March 8th is International Women’s Day – Be a Financial Powerhouse!

Studies have shown women are better long term investors than men. Women tend to be “buy and hold” investors and are less likely to make changes to their investments.  They are less emotionally attached to their investments and do not make rash sell decisions when the stock market fluctuates. Women also are much more likely to manage household finances and budgets. This is all good news!

While it takes time for society to change, to wake up to the resources it is losing by down playing women’s talent and abilities; you can change faster. 

However, women are more likely to be the family care givers, whether children or parents. This means more time off work, not working outside of the family or taking a job with family flexibility. Many companies do not provide adequate mentoring, promotions or clear career ladders for women. Income inequality still exists. 

All of that adds up to less income over the working years. What does this mean? Less savings in retirement plans, less pensions, less social security payments. Add longevity to that and you can see that there are large financial differences between the genders. 

Many women have grown to believe that investing is a man’s domain. Whether that is the media not showing women in those roles or societal messaging that has been internalized or gender bias. It does not have to be that way.

While it takes time for society to change, to wake up to the resources it is losing by down playing women’s talent and abilities; YOU can change faster.  Education is gender neutral. Knowledge does not care  – it is just knowledge. Investments do not care. Let’s make everyone informed financial consumers, one class at a time.  Whether that class is negotiating a salary, saving for financial goals, or analyzing mutual funds.  Learn, grow and change- be a financial powerhouse!

Disaster Preparation

Whether you live on the West Coast, East Coast or somewhere in between, natural disasters have the potential to strike anywhere and seem to be occurring more frequently. While nothing can really prepare you for loss of property during a catastrophe such as wildfire, hurricane, earthquake or flood, there are a few steps you can take now to ensure you take needed items for an evacuation and have a better understanding of your options.

1. Check your insurance. Whether you are a homeowner or renter, contact your insurance company to confirm your current insurance coverage. Inquire about “acts of god” and what coverage you will have for your home and additionally, what will be covered if you are unable to return to your home for an extended period.
2. Create a five-minute list. If you only get a 5-minute warning to evacuate, what will you take with you?  Now is the time to think about this before you need it. Sometimes this is also called a Go Bag or Evac Pack. Keep in mind, many items are day to day things you use so putting them in a bag beforehand may not be possible. Your list may include phone and charger, medications, seasonal clothes, and shoes. Post this list on the inside of a cupboard. Each person should have their own list.
3. Create a one-hour list. If you have one hour to prepare for evacuation, list the things you would take in addition to the above items. It may include a special item, more clothes, a photo album, jewelry, laptop and charger.  It’s a good idea to place this with your 5-minute list.
4. A 24-hour list. In the event you get a day’s notice of evacuation, add to the above lists, being aware of the amount of space needed to transport the items.  Keep this with your other lists in an easily accessible location. All lists should be updated at least annually.  If or when the need to evacuate arises, going thru a premade list leaves less chance of forgetting something crucial.
5. Identify a meeting place. Plan in advance where you and your family can go. Reach out to other family members or friends and confirm they are able to take you, your family and your pets into their home. If their health is compromised, it is important to be understanding if they cannot extend an invitation.  If your immediate family members are not together when disaster strikes, have a plan where to meet and reconnect.
6. Make electronic copies of important documents. Having documents to identify yourself is important. Examples include birth and marriage certificates, driver’s license, green card, military service card or passport. Some bank and brokerage companies offer electronic safes to keep such items, or you can keep a photo on your phone. You may still need to get original documents, but this is a good start. Keep important contacts electronically such as your insurance agent, your bank and financial information and family information.

While none of this will prevent a disaster, taking a few simple steps to help prepare you for the unexpected goes a long way to making a difficult time a little less stressful. Stay safe everyone!

Open Enrollment Matters

Many employers offer an open enrollment period in the fall. What is open enrollment and why does it matter? Open enrollment is the time of year you get to start, stop, or make changes to your health care plans for the following year. Generally, this enrollment period applies to the health, dental, vision, life, and disability insurance plans your employer offers. What ever the date is, take a good look at options as your choices can affect your taxes later.

What ever the date is, take a good look at options as choices can help lower taxes.

Let’s talk about some of your potential choices:

1. Flexible Spending Account (FSA). The FSA comes in a few flavors – medical and dependent care. The FSA allows you to put away pre-tax money in the account from your paycheck. This must be spent during the year on qualifying expenses and has a limit every year. If you are paying for child care for children younger than 14, this is easy to fund for dependent care and to fully use. If you and your family have medical costs every year, look at what those might be and fund the FSA. The interesting thing about this account is even if you have the expense in March, you can use up to the amount you would fund by December. If your employer offers this type of plan, consider how you may be able to utilize it to your benefit.

2. Health Savings Account (HSA). Not all employers offer this option but if yours does you will want to consider whether or not you are a good candidate. The HSA requires enrollment into a high deductible health insurance plan (HDHP). This option is not appropriate for everyone. If you determine that it is suitable for you and your family, you can fund this account from your paycheck and/or bank account and it is fully tax deductible. In addition, the account grows tax free and withdrawals for health- related expenses are tax free. Triple tax free! In addition, the funds do not have to be used in a calendar year and are available to you and your family in later years – even in retirement.

Be aware that you cannot use funds from the HSA and the FSA to pay for the same expense, so you will need to carefully track your use.

If you miss making changes during open enrollment, there are “qualifying events” that allow you to update your choices. Among these include getting married or divorced, having or adopting a child and sometimes change of address. Be sure to look out for communications from your employer regarding your open enrollment period so that you can maximize the value of your total benefits package.

Increasing Cash Flow: Investment Accounts

With the pandemic has come job loss for many people and now cash flow has become incredibly important. While there are ways to increase gross and net income, there are also some adjustments that can be made to your non-retirement investment portfolio.

Here are a few things you may want to consider right now to increase your cash flow:

1. Take dividends and interest as cash. In a non-retirement account, many investors have these funds automatically reinvest, which increases basis and drives up the number of shares of the stock or mutual fund.  However, tax is still paid on interest and dividends in the year they are received, reinvested or not. By taking these as cash, the investor is increasing their cash holdings which is a good thing if cash is needed. This decision can always be reversed later to reinvest.
2. Take mutual fund distributions as cash. Like dividends and interest, the investor pays tax in the year received and many people choose to automatically reinvest. Distributions normally come out in December for mutual funds. They are the embedded capital gain within the fund that has occurred during the year when the fund management has sold holdings higher than what they bought.
3. Harvest some tax losses now rather than later in the year. Not only will this boost cash holdings, it also allows the taxpayer to use the losses against gains for tax purposes or against earned income.  If boosting cash holdings is not the goal, this strategy allows the investor to buy another holding that may increase value in the future.
4. If a Certificate of Deposit is approaching maturity, this may not be the time to automatically renew it for another term of time.  Interest rates have dropped in the last three months and it may not be a wise financial decision to get another CD, especially if cash is needed.

Although the adage is “buy low, sell high;” your current situation may require you to rethink what is right for you. The above suggestions may help you through these tough economic times. Remember you can always reverse any account changes you make at a later date, when you are feeling more comfortable with cash on hand.

Taking Money Inventory in Times of Crisis

It is times like now when taking inventory of your financial life is a good idea. Knowing where you stand will help you immensely when planning your next steps. There are five simple things are important to know when a cash flow crisis may be coming (or is already here).

Income- Both Gross (what you make before taxes and retirement plan contributions) and your Net (what you get in the hand or bank account).

Expenses- Knowing what you spend will help you take control and make smart decisions. Tracking using an app on your smart phone or having your bank tell you what you spend are both good starts. Writing it down yourself (electronically or on paper) will give you a better handle on the money going out.

Balance Sheet– Write down what you own (assets) and what you owe (liabilities). The result is your net worth. Separate your liquid assets such as bank accounts, brokerage accounts, cash value in life insurance from your illiquid assets as your home and retirement accounts. This will allow you to see the assets you can easily access if you need ready cash. Your net worth statement is a snapshot of how things stand now. It is very helpful to update your balance sheet annually.

Bills– You may forget these when you track your expenses. These are the ones that are automatically paid from your bank account or on your credit card. These bills are from companies that can be called in a cash flow crisis to ask for lower and/or deferred payments or even cancel if you no longer need or use the service.

Credit Report– You can get a free credit report every 12 months from Experian, TransUnion and Equifax. That means you can get a report every four months. http://www.annualcreditreport.com. This will help you know where you stand on your accounts. It may also show if there is any identity theft.

In addition to these, many of our classes talk about having an emergency reserve fund and it is now that the importance of having these funds shines. We recommend having 3 – 6 months of expenses saved in a savings account or equivalent. Now could be the time to use that rainy day fund.

There are many other resources, challenges, and ways of coping in times of a cash flow crisis. Managing Money in Times of Crisis is our great new class that addresses concerns and gives participants solid steps to move forward when cash flow becomes the biggest financial roadblock.

Unemployment and CARES Act

The unemployment rate in the US has soared due to COVID-19. Your employer has been paying unemployment insurance (UI) to the state (based on where the business is located) on wages paid to employees. It is this state fund that is used to pay unemployment benefits.

With the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act at the end of March, the Federal government has extended the limits, increased the amount and expanded who is eligible.

Unemployment benefits have, in the past, had a limit of six months (26 weeks) pay out for most states The Federal government has guaranteed an additional 13 weeks, bringing the total time that benefits are available to 39 weeks.

The benefit is paid on a weekly basis and many states have waived the work-search requirements and waiting period. That does not mean that benefits are instant and automatic, but that once approved, the payment will be retroactive to the first week of unemployment. 

The amount each person receives weekly is based on their wage, with each state having their own maximum. The CARES Act includes adding $600 per week of federal money to the benefit, for a maximum of four months.

The new law also expands who is eligible to receive unemployment benefits. Self-employed, contractors and gig economy workers who are not able to work due to COVID-19 are now included with those who can collect.

Here is something you may not know: Unemployment benefits are taxable. Benefits are a replacement of income and are taxed at both the state (if applicable) and federal level. You have the option of having tax withheld on your benefits.  After the end of the tax year, the state that paid you the unemployment benefits should send Form 1099-G, Certain Government Payments.

If you have become unemployed or someone you know has, apply for unemployment benefits as soon as possible. Visit your states unemployment website to start the process. 

Your Finances and COVID-19

Be kind to yourself. As stock markets mirror the changing economics brought about by COVID-19, it is important for you to take some deep breaths, remember your financial goals and be kind to yourself. If you are anxious and nervous about your investments and savings, that is natural. Your portfolio was designed for you and although it might feel like a natural response to sell everything, that is an irrational response.

To help see things from a different perspective, if you compare your balance from 12/31/2018 to what it was on Friday, 3/13/2020 it’s not as great a loss as you think if you look at the long-term picture.  Yes, 2019 was a stellar year for the stock market, which makes current losses seem sharp, but in the big picture, you’ve lost about one years’ worth of gains.

In order for you to take more control there are some financial “duties” that can be done.

Here is a list of things that you might consider:

1. Educate yourself about your current investments
2. Use an online retirement calculator to see if you need to make any adjustments
3. Research and reach out to a local financial planner to advise you
4. Ensure your emergency reserve has enough savings to get you through three months
5. Start tracking your expenses to gain the knowledge on how much will be in your emergency reserve
6. Develop a plan for your financial goals and revisit as needed to remind yourself on why you are invested
7. Consider making a small adjustment to your portfolio (no more than 5 – 10% change) if you feel strongly that action is needed
8. Confirm and update the beneficiaries on your investment and bank accounts
9. Take online financial education classes to become a more informed financial consumer

We all know that selling in a down market is highly discouraged, after all the saying is “buy low, sell high.” Now is not the time to sell low.

It is the time to take some action around your finances while you are thinking about them and have some space to do so.  Be kind to yourself and others around you.

Here at Financial Knowledge we support you in your quest to become more educated around finances and investments. We understand that this can be a tough time and are here to help you navigate these unsettling times.

Let us know what you are doing to take care of you and your finances and how we can be a partner on the journey.

FICO Credit Score

Fair Isaac Company, the corporation behind the formula for your credit score, recently announced it is updating its scoring system.  This is good news for those with good FICO credit scores now and not so good news for those with less than stellar FICO scores.  The new system is expected to roll out this summer, so it gives you some time to improve your score.

The most heavily weighted areas for both the current formula and the updated one are:

1. On-time payments

2. Utilization 

Let’s now look at some ways to improve your score in these two categories.

Chronically paying late means a drop in your credit score. Pay late once for one credit card bill, not so much. But paying late on a regular basis is going to mean a low credit score and additional late charges. Once the new FICO system kicks in, your credit score will drop even more dramatically. If you have the funds to pay your bills but seem unable to get to them on time, put as many as you can on automatic payment plans so that you DO NOT miss the payment due date.

If you are struggling to pay your credit card bills on time because of a lack on funds, take a hard look at your expenses and make some decisions on what expenses to cut out or cut back on. For example, decide if you need Netflix, Hulu, Amazon Prime and cable TV, or will one service be enough?

Over utilization of your credit also drops down your FICO credit score. This is when you are using more than 50% of your approved credit limit.  It is better to have below 50% on all cards than to be maxed out some credit (cards) and have no charges on others. It has been suggested that having your usage below 30% is best. Work towards lowering your utilization percentages and your score will improve.

It is always a good time to improve your credit score and now is the best time to get started before the new FICO scoring system is in place. Work on creating smart habits now and watch your score increase in the future!

New W-4 for 2020!

Starting in 2020 a new W-4 Employee’s Withholding Certificate is required for new employees. A W-4 is the paperwork required for payroll services to inform what percentage of your pay to be withheld for taxes. This form is a requirement and when filled out correctly, it means that when you file taxes for that year, you generally owe very little in taxes or get a small refund.

For a single income household, with or without children, this form can be a breeze. However, if you have more than one job and/or your spouse also works, it becomes a little complicated.  The IRS acknowledges that if there is more than one income in the household, then current withholding tax may be inaccurate. 

There are two extra income options – two incomes and three plus incomes. There are three handy dandy charts and using the one for your tax status, choose the intersection of the highest and the lowest income and use that number on the form. The amount withheld for taxes will be most accurate using this form if you and your spouse fill out the new W-4 for all your jobs and claim dependents on the W-4 for the highest paying job.

In addition, everyone gets a chance to have a little more or a little less withheld, using the Adjustments at bottom of the W-4. This is for income that does not have tax withheld and if you take more than the standard deduction when filing your taxes.

If this is all too overwhelming, there is another choice when filling out the W-4. Go to IRS website for the W-4 at www.irs.gov/W4App.  If you go this route, have your last paystub in hand.  It will walk you through the steps and turn red when you miss one. The results of the estimator will tell you if you will owe taxes or get a refund at tax season. Brilliant!

Financial Knowledge for Millennials

We have moved on from talking about Baby Boomers (born 1946 – 1964) and their needs in the workplace to talking about Millennials (born 1981 to 1996 generally) – those who became adults in the early part of this century. Millennials are now the driving force in the working world and their needs are different from their counterparts before them.

Millennials are now the driving force in the working world and their needs are different from their counterparts before them.

Many of them have large student loans and are less likely to become homeowners at an early age. Most feel that they are not making enough money at their jobs, so are unable to save. Although society has been great about teaching them how to spend money and get into debt, it has done millennials a disservice by not teaching them how to manage money, pay down debt, or save and invest for the future.

Millennials are now looking to their employers to provide more than just a paycheck. Along with flexible working hours, technology to facilitate working remotely, top employers are also adding financial wellness to their benefit offerings. Financial wellness includes access to resources and education.

Financial Knowledge provides comprehensive, conflict-free financial education to employees. With over 50 classes to choose from and a variety of delivery options (on-site, online or pre-recorded) we have something for just about everyone. have over 50 classes, offered either in person, as online live webinars or as recorded classes. Each course includes a workbook, covering the topic extensively. Classes can be tailored to include company specific information such as retirement plans, stock plans or HealthSaving Accounts.

Our clients, top employers, offer Financial Knowledge classes to ensure that their employees understand their personal finances so that they can manage their money with confidence.

Contact us today to discuss how we can help you to attract, sustain and grow your millennial workforce.

Fundamentals of 401(k)

Congratulations. You have just landed your first job with great benefits including a 401(k) plan. And you know nothing about it. Most plans have a few things that are specific to the employer, however all plans follow the same basic structure.

A company (employer) must sponsor the plan. Employees only have access to contribute to a 401(k) plan if their employer has chosen to offer one.

Here are nine fundamentals for all 401(k) plans.

1. A 401(k) is a deferred compensation retirement plan. The employee is choosing to have some of their earnings withheld and contributed into the retirement plan.

2. A company (employer) must sponsor the plan. Employees only have access to contribute to a 401(k) plan if their employer has chosen to offer one. The company uses a financial services firm to hold the investments.

3. Employees have their own account. These are in their own name, never a joint account.

4. 401(k) contributions by employees are taken out of their paycheck. There is no option to give the financial firm an extra payment during the year. It is all through payroll.

5. Funds contributed by the employee are immediately available, though not to withdrawal without penalties and perhaps taxes.

6. Employers do not have to contribute into the plan. Some employers “match” employee’s contribution by putting a limited amount into employees’ accounts. It is not always available when an employee leaves the company as there may be a time frame before it is fully vested.

7. There is a limited choice of investments for most 401(k) plans. The employer coordinates with the financial services firm to provide a range of investments, typically mutual funds.

8. The IRS sets the employee contribution limits, not the employer. For 2019 it is $19,000. For those aged 50 and older, the contribution limit is $25,000. The projected 2020 contribution limit is $19,500 and $26,000 for older employees.

9. The company match amount is not included in the contribution limits set by the IRS. It is in addition to the employee limits. So, now that you have a basic understanding, sign up, save every paycheck and invest wisely.

Now that you know the basics, go ahead and get started now. You will thank your future self later!