5 Ways to Get your Financial Life in Order

By: Kerrie Beene, CFP®

Happy New Year!  With 2020 in the rearview mirror, we are hoping for a great 2021.  

January is a great time to think about getting all of your financial paperwork organized.  Organizing will create a calm space, save time in the long run, and help prepare for tax season.  Below are 5 ways to help get your financial life in order.

Organize all your Paperwork and Accounts

• Organize all documents that are kept in physical form.  While we like to think we live in a digital world, often we still have important documents that need to be kept in a file in our home.  Take the time to get these files organized appropriately.  

• Organize all documents stored online.  Some documents can be stored in an online storage system such as google drive.  We recommend creating a secure organized folder system for this as well.  

• Utilize a password app for all of your passwords.  One of the biggest struggles clients have is remembering the password for all of their accounts.  We recommend utilizing a system such as LastPass to create a secure place to store all of your passwords.  Just remember to create a secure password for your password app login.  Once you have your passwords in one place, it is a lot easier to stay organized when you need to login to those accounts.

Create a Financial Snapshot of where you are Today

• Create a list of all of your assets and liabilities. Assets are anything you own and liabilities are anything you owe.  

Assets Liabilities

Checking Accounts             Mortgage

  Savings Accounts             Auto Loans

Retirement Savings         Consumer Debts

Investment Savings              Personal Loans

      Real Estate           Student Loans

Autos

• Calculate your Net Worth.  Net Worth = Assets - Liabilities. 

Track your Expenses

Create a Spending Plan (a.k.a. Budget).  This may be one of those dreaded things but getting control of your spending can be one of the most calming exercises you can do this year.  There are a lot of resources available to assist in creating a spending plan. 

• There are online tools such as mint.com and YNAB. These connect to your accounts and do some of the tracking for you. It will allow you to change how transactions are classified and create an online budget.  This may be a good option for you.  

• We have found the most success with clients who utilize an excel spreadsheet or google sheet.  This allows you to become more aware of your transactions and categorical spending because you are doing the categorizing yourself.  As we enter those expenses, we are rethinking whether the purchase aligns with our goals.

• We are very excited to announce that we have created a very easy to use google sheet called the Mindful Spending Plan.  This is available for our current clients and can be a service by itself as well.  We are also creating a course that includes the google sheet and videos on how to use it that comes out on January 15th.  

Create Savings Goals and a Debt Paydown Strategy

• Savings Goals allow us to have the cash available when needed and not use credit cards for those expenses. Below are a few example savings goals;

  1. Emergency Fund - 3 to 6 Months of Living Expenses in case of an emergency such as a job layoff or temporary disability

  2. Larger Expenses - Prepare for larger expenses such as auto expenses, home repairs, etc.

  3. Holidays/Vacations - Begin saving for holidays and vacations as your priorities allow.  Planning out how much you can save each pay period will allow you to create an appropriate spending plan for these expenses

• Debt Paydown - creating a debt paydown strategy will allow you to focus on getting rid of the unnecessary debt.  This will free up cash flow to fund some of the fun savings goals.  As part of our Mindful Spending Plan, we have included a debt paydown plan.  You can also find resources online to assist in creating a debt paydown strategy such as debt snowball or debt avalanche utilizing this calculator.

Automate, Automate, Automate

• The more you can automate bills, transfers to savings, and debt paydown, the more likely you will accomplish your goals.  

• Most bills can be set up to be automatically taken out of your checking account. Make sure you have prepared your spending plan and the money will be in the account. 

• Transfers can often be set up through your online banking website.  Once you have created your savings plan, calculate how much time until you need the money and create a weekly, bi-weekly, or monthly transfer to meet those goals

Happy New Year and Cheers to 2021!

5 Reasons to Consider the High Deductible Plan with a HSA (Health Savings Account)

During open enrollment one important decision that has to be made is which medical plan is best for your situation. When comparing the health care plans, if you have a plan option with a high deductible paired with a health savings account, do not immediately rule it out. Below are 5 reasons to consider this plan:

1. Triple Tax Advantage

   • Money put into your HSA is with pre-tax dollars

   • Withdrawals are tax free, as long as used for qualified medical expenses

   • Can often be deducted automatically from your paycheck

2. Pay medical expenses with pre-tax dollars

   • Use HSA funds to pay for qualified medical expenses (including dental and vision services)

   • Without the HSA, the only other way to deduct medical expenses is by itemizing your deductions on your tax return and they must exceed 7.5% (2020) of your gross income

3. HSA is Portable

   • The HSA is owned by you and does not have a “use it or lose it” option

   • If you deposit money into the HSA, the funds remain in the account and are available in future years

   • This is the primary difference between the HSA and the FSA

   • If you change jobs, the HSA can go with you

4. Account Grows

   • Funds are kept in interest bearing account (similar to bank accounts)

   • Can be used as a long term investment and based on your risk tolerance, invest in the stock market

5. Additional Retirement Account

   • After age 65, the HSA can also be used as a retirement account.

   • Will be treated similar to a Traditional IRA. When withdrawals are made you will only pay income tax.

   • Unlike Traditional IRA’s, you are not required to make withdrawals at age 72

Tips to Prepare for your Teenager's First Car

By Kerrie Beene, CFP®

Since Oprah stopped giving cars away in 2011, we recently had to face the challenge of getting our daughter a better vehicle.  While her getting older and purchasing this car should have come as no surprise, it came faster than we wanted (we should have started earlier!!) and I wanted to share a few things we did to prepare for the purchase of the car.   

• Utilizing Savings

  • Fortunately, when she was younger we started saving money she received for Birthdays and Christmas.  At the time, we did not designate it as car savings but we knew one day it would be used on her.  Consider this option when children receive cash as a gift.

  • We eventually designated this account as the car savings. This decision helped us save even more and gain the momentum needed. It is easier to save for something when there is a specific goal in mind.

• Throwing all Extra Funds into the Savings

  • Since she was able to work while going to school, she has been able to save money.  Any extra cash she had, she threw into the savings account.    

  • As parents, we decided to participate in the momentum and began matching her savings. We were able to encourage her by adding to her savings when we were able.   

• Create a Physical Savings Chart

  • There are a ton of printable savings trackers online and you can fill them in as you go to track progress.

  • It is also a constant reminder of the end goal and will help maintain unnecessary spending on other things

• When the time arrives to Purchase, Choose a Budget!

  • There is no right or wrong here, everyone is different. But it is important to decide ahead of time or that new car smell will play with your emotions. 

    • One school of thought is: the total value of all your vehicles should not be more than half of your annual income. (If you own 2 vehicles that are worth $20,000 each, or $40,000 total, your annual income should be at least $80,000.) 

  • As a couple, we sat down and talked about what we agreed was a fair amount to spend on a car for a 17 year old student.

• Involve your Teen in the Purchasing Process

  • Begin by looking both online and in person.  You want to teach your teen how to make an informed decision on type and price.

  • Researching ahead of time plays an important role in the safety of the vehicle and the purchase price.  

  • Starting early helps control an emotional purchase.  When you are not in a hurry, you can make more informed decisions. 

• Utilize a Teachable Moment

  • As a CERTIFIED FINANCIAL PLANNER™, I know the importance of teaching money lessons to kids at an early age. Use this opportunity to teach them about the true cost of vehicle ownership.

    • Teach about auto loan interest and financing options.

    • Share your philosophy on borrowing.  Include co-signing, who makes the payments, and what happens if you do not make the payments.

    • Don’t forget to talk about the forgotten costs of vehicle ownership, such as insurance, maintenance, and fuel.