, and the remodeled kitchen will help make their lives more enjoyable for years. Sharon and Steve aren’t spending to make themselves happy. They are already happy, and their new kitchen can help them enjoy their hobby even more.

Zach and Kimberly asked me whether they could afford to buy an expensive car. I looked at the numbers and, yes, they could afford to buy that car. It wouldn’t impact their long-term objectives much. But they always struggle to spend less than they earn. They often turned to debt to pay for things they want. Given their spending habits, they will likely be back next year wanting to take their family to Asia. The year after they will want to remodel the basement. Their list will go on and on.

The new car will make Zach and Kimberly happy right now, but they probably won’t really be satisfied or happy in the long run. They need to reflect on the “need” they are trying to satisfy and address that first. Are they just bored, looking to impress their friends, or in some other way not happy with their current car? Until they know the answers to those questions, they shouldn’t buy that expensive car.

When making any important decision about spending, you need to stop and think about your values and your long-term goals. Think about a major purchase you made five years ago. Do you even remember any? If you do, is it important today? Is there something you’d like to buy today that is more important than that was? What might you want to buy five or ten years in the future? Is that more important than what you’re thinking about buying today? Money spent today is money that you don’t have tomorrow for something that may be more important to you.

3. Money Doesn’t Buy You Happiness

Money enables you to have choices, but there’s no guarantee that it will make you happy. Much research has been done on people who received a windfall of money and spent it within a few years, buying everything they thought would make them happy. In the end none of those purchases increased their level of happiness at all, and they often ended up as poor as or poorer than they were before. (As a matter of fact, a study showed that even the neighbors of a lottery winner often ended up poorer in the long run, too!) What went wrong?

Someone recently said, “The people I know who ‘made it’ and are wealthy are the only people that know what money can’t do for you.” If you’re thinking “if I only had more money than…, I’d be” – happy, respected, secure; know that those feelings can’t be purchased by money. You have to find happiness yourself. And it could be as simple as changing the stories you tell yourself.

Your Budget Tells Your Story

Spending less than you make is the goal. If you find it difficult to achieve this consider what’s important in your life and make sure that every dollar is used to enrich your life and bring you satisfaction. We find that apps like YNAB can help you get organized, see where your money is going, and make sure you get the most out of every dollar. Take control of your spending and don’t let marketing, your friends, or your family make you feel badly about how you live your life and spend your money. Let your budget tell your story and be proud of it.

Ready to Gain Control of Your Financial Situation?

Enter our BRAND NEW Financial Coaching Program.

Our Financial Coaching Program is truly the first of its kind, and allows you affordable access to a financial planner. Most Financial Planning options are set at an incredibly high price point. Not this program. This program is affordable and is aimed at working on all things finance 101 – still alongside an experienced financial planner!

This program allows us to easily serve as your financial coaches and help steer you in the right direction. We’ll accomplish this through a series of meetings in which we establish tangible goals to work towards, and discover your emotional drivers behind all of the decisions you make. By coupling your goals and your “Why?”, we’re able to help keep you on track by channeling your core values rather than just throwing numbers at you.

Once we’ve established your goals and your “Why?” we take a deep dive into your current financial life.

Accountability and follow through are keys to the success of this program, and are why we firmly believe that, together, we will be successful in reaching your goals.

With the South Bay Financial Partners Financial Coaching Program you can expect to live a less stressful and more fulfilling life by changing the way that you manage your finances.

Interested? Schedule a call with us HERE to learn more!

Tara Unverzagt February 1, 2019 No Comments

What’s Holding You Back? – A Reflection on Financial Success

Let’s take a moment to reflect today. What are your financial goals? What are your life goals? Almost always, there is overlap between them, and that overlap usually is happiness. What is happiness for you?

A partner whom you love and who loves you? Children who are happy and healthy, who are able to pursue their goals in life, and who love and are loved?

Enough money to buy and do what you want whenever you want it?

A debt-free life?

Whatever goals you’ve identified for yourself, do you have a realistic action plan to achieve your goals?

(As tempting as they are to imagine, winning the lottery, inheriting money from unknown sources, inventing some unidentified do-hickey that everyone will buy, being discovered somewhere unexpectedly and becoming a movie star probably don’t fit the criteria for a “realistic” action plan.)

Previous articles have offered realistic roadmaps for your success. Have you been able to stick to a plan for budgeting, spending, and saving? Investing, compounding, harvesting your rewards? “Spend less that you make.” “Have a regular savings plan.” “Buy low, sell high.”

On paper, at least, financial planning sounds easy, right? Why are so many people unable to get their financial house in order? There are more answers to that question than can be answered here, but if you still struggle with finances, you may need to start with looking at yourself and identifying some of the bumps on your road to success.

Are you telling yourself money stories that aren’t helping you?

They may involve buying rewards for yourself because “you deserve it” or spending too much money going out on the weekend because “life is short” or “spending time with friends is important.” Both sayings are, no doubt, true, but are there ways to do them honor without spending too much money? Maybe you tell yourself that buying a big, beautiful house is always a good investment. Guess what? Even a house can be just another consumer good that’s draining your bank account.

Sometimes you can’t tell your family and friends that you can’t afford to do what they’re doing. I’ll let you in on a secret: there’s a good chance they can’t afford those things either. They may be going into debt living the life “they deserve” or “they expected.” Don’t follow them down the path.

Take a hard look at what’s important to you.

Does your budget reflect your values and your goals? Or do they reflect the values of the “friends you keep.” Sarah Newcombe, a senior behavioral scientist at Morningstar, Inc., says that comparing ourselves to others is hardwired into our brains. She recommends choosing carefully whom you compare yourself with. If it’s Kim Kardashian and you realize she doesn’t really represent who you want to be, you might want to choose a new role model. A better model might be the quiet, unassuming millionaire next door who doesn’t drive a fancy car but was able to pay his kids’ college tuition without going into debt.

Decide what’s important to you, find a healthy role model who has achieved what you want to achieve, and then compare away. Newcombe says that your odds of being satisfied with your finances and life will increase with a healthy financial role model.

If you need help figuring out what you want from life and your money, contact us at South Bay Financial Partners. We can help you put the pieces of your personal puzzle together to make a beautiful picture that we call our lives. Schedule a FREE consultation with us here >> https://calendly.com/SBFP-Call

Tara Unverzagt January 18, 2019 No Comments

Are You Ready to Start Saving Money?

Saving money doesn’t happen by accident. It doesn’t happen because you want it to happen. Saving money takes some thought, planning, and action on your part. As they say: the definition of insanity is doing the same thing over and over again and expecting a different result. If aren’t saving and would like to, you need to find a new approach.

Bubble Gum Money vs Savings

Raising my kids, I gave them an allowance at a young age so they could learn about money. You can read more about teaching children financial skills in our article Saving Your Bubble Gum Money. In my house, bubble gum money was money the kids could spend immediately on anything they wanted. (My youngest used it mostly for buying bubble gum when she was under 5 years old.) But they also saved some of their allowances. They couldn’t touch “savings” unless there was something they were “saving” for. In a four-year old’s world “saving for the future” meant they had to wait at least a week before they were allowed to make the planned purchase.

If you see something and buy it, you should be using your bubble gum money. Otherwise, you should put money aside to save up to make important, large purchases that you’ve thought through carefully.

If all your money is bubble gum money, you’ll never accumulate assets that are needed for things like taking a year off work, buying a house, having kids, retiring.

You may not even have enough to pay for a simple vacation. Once you have learned the difference between bubble gum money purchases and planned expenses and transitions, you’ve taken your first step toward financial success.

Never fall in the trap of borrowing in order to “spend less than you make.” Any consumer purchase (furniture, a phone, a car, anything that does not increase in value) should be purchased with money from your savings. Borrowing (payment plans, leasing, etc.) to consume allows you to feel like you’re spending less than you’re making, but you aren’t. The credit card companies, banks, and stores love to convince you that “you can afford this low monthly payment.” Those “low monthly payments” can add up to big debt very quickly. Don’t fall for their trap.

Make Saving a Habit

How much should you save? There is no one answer to this question. It depends on your expenses, your income, your future plans, what’s going on in your life right now, etc. The rule of thumb is 10%-25% of your income should go to savings (and paying down debt). If you’re a single mom making $30,000 living in Los Angeles, CA, you are not likely to be able to save 10%. But save what you can. Save something. Anything. Even $10 weekly is better than nothing.

Saving is a habit. The first step is to integrate the habit into your life. When you get your pay check, put some into your saving account. It doesn’t matter how much–just do it. You can set it up to have it go automatically into savings without any thought.

When you get non-paycheck money, make it a habit to transfer a certain percentage to savings, such as $10 for every $100 you receive. When you get your tax refund, you’ll be in the habit and will put whatever percentage into savings. When you get a bonus at your job, you automatically save a percentage. Better yet, put is all in saving and give yourself some to splurge. Put the $100 in your saving account and give yourself $10 to blow on whatever you want. You weren’t expecting that money anyway.

A habit is a trigger, an action, and a reward. The trigger is “you receive money.” The action is “you put money into savings.” It’s important to have a reward to make the habit stick. You might check your saving account balance and have a happy feeling. You may see how close you are to reaching your goal. You may invest your cash every time you hit $1,000 (another good habit). A simple act like saying “ka-ching” like a cash register adding up the total, can be a reward. Find what works for you.

As you watch your saving account grow, or not, you should be motivated to save more. When you get to the point where the money comes in and the first thing you think is “put my savings away,” you’ve developed the habit. Congratulations!

Make a Savings Plan

There are three levels of savings: emergencies, opportunities, and asset accumulation. Your emergency fund allows you to have money on hand to take care of unexpected or anticipated, but not planned problems. Your opportunity fund allows you to have fun or take advantage of opportunities that come up. And asset accumulation allows your money to pay yourself at some point in the future.

We all find ourselves in a position that an unexpected expense pops up from time to time. Plan for it. If you want to stay away from the high cost of credit cards and pay day lenders, have an emergency fund to fill that need. If you want to have fun and not feel like you’re living paycheck to paycheck, have an opportunity fund. And if you want to one day have a choice to retire or cut back on working full-time, think about accumulating some wealth so you can pay your own paycheck.

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

admin September 28, 2018 No Comments

Student Loans 101

Written by: Stuart Pyne, Associate Advisor at South Bay Financial Partners.

College is supposed to be “the best four years of your life,” filled with long hours at the library, meeting lifelong friends, and creating experiences you’ll have for the rest of your life. Simultaneously, it has also become “the most expensive four years of your life,” and, for most people, making decisions about financing your education, student loan options, and the inevitable debt begins at the ripe old age of 18. As a high schooler, you’re faced with one of life’s biggest decisions at a time when you’re still developing. Trying to decide what you want to do for the rest of your life can often seem daunting, but, nonetheless, you must make a decision. Deciding which school to go to and what to major in will have countless impacts on you for years to come.

As a recent graduate of Case Western Reserve University in 2016, I have found there is no worse feeling than having debt lingering over my shoulder, especially at the age of 22. Having learned from my mistakes–and my successes–I hope that this article will help those of you who are preparing yourself or a loved one to go to college. If I could go back and speak to 18-year-old Stuart, I would share some thoughts that I’ll cover in a series of articles starting with this one.

The Different Types of Student Loans

Student loans come in many different shapes and sizes. Before choosing any of them, you need to understand the differences among all of the options that you could be presented. They break down into two categories: federal and private.

Federal loans are offered through the U.S. Department of Education as either Direct Subsidized, Direct Unsubsidized, and Parent PLUS. Subsidized loans come with slightly more favorable terms but are strictly provided to students who meet the requirements of being in “financial need.” The main benefit to Subsidized loans is that they are offered at a low-cost and fixed rate, with the interest being paid by the government while you are in school, hence the term “subsidized”.

Unsubsidized loans are available to everyone and also come low-cost and at a fixed rate.  The key difference, however, is that the government does not pay for the interest that accrues on the loans while you are in school, which means you are on the hook for a larger bill.

Parent PLUS loans are available to parents who are paying for their dependent children’s college costs. Because they come with higher interest rates, students and parents need to utilize subsidized and unsubsidized loans before considering taking out a Parent PLUS loan.

On the other hand, private loans are taken out from banks, certain states, the college or university, and other non-bank financial institutions. The rates and repayment terms vary by institution, personal credit scores, income level, debt-to-income ratio, etc., very similar to any other loan you would take out from a private institution. Due to the lower costs and repayment terms of Federal loans, a general rule of thumb is to explore those first and then pursue Private loans after you have shopped them, to ensure that you get the best possible rates and terms.

Best Practices for Student Loans

Understanding different types of student loans is important but equally as important is knowing how to utilize them. Obviously, there are many different factors that will be in play, such as money or investments that can be used, eligibility for financial aid or scholarships/grants, and ability to work while in school, so each individual’s situation will be different. Your best option is to sit down with an expert and make your decision based on your personal situation, but I will lay out a general blueprint that you can follow when you are considering student loans.

If you qualify for Subsidized loans, it is of utmost importance to make sure you utilize these first, followed by Unsubsidized loans. Following those, you can consider private loans up to the amount that is needed to cover the total costs of attendance.

Note that if you don’t use a Direct Loan one year, you are not allowed to go back and reclaim it for the current year–they are very much “use it or lose it”. A common mistake people make is failing to budget their resources for all four years and running out of resources the final years and, consequently, being cornered into taking more expensive student loans.

If, for example, you have $20,000 saved and allocated for costs of attending, you’re better off allocating $5,000 per year to tuition from a 529 account in order to maximize the number of Direct Loans that you are eligible for. Below is a chart that shows how much in Direct Loans you are eligible to receive per year for an undergraduate student who is still a dependent of his or her parents.

 

$5,500 total, no more than $3,500 Subsidized $6,500 total, no more than $4,500 Subsidized $7,500 total, no more than $5,500 Subsidized $7,500 total, no more than $5,500 Subsidized
Year 1 Year 2 Year 3 Year 4

Considerations When Picking a College

There is absolutely nothing simple about college planning, and, unfortunately, understanding the types of student loans is only one piece of the puzzle. Deciding which college to attend goes beyond just a school ranking, location, major, etc. For best college planning, you must analyze all of your and/or your child’s financial and academic information to determine eligibility for need-based and merit-based financial aid, which can then be referenced against a list of schools to maximize scholarships. In addition, it’s important to understand the differences among schools and how they award financial aid.

The sooner you start planning for the cost of college the better. For parents, spending time planning when your children are young, picking the right school when they are in high school, and planning how you will fund each year can reduce the amount you may need to borrow and the types of loans you have access to.