The craziness of year-end tasks and the holidays seems to carry right over into the new year, with a sense of urgency on a whole new list of things. But hopefully you found some respite along the way before diving in to 2023!
Last year at this time, I wrote to you about “real change” taking time, suggesting that it doesn’t just happen overnight.
I highlighted not beating yourself up over “failed” new year’s resolutions by February or March, because real change seldom comes about that quickly.
But for this month, I’d like to add another concept that one of my clients recently employed. She completed what she called her “financial brain dump” and sent it over to me. She got all of the financial items that were swirling around in her head written down.
I could almost hear the sigh of relief through her email.
Not because all tasks were miraculously completed, but because she got it all out of her head, onto paper and over to me. And by sending it to me, she knows we will address these items together in the new year.
The brain dump is not a new concept. It is a proven method to help untangle our thoughts, serving to relieve some of the stress and anxiety created by our never ending reel of to-dos and uncertainties.
Tying it into last year’s message, I had discussed taking broad resolutions like “save more money” or “get finances organized” and breaking them down into smaller, more specific and manageable tasks.
THE FINANCIAL BRAIN DUMP will help accomplish that for you. So give it a try this month and see what it does for you. Then share the psychological load by sending it to your advisor, knowing they will help elicit “real change” for you in your financial life this year!
The first impactful memory I have around money always comes to me right away. It’s a story I shared at my dad’s 70th birthday celebration. I was about 10 years old and was with him at the ATM. He always counted the money before putting it in his wallet.
When he counted it on this particular morning, there were two $20’s stuck together.
My 10-year old mind thought, “How AWESOME is THAT”?
I must have not only thought it but also said something along those lines because I remember CLEAR AS DAY my father’s response:
“Susan, this is not my money. I’ll return it to the bank on Monday”.
IMPACTFUL.
Sometime not too long after, he called me over to his chair where he sat every night to watch the evening news and read the paper. He showed me a piece of mail he had just opened. It was a letter from the president of the bank thanking him for his honesty in returning the $20.
IMPACTFUL.
I’d be remiss to leave out my mom in my earliest memories around money and the impact they’ve had on me. Mom handled all the day to day family finances and taught me how to balance a checkbook…to…the…penny. Of course, with today’s technology I don’t balance a checkbook anymore, but I do still watch every penny. It was also her influence that taught me that just because you can afford something doesn’t mean you should buy it and that if you can’t afford something, then you definitely shouldn’t buy it.
That’s Cash Flow Planning 101: Needs vs Wants and Spend less than you make.
And from all this, a trusted financial advisor was born. Thanks Mom and Dad!
My clients have heard me say that not every decision around money is black and white, that there is often an emotional component to our decisions that can make things a bit gray. Behavioral Finance has become a field of study in and of itself and is often a seminar topic at financial industry conferences.
I’m sure my parents had NO IDEA at the time that all these little things would serve as defining moments for me and my approach to all things money in the future.
But it’s something I try to remember when working with my clients; we all have a money history that started way before we ever knew it was happening.
Have you ever heard of the Pink Tax? This is not an actual tax levied by the state or federal government, but rather refers to what has been described as “ a discriminatory pricing practice” that lends itself to charging women more for “substantially similar” products and services. That part is real.
If you have daughters, you’ve probably uttered the words, “geez, girls are expensive”, at least once.
Health and beauty care products, kids’ toys, clothing, dry cleaning and car repair services are found to be the biggest offenders of the pink tax.
Not for nothing, but in my house, regardless of gender, we don’t know what is legit for car repairs. But I suppose, “generally speaking”, men have (or are perceived to have) more general car knowledge and may be less likely to be quoted an unreasonable price.
Toy pricing came as a surprise to me. One example cited in the piece I read was a blue bike helmet costing less than the same helmet in pink. Same manufacturer, same product, different color. Maybe pink decals cost more?
Probably not.
The State of New York actually passed a “Pink Tax Ban” in 2020, prohibiting this practice and requiring certain service providers to present price lists for standard services upon request.
“Upon request” being the key words there. I’m not sure how the state will effectively police this. Time will tell, but it’s a start.
The point I want to make on this topic is this: I believe the best defense for stuff like this is a good offense.
How do you create a good offense?
AWARENESS. Through awareness you create knowledge and power, and that goes for anything.
As women, are we always unaware we are paying more? Of course not. Sometimes we make the choice to. I am fully aware I am paying more for my “spa” shampoo, which is why I treasure every drop and don’t share it with the men in my house, but I do have the choice to buy a lower cost product and still get my hair clean.
If you’ve never heard of the pink tax before this, now you are aware that it is actually a thing and you can be an informed consumer. Granted, you probably don’t want to smell like Axe body spray or Old Spice just to pay a lower price, but you can still make choices of one product over another or ask informed questions of a service provider.
Be AWARE. Stay INFORMED. The best defense is a good OFFENSE.
Financial Fitness Tip
I have been involved with a wonderful organization for a number of years called The Fresh Air Fund. April is financial literacy month and they asked me to sit on a panel with some teens to talk about what I do for a living as they learned about financial topics.
Kudos to The Fresh Air Fund for putting this program together for their teens!
They shared a short You Tube video offering some basic, and some not so basic, financial education in an easy to understand format, which I am always a big fan of.
Take some time to view the video and share it with others you think might benefit!
My Favorite Quotes
Since it’s financial literacy month, I am sharing a quote that promotes one of the single most important tenets of growing your wealth over time:
“Do not save what is left after spending. Spend what is left after saving”
Following a recent client meeting, I finished the Zoom call on a natural high, with the feeling of “this is why I LOVE what I do”.
This high did not come from landing a big sale (I don’t sell anything) or growing a portfolio by a certain percent. It came from knowing I had helped them and from their recognition that our work together is having a positive impact on their financial security.
It did not require me to be great with numbers or love statistics, or economics, or analyze the stock market, or any of those other topics one might associate with this profession.
It required my passion to help others by sharing my expertise. To listen, to truly hear them, to understand their concerns, fears and hopes for their financial future and to offer my guidance and expertise on that path.
LISTENING. UNDERSTANDING. GUIDANCE. I’ll add EMPATHY, TRUST and COMPASSIONATE COMMUNICATION skills. Personal finances are extremely PERSONAL.
Attention to detail is also very important. There are a lot of details to someone’s personal finances.
Women, in general, have a natural proclivity to this skill set and it can really help set them apart in this profession. Unfortunately, female advisors only represent about 15%-20% of all advisors.
Being a woman in this profession, and also being a small business owner, I want to help educate young women about the opportunities and rewards of what I do.
If you have a young woman in your life who ever wants to learn more, you know how to reach me. I am always happy to have a conversation!
Financial Fitness Tip
For the second month in a row, I’m hitting on a teen related tip.
If you have a child who has turned or will be turning 18, you should have them sign three important documents:
Healthcare proxy
HIPPA authorization
Durable Power of Attorney
My oldest turns 18 this year and my estate attorney is in the process of drafting his forms following our estate update meeting last week, just so they are ready and we don’t forget.
You can read more about the importance of it here.
My Favorite Quotes
When my mom was diagnosed with breast cancer, a friend who’s like family gave her a plaque with this quote:
“A woman is like a teabag. You never know how strong she is until you put her in a little hot water.”
I couldn’t agree more – here’s to all the strong women out there!
It seems every year between Thanksgiving and New Year’s Day I can’t seem to find the time to fit in my workouts. Now it’s mid-January, and I still haven’t gotten back at it, despite knowing I feel 150% better when I do.
So now, I will pay the price.
I have not performed any studies, but I would venture to guess that exercise/diet and getting a handle on one’s finances are two of the most common resolutions people make each January.
I can’t give much advice on the former – I welcome it if you have any – but here are a few suggestions on the latter:
1. Get Organized:
Know what you have and where you have it. Create a spreadsheet or use a tracking software to note the type of account, where it is held and username/passwords. I mentioned Last Pass in a previous newsletter and now can’t imagine a day without it. It’s technically a password management software, which in itself is awesome, but you can also organize everything into folders and keep notes for each one.
2. Automate bill payments:
There’s nothing worse than having to pay late fees and interest charges because you missed a payment. Anything that can be automated should be automated.
4. Track your spending (everyone hates this one, even me)
Why do we hate it? Because it’s SO eye-opening and we sometimes do not like what we see. There is software out there to help. Quicken, Mint or Tiller seem to be the most popular. But even an old fashioned spreadsheet will work.
5. Review and update estate planning documents:
Life insurance and retirement account assets do not pass by way of will. You must have named beneficiaries on these assets if you want your wishes to be carried out. Review your beneficiary designations, powers of attorney, health care proxies and any other estate documents to be sure they still reflect your wishes.
Commit to even just one of these now and email me here to let me know which one you choose. Sometimes “saying it out loud” is the only force we need to take action.
Financial Fitness Tip
For those of you who have teens or young adults with part-time jobs, they will have a W2 detailing their wages and any taxes withheld. They will have had to pay FICA taxes (Social Security and Medicare). This is mandatory.
If their W2 indicates they have also had Federal and State taxes withheld, then they may want to file for a possible refund. Chances are, they did not earn enough throughout the year to owe any federal or state income taxes, so whatever was withheld from their paycheck is theirs.
However, they will have to file a tax return to get it back.
Things I Love: A Great Quote
Don’t you just love a great quote? I’m changing things up for 2021 and moving from “Things I Love” to “My Favorite Quotes”.
Since I’m writing this newsletter on MLK Jr. Day, I thought I would kick off with one from him:
“We must learn to live together as brothers or perish together as fools.”
Thanks to the progress we’ve made, he would most definitely include “and sisters” if he were giving his inspiring speeches today.
Everyone thinks that being a financial advisor means I am great with numbers, but there are lots of numbers that confuse the heck out of me.
Blood pressure, tire pressure and my son’s PSAT scores come to mind.
A number that is a mystery to many is their credit score.
Sure, you know the higher the better, but how do you get there? And how do you stay there?
This time of the year has me scrambling about at a variety of stores for holiday shopping.
Something I hear over and over again, from one cashier to the next: “Would you like to save 10% by opening a Fill In The Blank credit card today?” NOOOOO, I would not, but thank you for asking.
I’m a financial advisor – why wouldn’t I want to save 10%?
Here’s the thing. Having multiple credit cards won’t necessarily harm your credit score, it may even help it, when managed properly. It’s the “when managed properly” part that gets many into trouble and can inadvertently affect your credit score.
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 (don’t do it), but paying the minimum amount due ON TIME 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 carrying a $25,000 balance. You are using almost 85% of your available credit (25/30). Conversely, if you are carrying a $5,000 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.
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.
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 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.
Financial Fitness Tip
Separate from your actual credit score is the report that makes up your score.
You can and should be checking your free credit 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.
There are three major credit reporting agencies: Transunion, Equifax and Experian. They have come together to make requesting your credit report more seamless and to help you avoid scammer websites offering “free” credit reports.
Follow this link to bring you to the ONLY official website you should be using. In “normal” times, you can request a report from each of the three agencies once per year, but due to COVID-19, they are offering free weekly online reports through April 2021.
Things I Love
These beautiful faces are now 17, 15 and 13, and ornaments like these become my favorites more and more every year. I am so blessed. Time is going too fast.
God Bless you and your families this holiday season, as we eagerly wave goodbye to 2020!
You are likely in the middle of open enrollment, or will be soon, so I thought this month would be a great time to review some of the crazy acronyms you see as your eyes glaze over the 100+ page benefits guide from your employer.
I can’t say here which benefits are the “best fit” for you. Reviewing benefit options is part of what I do with my clients each year. Lives change. Families change. Benefit packages change. For many, the confusion stays the same.
The Biggest Offenders
FSA – Flexible Spending Account HSA – Health Savings Account HRA – Health Reimbursement Account
These are NOT the same thing.
I’ll get the HRA out of the way, as it is not as common as the other two. This is an EMPLOYER owned and funded account an employee can use for medical expenses. It generally stays with your employer if you leave, unless they offer a retirement continuation.
FSAs are offered with a standard HMO or PPO (I’m going to assume you know these two old friends).
I wrote a newsletter on HSAs a few months ago and the triple tax benefit they offer. They are only offered in conjunction with a HDHP.
HDHP – High Deductible Health Plan
Similarities
Both are employee funded, although some employers will make contributions as an added benefit.
Both are funded with pre-tax dollars. Always a PLUS.
Both are used to pay for qualified medical expenses.
Differences
Pre-tax contribution limits are higher for the HSA than the FSA. The HSA also offers a catch up contribution for those over age 55.
The up front, out of pocket medical payments are higher for Team HSA/HDHP.
FSA contributions are forfeited if not used in the same calendar year. There is some flexibility for carry over and grace periods, but forfeiture is the general rule.
HSA contributions are yours forever. AND they can be invested. AND they can grow tax deferred.
Your FSA is not portable. If you leave your company, the funds in the account do not go with you. An HSA is yours forever.
While the HSA offers more flexibility than the FLEXIBLE Spending Account (oh the irony), it does not mean it is the right choice for you, even if both are offered by your employer. Every situation is unique.
Almost done, but a distinction I explain in this next section is REALLY important.
STD – Short Term Disability LTD – Long Term Disability
Granted, you probably know these two acronyms, but are you aware of the distinction when it comes to whether this benefit it taxable or not?
It all comes down to how the premium is paid. I’ve worked with many clients who were not aware of the key difference because most benefit guides don’t do a great job of explaining it.
It makes a big difference in how much money you actually take home, should you become disabled.
If premiums are paid by you with after-tax dollars, then the disability benefit will not be taxable.
If premiums are paid by your employer, then the disability benefit will be taxable.
Most LTD benefits offer coverage for “60% of salary”. If that 60% is not taxed, you are in OK shape.
If that 60% is taxed, your monthly benefit will be significantly less than your regular pay.
One final scenario offering a TAX FREE disability benefit:
Your employer pays the premium BUT adds the amount paid on your behalf to your gross earnings. By you paying taxes on the premium, any disability benefit you receive will be tax free.
If your employer offers a tax free disability benefit option, this is the option you want. Otherwise, you may want to consider a private policy to supplement your employer plan.
Financial Fitness Tip
I often tie in both personal and professional experience to my newsletter and this time is no different. I was in a minor fender bender this morning (thankfully, everyone is OK), so I thought this was a good time to touch on auto insurance. Ironically, I also worked on a client plan this week where I recommended they increase their coverage.
Most states require a minimum level of insurance, and if you are using a lender, they require proof of this coverage as well. Many folks go with the minimum requirements for Uninsured/Underinsured coverage and Property Damage. I don’t recommend this. Increase your coverage limits where you can. Back in my 20’s, I worked for an auto insurer as a claims adjuster, and believe me, these coverages come into play more often than we would like.
Things I Love
I could probably do an entire newsletter devoted to binge worthy shows. My current fave is “Heartland” on Netflix. It’s a modern day Little House on the Prairie, which of course was the favorite of my 7 to 11 year old self. As I said in my January newsletter about The Marvelous Mrs. Maisel, it allows me to fall asleep with a happy heart.
From a Google review: “This sprawling family saga takes place where an unfortunate tragedy has glued a family together to pull them through life’s thick and thin moments. Follow young Amy Fleming as she slowly discovers she possesses her now-deceased mother’s ability to aid injured horses as well as maintaining good relationships with those who are trying to get by one day at a time.”
Netflix has all 13 seasons and Heartland has been renewed for its 14th. When I saw that, I knew it must be a hit!
The first impactful memory I have around money always comes to me right away. It’s a story I shared at my dad’s 70th birthday celebration. I was about 10 years old and was with him at the ATM. He always counted the money before putting it in his wallet.
When he counted it on this particular morning, there were two $20’s stuck together.
My 10-year old mind thought, “How AWESOME is THAT”?
I must have not only thought it but also said something along those lines because I remember CLEAR AS DAY my father’s response:
“Susan, this is not my money. I’ll return it to the bank on Monday”.
IMPACTFUL.
Sometime not too long after, he called me over to his chair where he sat every night to watch the evening news and read the paper. He showed me a piece of mail he had just opened. It was a letter from the president of the bank thanking him for his honesty in returning the $20.
IMPACTFUL.
I’d be remiss to leave out my mom in my earliest memories around money and the impact they’ve had on me. Mom handled all the day to day family finances and taught me how to balance a checkbook…to…the…penny. Of course, with today’s technology I don’t balance a checkbook anymore, but I do still watch every penny. It was also her influence that taught me that just because you can afford something doesn’t mean you should buy it and that if you can’t afford something, then you definitely shouldn’t buy it.
That’s Cash Flow Planning 101 Needs vs Wants Spend less than you make.
And from all this, a trusted financial advisor was born. Thanks Mom and Dad!
My clients have heard me say that not every decision around money is black and white, that there is often an emotional component to our decisions that can make things a bit gray. Behavioral Finance has become a field of study in and of itself and is often a seminar topic at financial industry conferences.
I’m sure my parents had NO IDEA at the time that all these little things would serve as defining moments for me and my approach to all things money in the future.
But it makes me stop and think, what little impacts am I having now on my kids and the way they head into their future thinking about money? I guess we’ll just add it to the list as one more thing to worry about, because parenting is definitely filled with a whole lot of gray.
I recently had the opportunity to help out at our local high school with a group of students who were participating in a program called “Credit for Life”. I had never heard of it, but with a quick Google search, I learned it is a nationally recognized program designed to help high school students develop personal financial management skills. SIGN ME UP!
I had a blast. I really did. I was assigned to the “Savings and Retirement” booth. I got so jazzed up talking with these kids about real world money matters. OK, granted, some of them I was talking at instead of with, but that was to be expected. But for the ones that were really listening and trying to take in what I was saying, it was very fulfilling. I had my first glimpse into the satisfaction teachers get out of molding young minds.
The advice I was repeating over and over to each group is really no different than what I would tell a client. At any age, the foundations of financial security and independence are the same. I didn’t want to throw so much at them that they walked away feeling overwhelmed and having learned nothing, so I kept repeating the following during those precious few minutes I had their attention:
Don’t spend more than you make.
Pay yourself first.
Most eyes glazed over when I spoke the phrase, “power of compounding interest”, but when I pulled out my graph to show them a visual of what their money could do for them if they committed to paying themselves first, and how that money could grow exponentially over time, their eyes lit up. I pointed out on their expense tracker that this sum of money they were “spending” from their paycheck was different than every other expense they had listed on that sheet because IT WAS STILL THEIR MONEY!
Imagine my excitement when I heard one student approach a group of friends and say something along the lines of, “guys, go over there, pay yourselves first”. Eureka! My heart skipped a beat. And my pure, unadulterated joy when a friend shared with me that her daughter told her, “Mrs. Danson said I can start contributing to a Roth IRA and it will keep growing and growing and I won’t have to pay taxes on it”. Wowzer! This young lady is going to be just fine when it comes to her future financial well-being.
Full disclosure, there was another student I overheard saying, “don’t go there, she takes 10% of your money”. I laughed out loud and said to the huddle of teens, “I’m not Uncle Sam, this is still your money”! I’m sure none of them understood the Uncle Sam joke, but I knew you would appreciate my humor. They’ll understand soon enough.
But interesting, isn’t it, that this was student #2’s interpretation of my message?
