Category Archives: Personal Finance

Highest Score Wins! How to Improve Your Credit Score

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Last week I met with a client to address her concerns about her credit score having dropped from “very good” to “good”, as noted on her Capital One credit card statement. 

After we reviewed the details together,  she was relieved when I pointed out that it had only dropped one point and that her score was in the “Very Good” category for the three major reporting agencies, discussed later in this newsletter. 

The “Good” rating was Capital One’s term.

While I appreciate them offering some parameters that will notify clients of any drastic changes in their credit, theirs is not the number that is reported when you go for a loan. 

What Factors Affect Your Credit Score?

Payment History
Creditors want to see a trend of you making payments on time, every time, even if it’s just the minimum payment due.

Carrying a balance on a high interest credit card is a financial planning 101 topic separate and apart from this, (it’s akin to throwing dollar bills in the trash), but paying the minimum amount due ON TIME (not the next day) is imperative to maintaining good credit.

This is the factor most heavily weighted.

Credit Utilization Ratio (you want this number low)
Simply stated, if your credit cards are “maxed out”, your ratio is not good.

Lenders want to see that you have the option to use the credit, but don’t.

For example, if you have three credit cards each with a $10,000 limit ($30,000 total limit), lenders don’t want to see you charging $25,000 every month, even if you pay it off in full.

You are using almost 85% of your available credit (25/30).

Conversely, if you are carrying an average $5,000 monthly balance you are only using about 15% (5/30) of your available credit. Lenders like this.

Length of Credit History
Different from payment history (and not as heavily weighted in your score), creditors look at the average length of all your credit accounts.

This is why it often makes sense to keep an old credit card open, even if you’ve moved on to a new shiny one to get those Disney rewards.

This is why it’s also good to get teenagers/young adults started with some form of credit in their early years, and teaching them how to use it responsibly. This will put them on a solid foundation for a good credit score, which they will need for their first car loan or apartment (without mom or dad co-signing).

Types of Credit
Having a diverse mix of credit and being able to manage all of them effectively at the same time helps boost your credit score.

This doesn’t mean various credit cards from Macy’s, Amazon and Homegoods.

This means entirely different types of loans, such as a mortgage, car and student loans, along with your credit cards.

New (Hard) Credit Inquiries
How many new accounts you’ve opened and how many “hard inquiries” that come in from lenders have an effect on your credit score. Hard inquiries happen any time you are opening a new card or applying for a loan.

Too many in a short period of time makes a lender nervous and negatively impacts your score.

Separate from your credit score is the actual REPORT that affects your score.

There are three major credit reporting agencies: Transunion, Equifax and Experian.

You can and should be checking your report at least annually. The report will provide a comprehensive overview of your credit history and allow you to flag any activity that does not look right.

Admittedly, I had not looked at my own in a long time, but after helping my client walk through the process, I did check my own as well.

Follow this link to bring you to the ONLY official website you should be using.

You should NEVER pay for any information regarding your personal credit. If you are being asked to pay, you are in the wrong place! Come back here and use this link!

Wait, Don’t Throw That Out!

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Do you ever get so much “stuff” piled up on your kitchen counter…or desk, or side table or wherever you keep the “papers I may need but don’t have time to address right now” pile…that you just want to take it all and throw it in the trash?
 
Poof! Gone. Out of your mind, off your list. Except for the little voice in your head saying, “I hope I don’t need that for anything.”
 
You may not know if you need to keep it because YOU DON’T EVEN KNOW WHAT IT IS!
 
Please allow me to introduce Form 5498.

This past tax season, I had a client who needed to track down Form 5498 to “prove” her contributions to a Roth IRA over the years, so that these distributions were not counted as income on her tax return.
 
She had made a withdrawal of contributions (not growth) from her Roth IRA to help cover college expenses. Contributions made to a Roth IRA are able to be withdrawn at any time, tax and penalty free, regardless of age or how long you’ve had the account.
 
After all, you already paid taxes on this income.
 
While I usually encourage clients to keep their assets in their IRAs, in this situation, contributions were made as far back as 2012 for just this reason…to potentially use someday to help cover college costs.
 
Form 5498 is mailed to clients in late May (that’s NOW) from their brokerage firm when a client has either contributed to or rolled over retirement assets to their IRA.
 
In today’s online age, you will often simply receive an email telling you the form is ready in your portal, but often records only go back 5 years, so it’s best to download it and keep it with your digital records.
 
Why is it not available until May as opposed to before the tax deadline?
 
This is because you can make contributions for the prior year up until the tax filing deadline in April, so they don’t send them out until AFTER the filing deadline.
 
“But didn’t I need it to file my return”, you ask?
 
No, you don’t need the actual form, but you do need to make your CPA aware of any type of contributions you made so they can complete any necessary information or filings for your return.
 
Review it, make sure it is accurate (mistakes do happen) and then retain it for your tax records. An online file where you organize your tax documents is best, or the kitchen counter, if you must.

Controlling the Controllable

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We’re all aware of the current economic and political climate – the headlines, the rapid-fire government directives, the sense that things are changing. The market is up. The market is down.

It’s understandable that you may feel overwhelmed and anxious. I believe that focusing on what we can control is the most powerful antidote to uncertainty.

My approach with my clients has always been to focus on what we can control. While we can’t always predict or prevent every external event, we can take proactive steps to manage our own situations.

We can’t control the stock market but we can control our investment strategy. We can control how we react to market fluctuations. We can control our financial plan and staying the course, with the goal that market fluctuations won’t feel as stressful because you have a plan.

A major area of stress is around data breaches, but can we control and protect our personal information?

The truth is, data breaches by those out to do harm are a common occurrence. We’ve seen several examples across the US and globally this past year alone. It’s so common that one could become blasé about it. But we can’t.

Unfortunately, cyber criminals are only going to continue to become better cyber criminals.

In our digital age, with the convenience of online shopping, medical record access, online tax prep and filing, online trading…the list goes on and on…we have all put our data out there for “them.”

This is why we should always be diligent in protecting our personal information, however, admittedly, it can sometimes feel like a losing battle.

I feel like I am requesting a new credit card every other month because one of mine has been compromised.

So, what can we control when it comes to protecting our data?

Here are some key steps you can take to enhance your data protection:

  • Enable Multi-Factor Authentication (MFA): This adds an extra layer of security to your accounts, making it much harder for unauthorized access, even if someone has your password. Think of it as a second lock on your door. This is especially important for any login you use to access financial or personal data. Which honestly, is just about everything.
  • Use Strong, Unique Passwords: Avoid reusing the same password across multiple platforms (especially financial ones). A password manager can help you generate and store secure passwords. I use LastPass and it auto generates unique passwords for every login.
  • Consider a Credit Freeze: This can prevent new accounts from being opened in your name, which is a common tactic in identity theft. You need to freeze it at all three credit reporting agencies, and I’ve included their information below. This does not affect you using your current credit cards, but it will prevent you (and a criminal) from opening a new one. You will need to unfreeze your credit if you need to apply for a loan or new card down the road.
  • Regularly Review Your Accounts: Keep an eye on your bank statements, credit card activity, and credit reports (at the same three credit reporting agencies mentioned below) for any suspicious activity. Early detection is key. I do this constantly with my credit card and debit accounts.
  • Be Wary of Phishing Scams: Be cautious of emails, texts, or phone calls asking for personal information. Legitimate organizations rarely request sensitive data in this way. This technique has really become rampant. Trust nothing.

Protecting our personal information should be a top priority for all of us, despite the feeling that it is a battle that can’t be won.

But in the meantime, we will control what we can control.

Here are the three credit reporting agencies:

Equifax:

Experian:

TransUnion:

A Lost Treasure

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A couple of weeks ago, my youngest said to me, “Mom, do you know there is a website for lost money?”

Well, yes, I do. But I told him that does not apply to me.

After all, I know exactly where all my money is!

I’m sure you’ve heard the commercial on the radio many times…

FIND YOUR UNCLAIMED PROPERTY AT FIND MASS MONEY .GOV

They repeat over and over.

According to the Unclaimed Property Division, Massachusetts has over $3 billion in unclaimed property. Unclaimed property includes forgotten savings and checking accounts, un-cashed checks, insurance policy proceeds, stocks, dividends and the contents of unattended safe deposit boxes.

My son continued our conversation with, “well, both you and dad show unclaimed property on the site, so maybe it DOES apply to you”.

I’ve never EVEN ONCE considered checking out the website. Clearly, my son was not missing any opportunity to claim a lost treasure.

He pulled it up on my phone and navigated to where it showed my name.

Well look at that, he’s right!

Long story short, I took the steps to claim my lost property and it said I would receive my property in the mail. Ok, but I won’t hold my breath.

It does not tell you how much or specifically what, at least not in my case. It’s a SURPRISE.

Mine was an immediate auto approval. Super easy.  I had to submit a few supporting documents for my husband’s stuff. I’m not sure what the differentiating factor was.

Well imagine my surprise when, in less than two weeks, I received a check in the mail from the Mass Dept of Treasury for $912!

Turns out, it was from an old credit card through MEFA U-Fund (Massachusetts Education Funding Authority) where you could earn money towards college by using the card and then could transfer the funds to a 529.

Given that college seemed a lifetime away “back then”, I bagged that card for one with immediate gratification in rewards. (The “older me”, with college age kids, would perhaps rethink that decision now.)

Coincidentally, I made a tuition payment the same day I received the check, so I suppose, theoretically, the money is STILL going towards tuition.

How nice that it reached its intended destination after all these years being lost!

All states have an unclaimed property division, so a simple google search should lead you to the website for your state.

Give it a try here –  it’s worth a look!  

Let me know if you find a lost treasure!

Spring Cleaning!

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Everyone thinks of January 1st as the time to start fresh and change things we want to change, but I see spring as an even more opportune time for this.

Here are eight SPRING CLEANING items you can tackle now:

  • Tax planning: Did you owe more than you expected on your taxes? Was it a one-time thing or does this tend to happen every year? Review your current paycheck and adjust your withholdings as needed (using form W4), or talk with your tax preparer about paying estimated tax payments throughout the year.
  • Tax planning: Did you get a very large refund? You need to adjust how much is being withheld. Don’t give the IRS an interest free loan. That extra money could be put to much better use for your benefit
  • Tax planning: Could you have saved more on taxes in 2023 if you had increased your retirement contributions or added money to a deductible IRA? Make adjustments to your paycheck contributions now so you are not in the same position next year.
  • Employer Benefits: If every year feels like “crunch time” during open enrollment, now is great time to review the benefits offered to you and ask your HR team for deeper explanations or clarifications if you do not understand something.
  • Emergency Fund Checkup: Make sure your emergency fund is fully funded or consider boosting it if needed. Aim to have enough saved to cover 3-6 months’ worth of living expenses.
  • Investment Portfolio Review: Evaluate your investment portfolio to ensure it aligns with your risk tolerance and both short and long-term goals. Consider rebalancing if necessary. Do you have the right types of investments in the best type of account? It can make a big difference over the long term.
  • Educate Yourself: Use this time to learn more about personal finance topics that interest you. Whether it’s investing, retirement planning, or debt management, increasing your financial literacy can pay off in the long run. Working with a trusted advisor will speed up this learning tenfold.
  • Make a list: what is in your head that keeps you up at night regarding your finances? One of my clients refers to this as her “financial brain dump”, which she then sends to me for safekeeping. 😉 Just writing it all out can help take a load off your shoulders and give you more clarity, making tackling each one over the next several months seem less daunting.

Let’s face it, when the sun is shining, the days are longer and the temps are rising, we are typically more motivated in just about anything we do!

This Triple Scores You a Homerun

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Despite the snow on the ground and freezing temperatures outside, we are at least beginning to see the daylight lasting a little longer, the first sign that we “are on the other side” of winter.

Another sure sign of spring approaching for us hearty New Englanders is when the Red Sox report to Florida for spring training, and that time has arrived!

With baseball in mind, this month I introduce an underutilized and often misunderstood savings vehicle being offered by more and more employers.

Read on to learn how using a health savings account (HSA) can offers a TRIPLE TAX SAVINGS, ultimately scoring you a HOMERUN.

The Basics of an HSA

An HSA is a savings account for health care expenses tied to what’s known as a High Deductible Health Plan, offered as a health care option through your employer.

This type of account is different from a Flexible Spending Account (FSA), where you can lose any unused portion of your dollars set aside for a given year.

The money set aside in an HSA stays with you forever.

Even if you leave your current employer, your HSA dollars go with you. And as an added bonus, you are also allowed to invest your contributions. You don’t have to use them in that year.

How the high deductible health plan works and whether it is right for your circumstances is a newsletter for another time, but many who currently have this type of plan with an HSA don’t understand the benefits of the HSA in and of itself.

Triple Tax Advantaged

Your contributions are pre-tax, so they lower your taxable income in the year they are made. Think of this tax savings in the same way you think of your pre-tax 401(k) contributions.

You can invest your contributions and they will grow tax free forever, meaning any growth of your contributions is also NOT taxed. This account is like a Roth IRA in this regard, so for high income earners who are phased out of making direct Roth contributions, this is an excellent tax savings vehicle that offers the same tax free growth one gets from a Roth.

Withdrawals, AS LONG AS USED FOR QUALIFED MEDICAL EXPENSES, are 100% tax free.

Boom!!! A Triple Tax Homerun!

With ever increasing health care costs in this country, this is a great tool for your future self to have a bucket of tax free money to help cover your future medical care costs, and a great tool in the current year to reduce your taxable income.

‘Tis the Season to be…Fearful?

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Elf on a Shelf

Earlier this week, I was engaging in the nightly ritual of moving the Elf on the Shelf to a new location. As the tale goes, he had flown back to the North Pole overnight and reported to Santa whether my children were naughty or nice that day. Given my boys are now 16, 14 and 12, (edited: now 16, 18 and 20 Yikes!), there’s a whole lot of not so nice around here and long gone is the fear that Ruckert the Elf is going to tell Santa about it.

At best, my youngest is humoring me by even looking for the Elf each morning.

It got me thinking about what we all know as the “fear tactic”, most often used with children, to get them to do or act in a way which we desire…

  • Behave nicely or Santa won’t bring you any toys.
  • Eat your vegetables or you won’t grow big and strong.
  • And let’s not forget about Pinocchio and his nose!

But let’s face it, kids aren’t the only targets of the fear tactic.

If it’s a subject area I know little or nothing about (like car maintenance for example), I could be “told and sold” just about anything. After all, they’re the experts, right? 

And they ALWAYS have my best interest at heart, right?

Well, the financial services industry is no different. There are folks out there trying to instill fear to get you to take action.

And not always, but often, that action is favorable to them in some way.

Statements such as:
What has happened to YOUR 401(k) balance with the recent market volatility? 
Are you afraid of outliving your money?

and my personal favorite….

Don’t let the nursing home take all of your hard earned cash. Come see us before it’s too late!

FEAR TACTIC at it’s best!

The point is, when it comes to financial decisions, making a rash decision to DO or BUY or CHANGE anything out of fear is often met with regret down the road.

You have time… to ask questions and understand, to plan according to your needs and to make a decision from a place of knowledge and clarity.

Punt Returns and Roth IRAs

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Family & Football

I’ve been watching my boys play football for years, and I LOVE watching them, but I still struggle with many of the rules.

Recently, I’ve been trying to figure out punt return vs kick return and when you are supposed to touch the ball vs not touch the ball and just let it roll. Go ahead football aficionados, have your laugh.

No matter how many times my husband explains it, or I ask my football guru friend Tricia what is happening, I can never seem to keep it straight.

I mention this because instances like this help me to remember how my clients might feel when I am spurting out planning concepts and recommendations for them.

One topic area that can be difficult to keep straight, even for us advisors, is the rules surrounding Roth IRAs.

Read on to see how I will now differentiate between a punt and kick return.  

When it comes to Roth IRAs, there are TWO ways they can be funded and TWO “5-year rules” that must be differentiated when it comes to distributions from the IRA.

But like the punt and kick return, they may seem like the same thing, but they are not, which is what leads to the confusion.

First, some differences between the two ways a Roth can be funded:

ROTH CONTRIBUTIONS

  1. Contributions are made with after-tax dollars.
  2. Contribution amounts are limited each year by the IRS.
  3. If you earn too much (according to the IRS), your contributions may be phased out, or you may not be able to directly contribute to a Roth IRA at all.
  4. Your CONTRIBUTIONS can be withdrawn at any time, penalty free (but the goal is to keep them in!)

ROTH CONVERSIONS

  1. Conversions are typically made from an IRA. You are converting from a “pre-tax” account to an “after tax” account.
  2. Conversions are not limited by amounts or income levels. You can convert as much or as little as you want at any time, regardless of how much you earn (this is the rule that allows for the back door Roth strategy)
  3. Since you are converting pre-tax dollars, you must pay taxes on the amount being converted in the year it is converted.

Now here is where the PUNT RETURN analogy comes in – Don’t touch it, just let it roll.

There are two 5-Year Rules for Roth IRAs.

5-Year Rule #1 – Pertains to Growth only (for both contributions or conversions)

For the GROWTH in your Roth IRA to become what is called a QUALIFIED DISTRIBUTION (tax and penalty free distribution), two conditions must be met:

  • 5-Year Rule #1 – the account must have been open for at least 5 tax years (there are favorable rules around when the clock starts on the 5-years).   AND
  • The IRA owner must be 59.5 or older (or totally disabled; a few other exceptions exist)

Don’t touch it, just let it roll.

5-Year Rule #2 – Pertains to the CONVERSION amounts

The SECOND 5-year rule pertains to whether the amount you converted can be withdrawn penalty free. Unlike Roth CONTRIBUTIONS that can be taken out penalty free at any time, you cannot pull your conversion amounts out before the 5-year clock is up (unless you are 59.5 or older),or you will pay a penalty on the withdrawal.

Don’t touch it, just let it roll.

It’s too much to dive into the specifics on the ”start clock” for the two 5-Year rules, but know that even the start clock rule has rules. But the gist is… Don’t touch it, just let it roll.

Ultimately, the rules for Roth IRAs exist to keep the “spirit of the law” in place to prevent misuse of this type of tax advantaged account.

But when managed effectively, and in the right situations, Roth contributions and conversions can offer great planning opportunities for many clients.

A Lost Treasure

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A couple of weeks ago, my youngest said to me, “Mom, do you know there is a website for unclaimed property?”

Well, yes, I do. But I told him that does not apply to me.

After all, I know exactly where all my property is!

I’m sure you’ve heard the commercial on the radio as many times as I have…”find your unclaimed property at finadmassmoney.com” they repeat over and over.

According to the Unclaimed Property Division, Massachusetts has over $3 billion in unclaimed property. Unclaimed property includes forgotten savings and checking accounts, un-cashed checks, insurance policy proceeds, stocks, dividends and the contents of unattended safe deposit boxes.

My son continued our conversation with, “well, both you and dad show unclaimed property on the site, so maybe it DOES apply to you”.

I’ve never EVEN ONCE considered checking out the website. Clearly, my son was not missing any opportunity to claim a lost treasure.

He pulled it up on my phone and navigated to where it showed my name.

Well look at that, he’s right!

Long story short, I took the steps to claim my lost property and it said I would receive my property in the mail. Ok, but I won’t hold my breath.

It does not tell you how much or specifically what, at least not in my case. It’s a SURPRISE.

Mine was an immediate auto approval. Super easy.  I had to submit a few supporting documents for my husband’s stuff. I’m not sure what the differentiating factor was.

Well imagine my surprise when, in less than two weeks, I received a check in the mail from the Mass Dept of Treasury for $912!

Turns out, it was from an old credit card through MEFA U-Promise (Massachusetts Education Financing Authority) where you could earn money towards college by using the card and then could transfer the funds to a 529.

Given that college seemed a lifetime away “back then”, I bagged that card for one with immediate gratification in rewards. (The older me with college age kids would perhaps rethink that decision now.)

Coincidentally, I made a tuition payment for my oldest the same day I received the check, so I suppose, theoretically, the money is STILL going towards tuition.

How nice that it reached its intended destination after all these years being lost!

All states have an unclaimed property division, so a simple google search should lead you to the website for your state.

Give it a try –  it’s worth a look!  Let me know if you find a lost treasure!

Something to Ponder

When you try to control everything, you enjoy nothing.
Sometimes you just need to relax, breathe, let go and live in the moment.

The Psychology of Money

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In a recent meeting with a client who had just made a significant purchase, I asked the question, “How are you feeling about it?”
 
An emphatic “Great Question!” was her response.
 
We had discussed it often, run the numbers more than once on various options, and the numbers showed she could both afford it and choose how she wanted to finance it.
 
Yet, she still seemed to be a bit wrought with the decision, which prompted my question.
 
Money and feelings are connected? You betcha!
 
You see, the financial industry as a whole is looked at as a “math based” profession, fraught with spreadsheets and formulas telling you which financial decision makes the most sense.
 
But humans are fraught with FEELINGS. And EMOTION. And BIASES. And EGO. And even GUILT, when it comes to making financial decisions.  
 
And that’s not just for big financial decisions, it goes for smaller, less impactful financial decisions too.
 
Like buying ice cream.
 
I have become a food shopping ninja since prices began to skyrocket last year. I have no choice. I can’t put into words the amount of hard core food my three boys eat in a week.
 
And for some reason, I have put my foot down when it comes to buying ice cream – I refuse to pay more than $2.99 for what is not even a half gallon of ice cream!
 
I can’t tell you exactly why, I just refuse.
 
And although I can’t tell you exactly why the price of ice cream has become my chosen boycott, I CAN tell you what is working in the background of this albeit small, financial decision. It’s the same as what is at work with my client’s big financial decision.
 
The PSYCHOLOGY OF MONEY is at play.
 
And I know it’s this, because the night after I go food shopping and refuse to buy ice cream for more than $2.99, I’m willing to spend $16.00 at Three Pugs Creamery for HALF the amount of ice cream I would have gotten at the store.
 
That’s FIVE TIMES the amount of money for HALF the amount of ice cream.
 
It doesn’t take a math wiz to figure out that I am making the “wrong” financial decision when it comes to my ice cream purchases.  
 
EXCEPT for the understanding that in nearly every financial decision we make, there is more at play than just the numbers.
 
There is the PSYCHOLOGY OF MONEY at work.
 
When I spend $16.00 at the quaint ice cream shop in town, I’m buying quality time spent with one or more of my kids, I’m buying a future memory they’ll have of the small town where they grew up, I’m supporting local small business.
 
These are all touchy feely things, but they have a price I’m willing to pay.
 
So even though ON PAPER it makes perfect financial sense for my client to make her large purchase and no financial sense for me to be buying ice cream at Three Pugs Creamer instead of Shaw’s, our humanness will often be telling us otherwise.
 
The point is, we all have our own unique “money story” that has been developing and shaping our views since the time we were first learning to count our pennies. It can be helpful to have this awareness as you make financial decisions, big AND small.

Favorite Quote

Everything has a price, but not all prices appear on labels.

― Morgan Housel, The Psychology of Money