Financial Planning

3 Important Financial Tasks To Do in April

· April 6, 2016 · Financial Planning · , , , · No Comments

#1 Finish Your Taxes

For 2016 the deadline to submit your tax return is April 18th. The reason for this is that typically Washington, D.C. celebrates Emancipation Day on April 16th, the day President Abraham Lincoln signed into law a bill ending slavery in Washington, D.C. This year, however, the 16th falls on Saturday, so Emancipation day is being celebrated on April 15th and the tax filing deadline is pushed to April 18th.

Nevertheless, by April you should have your tax return completed. If not, and you can’t make the deadline for filing, April 18th is also the deadline for filing a six month extension Just keep in mind, if you owe money you will still need to pay your taxes by April 18th even if you file for an extension.

#2 Update Your W-4 Withholding

Once you’ve completed your tax return you may need to update your withholding allowance on your W-4. What’s your withholding allowance? According to Investopedia it is “the employee-claimed exemptions on the tax form W-4 that employers use to determine how much of an employee’s pay to subtract from his or her paycheck to remit to the tax authorities 1.” The more allowances you claim, the less income tax will be withheld from your paycheck.

How do you know if you need to update your withholding allowances? Well, are you getting money back? Do you owe any money? Either way if those are large numbers you should consider changing the number of allowances you are claiming on your W-4. Speak to your tax preparer to help you figure out what changes you should make.

#3 Spring Cleaning

It’s great that Spring and Taxes go hand in hand because it gives you the opportunity to purge once you’ve completed your return. You’ll want to shred documents you no longer need and file those you do. Better yet, start using an online filing system like FileThis to help you automatically aggregate all your electronic documents. This way you don’t have to deal with paper at all!

Wondering how long you need to keep your documents? Here’s the basic rule: Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later. For more details on how long to keep your documents, read this post on the IRS website.

For more financial planning tips, download my free report: “8 Steps to Organize and Optimize Your Financial Life”. Thanks for reading!

How to Take Advantage of A Down Market

· March 9, 2016 · Financial Planning, Investing, Uncategorized · , · No Comments

This article was originally published on NerdWallet.com

You’ve heard the old saying about investing success: Buy low and sell high. It sounds easy, doesn’t it? The problem is, no one knows exactly where the peaks and valleys are until after the market has reached them. That’s why it’s important to have an investment plan and stick to it.

How can the average investor find success in buying low and selling high? Here’s the secret: continually contribute to a diversified portfolio and rebalance it when your portfolio’s allocation falls outside its target range.

The Secret: Dollar Cost Averaging

Dollar-cost averaging is the key to a long-term investment strategy. It means contributing a set amount of money to your portfolio on a regular basis.

If you contribute to a 401(k) or 403(b) plan, you’re already doing this; every time you get paid, a certain percentage of your paycheck is deposited and immediately invested into your portfolio. There’s no consideration of market conditions. It doesn’t matter if the market is up or down; your money will get invested.

Here’s where the magic happens with dollar-cost averaging: When the market is down, it’s like getting your investments at a discount. You get to buy more shares of the same investment for less money.

Compare that to the alternative — a lump-sum portfolio, in which a larger sum is invested at one time, without regular additional contributions. With lump-sum investing, the available cash has already been invested, and taking advantage of sale prices becomes more difficult.

How Do I Benefit When the Market Recovers?

When you’re contributing regularly to your investment portfolio and purchasing shares at a discount during a bear market, you increase your upside potential when the market recovers.

When you take a lump sum of money and invest it, you initially have many more shares in a given investment than you would have if you spread those contributions out over a longer time. When the market declines, your lump-sum portfolio declines with it, but you’re not buying any additional shares at a discount like you are with your dollar-cost-averaged portfolio. You could end up with the same number of shares in both portfolios, but the average price per share in the dollar-cost-averaged portfolio will be lower.

This is why your 401(k) and 403(b) portfolios will seem to perform better than your lump-sum investment portfolio. In fact, they often do perform better because, over the long term, you end up purchasing your investment shares at a lower overall cost per share. So when the market recovers, you can be proud of yourself for buying at the bottom.

Stay Invested for the Long-Term

Dollar-cost averaging gives you an advantage over lump-sum investing, but in either case it’s important to stay the course and stay invested. Heading to the sidelines during market volatility greatly reduces your chances of long-term investment success.

The key phrase here is “long term.” If you are investing for the short term, market volatility is not your friend, and frankly, you probably shouldn’t be investing at all. Having a short-sighted view of the market causes many to abandon ship at the worst possible time and potentially end up buying high and selling low — the exact opposite of what you should be doing.

If you do have a lump-sum investment portfolio, don’t fear. You can still take advantage of market downturns by rebalancing your portfolio. What this means is that you move money out of the best-performing asset classes — whether they be stocks, bonds or Treasuries — and into the underperforming asset classes. This allows you to maintain your target asset allocation and helps you avoid being “overweighted” in an asset class that has performed well but may decline in the future. This is the essence of buying low and selling high.

Be the Tortoise

Although market downturns are no fun, they’re inevitable. The reason you have the potential to receive higher rates of return on your investments is because you take on the risk of losing money.

The best advice is to be the tortoise, not the hare. When you’re in the accumulation stage and building your nest egg, practice a slow and steady approach to investing. Stay the course, no matter what the markets are doing.

On the other hand, during the decumulation stage of your portfolio, you may need to minimize your exposure to equities to protect yourself from not having the money when you need it. Most importantly, during this stage, make sure your retirement income plan accounts for the inevitability of market downturns — and follow through on that plan.

I hope this gives you the confidence you need to stick to your investment plan no matter what is happening in the markets. If you don’t have a plan, start building one and set the goal of seeing it through.

For more financial planning tips, download my free report: “8 Steps to Organize and Optimize Your Financial Life”. Thanks for reading!

Top Money Posts: Week of March 7, 2016

· March 7, 2016 · College Planning, Financial Planning, Investing, Retirement, Uncategorized · , · No Comments

My Recent Posts on Nerdwallet’s ‘Ask an Advisor’

From Around the Web

  • Market downturns can have an adverse affect on a retirement income plan. Here are my tips for dealing with this inevitability.
  • Here’s a quick look  at your other options for college savings besides a 529 plan.
  • Retiring at 40 is a tough goal to achieve. Learn 5 lessons from people who actually pulled it off.

  • Many people have concerns about paying for traditional long-term care insurance policies since they may never use them. To combat these concerns, insurance companies have developed hybrid LTC policies that combine life insurance with long-term care. Are they right for you?

Great Resources

  • Need a simple and easy to use tool to help you keep track of your budget. Take a look at youneedabudget.com (YNAB). Great for people who love tech that can help improve their life!
  • Got taxes on your brain? The IRS has a pretty good YouTube channel. It’s particularly worth checking out their videos on ID theft.
  • Use our retirement Check-Up tool to see if you are on track with your retirement savings goals.

If you like this post, you might also like my FREE report: “8 Steps to Organize & Optimize Your Financial Life”. Check it out here!

Is There a Magic Number For Your Retirement Savings?

· March 2, 2016 · Financial Planning, Retirement, Uncategorized · · No Comments

Sorry to burst your bubble, but I don’t believe in the ‘magic number.’ Unfortunately, your wants and needs along with the unpredictability of life cause your ‘number’ to change over time. If you are not regularly assessing your financial situation, having a single number stuck in your head could be counter productive to your success.

So What Do I Do Now?

Instead of focusing on your ‘magic number’, I recommend building a solid retirement plan, setting a goal to save 10% -20% of what you make, invest your money, and regularly review and update that plan. In order to more accurately determine how much to set aside for retirement, you need to have a clear idea of how much you are spending annually to support your current lifestyle. Next, you will need to think through how those expenses may change in retirement. Will you move to a less expensive location? What about commuting expenses? How often will you need to purchase vehicles?  Once you’ve thought through those possibilities, or any others, you will want to think about the lifestyle you hope to have in retirement. Do you want to travel or are you a homebody? Do you want to join a club or take up a new hobby? Think about how much each of these activities may cost and work that into your plan.

What Else Should I Look At?

The next piece of the puzzle is to take a look at any guaranteed income you may have from Social Security, pensions, or annuities. The more guarantees you have the less you’ll need in savings to replace your income during retirement. Also, it’s a good idea to think about whether you will continue to do some type of work to assist in meeting your income needs. My final recommendation is to factor in your health. Are you relatively healthy or do you need to plan for additional medical costs during retirement?

Run the Numbers

Truthfully, the closer you get to retirement the more accurate your projections will be. However, when you are younger you can still work with approximations and run monte-carlo simulations on your numbers. Just be sure to revisit those numbers on a regular basis to account for changes in your income, spending habits, and lifestyle. As a rule of thumb, you will typically need to replace 70%-90% of your pre-retirement income to maintain your pre-retirement lifestyle. But, keep in mind, this is merely a rule of thumb. Your personal needs can vary depending on the factors I just discussed.

How much you’ll need for retirement is directly dependent on the lifestyle you envision. If you are willing to make some sacrifices or have enough guaranteed income you may not need to save as much. On the other hand, for most people, if you want to maintain your current lifestyle you’ll need to save and invest regularly and monitor and adjust your retirement plan on an on-going basis in order to create the retirement lifestyle of your dreams.

Want a quick assessment of where you stand for your retirement? You can use my Retirement Check-Up tool to see how you are doing right now and if you might need to make any adjustments to your plan.

For more financial planning tips download my free report: 8 Steps to Organize & Optimize Your Financial Life. It’s packed with helpful advice, useful tips and valuable resources.

To learn what I can do for you visit www.weiss-financial.com.

Top Money Posts: Week of February 15, 2016

· February 17, 2016 · College Planning, Financial Planning · · No Comments

College and Taxes seem to be on everyone’s mind this time of year so I figured I’d share a few articles on both topics worth checking out:

From Around the Web:

I’d love to hear from you! Feel free to post a comment in the “Leave a Reply” box below if you have thoughts or questions about any of the articles I’ve shared, or simply click the “Like” button.

You can also let me know if you are enjoying the content I am sharing and if there is anything in particular you’d like to read about or have me write about. My goal is to send you these round ups once a month and write at least one original piece of content per month. Thanks for reading!

 

How to Protect Your Loved One’s Financial Future

· February 8, 2016 · Financial Planning, Insurance Planning, Video · , , , · No Comments

Financial Planning Tip: February

As Valentine’s day approaches, we are thinking about the one’s we love and coming up with ways to show them we care. Once you have finished purchasing your cards, flowers and chocolates take some time this month to think about those people and whether you have appropriately planned for them. It may not be the most romantic thing to do, but now is a great time to sit down and determine if you have the proper insurance coverage to protect your loved one’s if you are not around to provide for them or if you become incapable.

To get started, ask yourself a few questions. Have your needs changed over the years? Did you get married? Did you have a child? Did you retire? Are you thinking about retirement? Have you taken on other financial responsibilities that would negatively affect the people you care about should you pass away too soon? The answers to these questions will help you figure out if you need to make some changes to your coverage. You should periodically evaluate your life insurance coverage, disability insurance coverage, and determine if long-term care insurance is appropriate. There are many resources online to help you get started. For example, to get a basic idea of how much life insurance coverage you may need, use this online calculator as a starting point. Thinking about your own demise is no fun at all, however with smart planning you will sleep better at night knowing you have taken the right steps to protect the one’s you love most.

Watch this video for even more tips:

If you would like to discuss your particular situation and how much insurance you may need to protect your family, feel free to contact me at sweiss@weiss-financial.com.

For more financial planning tips download my free report: 8 Steps to Organize & Optimize Your Financial Life. It’s packed with helpful advice, useful tips and valuable resources.

To learn what I can do for you visit www.weiss-financial.com.

How Big Should Your Emergency Fund Be?

· February 2, 2016 · Financial Planning, Spending & Saving · 2 Comments

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Having an emergency fund is essential to a successful financial plan. You won’t truly understand how important it is to your financial health until the day comes when you absolutely need it. So, how much do you actually need in your emergency fund?

Rule of Thumb

The basic rule of thumb has been 6 months of take home pay or 6 months basic living expenses. However, the problem with rules of thumb is that they don’t take into account the nuances of people’s lives. The size of your fund will depend on your personal situation and financial needs. Figuring this out is more art than science.

When I work with a client I actually do use a general rule of thumb as a starting point to determine how much they should have. I try to figure out if they should save 3, 6, 9, or 12 months basic living expenses or 3, 6, 9 or 12 months take home pay. What’s the difference? Well, for one thing saving for basic expenses may be a lot easier than saving for take home pay. However, saving only for basic expenses could mean a lifestyle change when you need to start tapping that fund. Whether you can make those changes is an important question you’ll need to ask yourself when building your fund.

Questions to Ask Yourself

Take some time to think about the list of questions below. The answers to these questions will help you figure out what your emergency fund goal should be:

  • How much do you take home in your paycheck every month?
  • What are your basic monthly expenses (i.e. groceries, mortgage, car payment, insurance, utilities, etc.)?
  • What are your extras every month (i.e. shopping, entertainment, dining, vacations, children’s activities, etc.)?
  • How much are your insurance deductibles?
  • Are you married or single?
  • Do you have anyone you are financially responsible for?
  • How secure is your job?
  • If you lost your job how difficult would it be to replace your income?
  • How long would it take for you to get another job?
  • Are you retired?

Now let’s take a look at my more broad rules of thumb and who they might be good for. Keep in mind, the examples I use below to illustrate a hypothetical emergency fund assume saving for basic living expenses. You will need to increase that amount if you want to save for take home pay.

The 3 Month Fund

In my opinion, this is the bare bones amount anyone should have in their emergency fund. When you are just starting to build a fund your goal should be to set aside 3 months of basic monthly expenses.

Who is this good for?

  • Anyone just starting to build an emergency fund (Having a small fund is better than having no fund at all!)
  • Someone in the early stages of their career
  • Someone who does not have any dependants or still lives at home

Example:

  • Monthly take home pay = $3,000
  • Monthly living expenses = $2,500
  • Emergency fund = $7,500

The 6 Month Fund

Once you’ve started to make some money and have responsibilities like auto payments, rent, student loans, etc. this should be your goal.

Who is this good for?

  • Anyone with financial responsibilities
  • A married couple with no children
  • Someone who many not have a mortgage

Example:

  • Monthly take home pay = $5,000
  • Monthly living expenses = $4,000
  • Emergency fund = $24,000

The 9 Month Fund

At this point in your financial life, you may be married, have children and have a mortgage. You have accumulated a good deal of financial responsibilities and a disruption in income will cause a significant lifestyle change.

Who is this good for?

  • Someone with a mortgage
  • A couple who have similar salaries
  • A married couple with children
  • Someone who feels they can land another job within 6 months of losing their current job

Example:

  • Monthly take home pay = $7,500
  • Monthly living expenses = $5,000
  • Emergency fund = $45,000

The 12 Month Fund

When your financial situation gets more complicated and your financial responsibilities have grown, you may need to consider this larger emergency fund.

Who is this good for?

  • A married couple with unequal incomes
  • Someone with a mortgage
  • Someone who is concerned it will take awhile to replace their income if they lost their job
  • A married couple with children
  • Someone who is fairly risk averse and knows they will sleep better at night if they have a large emergency fund

Example:

  • Monthly take home pay = $10,000
  • Monthly living expenses = $8,000
  • Emergency fund = $96,000

Bonus: The 24 Month Fund

This fund is reserved specifically for retirees. It covers a much longer time frame because the emergency fund serves a different function during retirement than it does during your working years. If you are taking systematic withdrawals from your investment accounts to fund your retirement, you should have at least 24 months of basic living expenses set aside to use during market downturns. This money should be in safe and highly liquid investments like traditional savings accounts, CD’s, money market accounts or money market mutual funds.

Who is this good for?

  • Retirees taking systematic withdrawals from investment accounts
  • Retirees not wanting to make lifestyle changes during market downturns
  • Retirees not wanting to reduce their withdrawals during market downturns

Example

  • Monthly withdrawal from investments = $2,000
  • Emergency fund = $48,000

5 Important Things to Remember

  1. Never invest your emergency fund in equities
  2. Always keep the money for your emergency fund in safe, highly liquid investments like traditional savings accounts, CD’s, money market accounts or money market mutual funds.
  3. If you deplete your fund, make it a priority to build it back up
  4. To assist in building your emergency fund, set up a separate, designated savings account and have automatic transfers deposited into that account
  5. Avoid using a line of credit as your emergency fund

As you have seen, there is no one right way to build an emergency fund. I’ve illustrated what I believe to be a prudent approach and provided a sample of possible solutions. As such, I tend to be fairly conservative and risk averse in my recommendations as far as emergency funds are concerned. To determine your ideal emergency fund, I encourage you to honestly answer the questions above and closely examine your personal financial situation. What is good for you may not be the same as what is good for someone else.

To learn what I can do for you visit www.weiss-financial.com.

Best Personal Finance Books of 2015

· January 6, 2016 · Financial Planning, Living Your Best Financial Life, Spending & Saving · , , , , , , , · No Comments

I often get asked for book recommendations, so I thought now would be a great time to pass along my favorite personal finance books of 2015. I’ve broken down my list into a few categories so you can find one right for you, but, truthfully, all of these are fascinating reads. As you’ll see, my favorites are those that manage to take complicated financial topics and explain them in an easy, approachable way.

Books

Best for Parents:
The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money.
by Ron Lieber

This was actually my personal favorite, probably because, being a parent, it had the most direct impact on my life. Any parent today can attest to how difficult it is to make our kids understand and appreciate all they have. Stuff is so easy to acquire these days that they often take for granted all they have. Lieber outlines many strategies for dealing with this modern parenting issue, however, his take on allowance was the most intriguing to me. The premise is in order to teach our kids about the value of money, give them a weekly allowance not tied to chores. The theory is if you want to teach your kids how to budget, save and value their money, give them a weekly allowance. If you are trying to teach your kids about discipline and the value of hard work then focus on their studies, extra curricular activities and sports programs. I had my doubts, but figured I it was worth testing out since my previous attempts at giving allowances to my 6 and 9 year olds fizzled out after a short period of time. Surprisingly, it worked for us. I started giving my boys $5 a week in April. My youngest son initially spent the money as soon as he got it. My oldest son decided he would save his money to buy a new Wii. Between his allowance, birthday gifts, and various holidays he accomplished that goal quicker than my wife and I expected. The deal is they can use the money for whatever they want. Toys, apps, video games, books, whatever, it’s their money. My youngest soon learned the value of saving and stopped spending his cash so quickly. The bonus for my wife and I was that the kids stopped asking for stuff all the time. After 4-6 months they realized they could get whatever they had enough money for (and mom and dad approved of). If they don’t have enough money they now know they need to save. What they haven’t totally figured out yet is that they could make more money if they started doing some work around the house! The author suggests paying the kids for tasks you might pay someone else for. I got my youngest son to do some weeding in the summer but so far I haven’t had much additional success. I’m not saying this will work for everyone but both my wife and I were very surprised at how quickly the kids learned to budget, save and learn the value of a dollar. Definitely worth a read.

Best For Planning:
The One-Page Financial Plan: A Simple Way to Be Smart About Your Money
by Carl Richards

I believe everyone should have a financial plan. The problem is if you don’t know where to start, are just beginning your career, or you are not working with a Certified Financial Planner, you probably haven’t created one. This book outlines how to focus on the big picture and create a simple, workable financial plan. It clears away all the noise that distracts most people from creating a plan and helps you stick to the important stuff and get you headed in the right direction.

Best For Everyone:
Happy Money: The Science of Happier Spending
by Elizabeth Dunn, Michael Norton

This is my second favorite book I read in 2015. Even though it was actually published in 2013 I kept in on my list because of how good it is. The idea behind it is that money CAN actually buy happiness… if you use it wisely. Their research revealed some fascinating things like luxury cars often do not provide more pleasure than economy cars, and that spending your money on experiences will give you more happiness bang for your buck than buying stuff. No doubt, after reading this book you will question where you are currently spending your money and if you are getting the most happiness you can out of those purchases.

Best For Pre-Retirees:
Get What’s Yours: The Secrets to Maxing Out Your Social Security
by Laurence J. Kotlikoff

Alright, admittedly this is the least exciting book on the list. I mean, who really wants to read a book about Social Security during their free time? Nevertheless, Social Security can be an incredibly confusing maze of options. Knowing which claiming strategy is best for your situation can be overwhelmingly difficult for most people without enlisting help. Choosing the wrong strategy can cost you tens of thousands of dollars over your lifetime. This book explains the options in plain english and uses real world examples to help it make sense. I strongly recommend this book for anyone trying to decide when to start claiming social security. One caveat, with file and suspend having recently been eliminated, some of the advice is no longer relevant.

Want some great financial planning tips? Download my free report: 8 Steps to Organize & Optimize Your Financial Life. It’s packed with helpful advice, useful tips and valuable resources.

To learn what I can do for you visit www.weiss-financial.com.