5 Financial Habits You Should Start Today

Good financial habits are helpful to your financial success and there are five habits you can start today that will help you reach the financial future you are looking to achieve. It is always a good time to start new habits, but depending on the person, habits may take 21 to 60 days to become a part of your daily life. Once they are implemented, they tend to stick around for the long term.

Here are five habits that will help you attain both your short-term and long-term goals.

1. Create a Budget

Take stock of how much income you have coming into your household each month and what expenses your income is paying each month. You can do this by simply putting pen to paper or utilizing an online tool that will track this for you. Each month, review the expenses and see if there are items that can be reduced or eliminated. For instance, you may have forgotten about automatic monthly payments set up for services you no longer use. This will put you in a position to review each expense and make sure it is a necessary one for your household. In addition, you will have an excellent view of whether or not you are cash flow positive (having more income than expenses each month) or cash flow negative (having more expenses than income each month). (For related reading, see: Financial Planning: It's About More Than Money.)

2. Start and Maintain an Emergency Fund

Years ago, our parents and grandparents frequently spoke about saving money for a rainy day. The modern day term is an emergency fund. Your employment status, whether you are an employee or own your own business, and your level of comfort will dictate what size emergency fund you should maintain. Each person is different, and we have recommended anywhere between a six month to 18 month emergency fund for clients.

This is money that should be kept in a separate account from the account by which you pay your monthly bills. This account should be liquid, meaning you can use the money on a moment’s notice if needed. A savings or money market account will work well for these monies. You will want to determine what size your emergency fund should be and begin to accumulate funds until you reach that amount.

Once you reach the desired amount you should only use these monies for an emergency. Things that may warrant you tapping into these funds may be the loss of a job or income, unexpected home or car repair, or simply any unexpected expense. After the emergency is paid for, you will want to replenish this account at your earliest convenience.

3. Pay Yourself First

Ideally you want to pay yourself first each time you get paid, and then learn to live on the monies that are left. There are a few ways to pay yourself first depending on your type of employment. As an employee, you will want to take part in your company’s 401(k) or retirement plan. A small business owner or independent contractor may want to consider setting up a retirement plan if they do not have one.

The last option would be for those that do not have or cannot set up a retirement plan. They would have to use either an IRA or brokerage account. A good target would be to try and pay yourself 10% of your pre-tax earnings if you are deferring to a retirement account, which is preferred. You may need to adjust this a bit if you are contributing after tax. (For more, see: Mistakes in Designating a Retirement Beneficiary.)

4. Review Beneficiary Designations Annually

We all face critical financial and life events that will impact us during the course of a given year. You certainly would not want your assets to end up going to beneficiaries which you did not intend them to go. Beneficiary designations should be reviewed at least annually or if you experience a major life event or change. Examples of times that you would want to review these designations would be: the birth of a child or grandchild, marriage, divorce, death, disability or job change. Whether you are digital or analog, place a reminder on your calendar to review this each year.

5. Rebalance Portfolio Annually

Rebalancing is something you will want to make sure you review at least annually - whether you manage your portfolio yourself or use an advisor. Typically rebalancing has a tendency to get forgotten when markets are going up because people tend to get complacent and think there may be no risk in waiting. Rebalancing will help you maintain your portfolio allocation and risk with its intended targets.

You may recall back in the late 1990s, when technology investments were booming, the technology bust. There were many investors that saw their portfolio's asset allocation change from 10% allocation to technology stocks to 70% in a relatively short period of time. In many cases this large allocation to technology was a huge overweight, meaning more money was allocated to that sector than you initially intended. This was great while those securities were doing well, but what these investors did not realize was the risk they were imposing on their assets. When the technology sector busted they had 70% of their portfolio at risk instead of the original 10%. Had they rebalanced along the way, a good deal for this risk could have been avoided.

Implementing these five simple habits will help you reach both short and long-term financial goals. (For more from this author, see: The Importance of Rebalancing Your Portfolio.)

Disclosure: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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Personal Finance Basics for Millennials

For many Millennials, personal finance can be hard to understand most often because they lack basic education of the topic. There aren't personal finance classes in high school, college or business school that taught them the basics of financial literacy. It's understandable that they might be lost. Personal finance should be easy to understand, so it's easy to succeed. In order to succeed, Millennials need to understand their personal financial situation and some basic personal finance concepts in order to develop better habits.

Here are five personal finance basics for Millennials.

1. Set Goals

Think about what your short and long-term goals are. For some Millennials, experiences may be more important than saving for things such a home or retirement. Your goals can be whatever you would like them to be, but you must identify, quantify and prioritize them. Think about weighing your short-term goals more heavily than long term. You have more time than your parents do to achieve your goals. (For more from this author, see: Savings Options for the Self-Employed Millennial.)

2. Master Cash Flow

Spend some time with your cash flow to get a handle on monthly expenses including student loan debt, credit card bills and other obligations. You will need to have a plan for these before you can move on. Create your budget and see if you can stick to it for three to six months. By understanding your cash flow, you can be disciplined so that when extra income comes in, you can afford to save it towards your goals.

3. Build Emergency Savings

Having an emergency fund that can cover three to six months of living expenses is essential. Life happens. If you lose your job or a medical need arises that emergency fund will come in handy. You don’t want to be caught off guard and not be able to come up with needed funds.

4. Save for Goals

If you have mastered those steps, you can move on to saving for your goals. Some short-term goals may require money to be kept on hand in cash if you can’t afford to take a risk on that money. But long term goals, such as retirement, require taking some risk. Even if you can’t save much in a retirement account, something is better than nothing. And if your employer provides a match, try to contribute enough to get that free money. You have lots of time before retirement so by starting to save now, you can take advantage of compounding to grow your assets. If your employer doesn’t offer a plan, there are ways to save on your own through individual retirement accounts (IRAs) or Roth IRAs.

5. Find Consistency 

It’s up to you to determine what your goals are and how you are going to save for them, but you must be in control of your money. Build good money habits now that will grow with you as life gets more complicated, and it will. Marriage, a home and kids can all make managing your personal finances more complicated but if you established good habits in your 20s, then it will be easier to maintain them. As you advance in your career or work a side hustle, you will also be able to put aside more money towards those big goals.

Understanding personal finances and developing good habits is key to Millennials successfully managing money in the short and long term. (For more from this author, see: Retirement Planning for Millennials Now.)

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How to Transfer Financial Values to the Next Gen

Some wealthy families remain wealthy for many generations because they’re able to sustain intergenerational financial values. Although it isn't easy, these values can be passed down through what you say and what you do to successive generations, or else they may not survive a generational transition. Financial values and guiding principles can become murky or even lost if they’re not articulated, discussed and nurtured.

Creating a Family Guide

In order to keep these values alive and well, it’s best to write them down for reference by current and future generations, thus guiding the values-based pursuit of financial goals in the family tradition. This can be accomplished through a dedicated document or as part of a more comprehensive statement of family values. The latter, a concept I developed for clients, is what I call the family guide. This is a living, breathing record of principles and beliefs of all sorts to follow in pursuing various types goals, financial and otherwise, consistent with the practices and positive examples of past generations. (For more, see: Tips for Family Wealth Transfers.)

As financial values are often a natural extension of broader values, a family guide is a natural context for outlining the thinking and practices that have long served as wellsprings of family wealth. Each generation can have a proven blueprint for success in making choices as stewards of family wealth today and for future generations. This ancestral record can include principles for investing, financial planning and wealth management - equipping future generations to carry on family traditions of financial success and keeping them from repeating costly mistakes made by forebears.

Key Topics to Include

These documents can serve as the collective family wisdom on what ancestors have learned about handling money. Key topics for these documents naturally include:

• An emphasis on saving and spending discipline - living well with one’s means to build wealth.
• The importance of understanding risk levels of different types of investments. Taking too much risk jeopardizes family wealth currently and for future generations. Taking too little risk can reduce potential returns because, over the long term, this can subject holdings to erosion from inflation.
• Having a distinct predisposition toward building wealth rapidly, with high risk, versus slowly with reasonable risk. Part and parcel of this is an awareness of prevalent fraudulent investment scams seeking to part the well off from their money.
• Understanding the importance of not just growing wealth through investing but also preserving it through such protections as appropriate insurance coverage.
• Understanding the spectrum of risk inherent in different types of investments. It’s crucial for future generations to understand what types of assets are completely safe, which ones are largely safe and which carry high risk. The names and structures of some investing vehicles tend to change over time, and more and more vehicles for holding assets are being created. Though the names and structures of vehicles may change over the years, many of the underlying assets tend to be basically the same from one generation to the next. The risks of these underlying assets and the rules of vehicles involved should be carefully considered before investing. (For more, see: A Quick Guide to High-Net-Worth Estate Planning.)
• Knowing your true tolerance for investment risk and assessing the risks of different investments against this tolerance.
• Spotting bubbles and realizing the perils of getting caught up in the investing herd that create them. This means having a sense of when valuations become irrational and unsustainable because they are clearly outside historical norms.
• Following a disciplined investing process, including consistent buy and sell disciplines. Those who buy high tend to be the last to buy and those who sell low tend to be the last to sell. Knowing when to buy stocks involves knowing that value and momentum indicate future performance - up to a point. Value stocks are no longer value stocks after their prices rise high enough and momentum eventually runs its course.
• Respecting individualism in investing. This can lead to a sound investing discipline rather than investing with the crowd - marching to a different drummer, as Henry David Thoreau famously wrote.
• The importance of listening to qualified financial professionals or doing your own solid research.
• Knowing what to look for in an advisor, such as a certain number of years of experience, and the right educational credentials and appropriate certifications or designations. Such credentials can help consumers discern professionalism among advisors.

Sustaining Family Wealth

By codifying and recording financial priorities and values, families can take an important step toward assuring that the principles that led to the creation of family wealth can live on to sustain it. And in the process, each generation can assure that they leave their heirs something more important than money - family values. (For more, see: Leaving Inheritance to Children Easier Said than Done.)

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How Financial Wellness Benefits Employees

Dealing with personal finances can be stressful. Stress can have a negative impact on employee performance, in addition to other areas of life like personal relationships and overall health. Whether it is worrying about debt, paying bills or planning for retirement, financial concerns are at the forefront of our psyche. One way that employers or business owners can alleviate some of that stress is helping their employees work toward gaining financial wellness.

A Lack of Financial Wellness

Unfortunately, many of us lack the knowledge, skill set or inclination to tackle the many aspects of financial wellness. A survey by the American Psychological Association found money was the top source of stress for American adults. From an employer's perspective, a financial wellness program can lead to a more productive, engaged and happier workforce. A strong financial wellness program can help employees develop skills to manage money, effectively budget, set short- and long-term goals and plan for retirement. (For more, see: Employee Financial Wellness Programs.)

According to a 2017 PricewaterhouseCoopers (PwC) survey, 53% of employees feel stressed when dealing with their personal financial situation and 46% say financial challenges cause the most stress in their lives. Twenty-two percent of those surveyed said financial worries have impacted their productivity at work, and 12% said they have occasionally missed work due to financial worries.

Financial concerns can include worrying about retirement, maintaining a certain lifestyle, paying off debt, being able to cover monthly expenses and not having adequate emergency savings. These concerns don’t only apply to employees with lower incomes. Forty-four percent of workers making more than $75,000 per year listed not having enough emergency savings as their top financial concern. For workers making less than $75,000, 54% had the same concern.

In a 2011 study, Aon Hewitt reported 28% of workers participating in a 401(k) plan through their employer had a loan outstanding. While usually a better option than withdrawing funds or cashing out the plan, taking a 401(k) loan can ultimately prove to be a retirement setback if the employee is younger than 59½ years old and can’t repay the loan for whatever reason. That money will then be treated as a taxable distribution with a penalty and won’t be available for retirement in the future.

Implementing a Plan

Implementing a financial wellness program to address these types of topics and concerns can help combat your employees’ stress levels and help make them more confident in their financial decisions. Starting a financial wellness program doesn’t necessarily mean it needs to becomplex and expensive plan. Oftentimes, simple suggestions on cash management, debt reduction and retirement planning can have a large positive impact for employees. 

A successful financial wellness program not only focuses on the broader financial wellness topics, it also focuses on the simple but effective techniques that can make all the difference including training to help your employees build skills in budgeting, saving, debt reduction, retirement planning and helping them better prepare for unexpected financial emergencies. This approach can be beneficial to all employees and can be particularly useful to employees in their 30s and 40s who have many years to go before retirement.

Employees in their 50s and 60s who are closer to retirement can also benefit from these budgeting skills, and they will likely see value in retirement planning that can help them map out the next stage of their lives. The goal is to help your employees feel confident they are making the right financial decisions for the short- and long-term. Implementing a financial wellness program as part of your firm’s existing employee benefits program can help your firm and employees plan for a prosperous future together. (For more, see: Starting a Business? Embrace the Discomfort.)

Disclosure: David Chazin is a registered representatives of Lincoln Financial Advisors. Securities and advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. Insight Wealth Strategies is not an affiliate of Lincoln Financial Advisors Corp. Lincoln Financial Advisors does not provide legal or tax advice. 3000 Executive Parkway, Ste 400. San Ramon, CA 94583. (925) 659-0217. David Chazin’s CA Insurance License #0D45501 CRN1975657-121917

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Beyond Your Bank: Getting a Small Business Loan

Whatever the state of your business, a small business loan can provide the capital you need to help achieve your goals. Applying with your bank might seem like the obvious way to go. It allows you to keep everything under one roof, helpful for busy entrepreneurs who need to keep things organized. But it might not be the best way to go, because you could miss out on better options and products from other providers.

It’s well worth looking at all your options so you can get the best terms and rates. Here’s how to find the best small business loan option for you, and how to decide if it makes sense to get this type of financing in the first place.

Does a Small Business Loan Make Sense?

First, make sure a small business loan is your best option. Small business loans are not the only way to fund and run your business. Depending on your long-term goals, you might opt for a line of credit, get a small business credit card or even seek out investors. Before you borrow, consider the potential downsides. For one, you may have a hard time getting approved if your business doesn’t have established credit and your personal credit isn’t great. Some lenders require collateral for a small business loan, which you lose if you default on the loan. A loan may be a source of unnecessary risk and expense if you can raise the money through revenue and profits instead. Additionally, paying that loan back is a long-term financial commitment. If your profits can’t keep up, it could put you in a precarious position. (For related reading, see: 4 Steps to Getting a Small Business Loan Without Collateral.)

Why You Should Consider This Form of Financing

That said, there are plenty of good reasons to leverage a small business loan. First, small business loans can be a type of good debt. Good debt is a small liability with calculated risk, which you then leverage as an investment. Your business is an asset with the potential to appreciate in value. A small business loan allowing you to do so can be a great financial tool. Typically, small business loans offer lower interest rates than small business credit cards. If you need financing, it may be less expensive for you.

It may also be a better route than seeking out investors. Unlike investors, commercial lenders don't want a say in how you run your business. Other than your terms of repayment, lenders don't take a percentage of your profits. And finally, a loan can help you build up your company's credit history, which is separate from your personal credit history.  

Best Small Business Loan Options to Consider

If you’ve decided getting a small business loan is right for you, here are the top three lenders you can consider in your search. Depending on your needs and where you are in your business, one of these options might be best for you over the other two. Even after you check out these options, don’t hesitate to shop around and compare rates if you know of other lenders you might want to work with.

If You’re Just Starting Out: SBA Microloan

When you’re starting your business, it can be extremely difficult to find a bank willing to lend to you. The bank doesn’t have any credit history to consider when determining whether or not you’re a risky borrower (which also influences the interest rate they’ll offer you). You can go through a qualified local lender to apply for a Small Business Administration (SBA) microloan if you’re in this situation. You can borrow up to $50,000, but the average loan in the program is $13,000.

These loans are also fairly cheap, with interest rates running between 8% and 13%. The specific rate you qualify for will depend on the lender you choose, your credit history and credit score, and how much you request to borrow. The SBA microloan program allows for repayment periods up to six years—although, like your interest rate, that will vary from borrower to borrower. Expect to put up collateral to qualify for this loan and meet the lender’s credit requirements. Be aware it can take a while to get approved, too. You’ll want to plan ahead before applying. (For related reading, see: Expanding Your Small Business With an SBA Loan.)

If You Have Bad Credit: Fundbox

Don’t have business credit? Is your personal credit less than stellar? It can start to feel impossible to get a small business loan from traditional lenders. But you still have options. Fundbox doesn’t even have a credit score requirement for borrowers. The lender offers two different ways to get business financing: invoice factoring and a line of credit you can draw upon for a specific period. For invoice factoring, you can borrow up to $100,000. You have 12 to 24 weeks to pay off the loan. Fees start at 4.66% to 8.99%, depending on which repayment period you choose.

If you’d rather have a line of credit, Fundbox offers up to $100,000 for that as well. There’s no collateral required or even a personal guarantee. The lender typically charges a fee of 0.7% per week on the amount of credit you use. You’ll need to repay your balance within either a 12-week or 24-week period. That means withdrawing $1,000 will cost you $7 per week until you repay that amount in full. While Fundbox doesn’t require a credit check to apply, they do require you to have been in business for at least three months before they’ll consider your application.

If Your Business and Credit Are Well Established: SmartBiz

SmartBiz offers SBA 7(a) loans but without the lengthy application and funding process. You can borrow anywhere between $30,000 and $350,000 (or more if you’re in commercial real estate). Borrowers receive funds on accepted loans within seven days, and make payments over 10 to 25 years. SmartBiz loans are well worth considering because of their relatively low interest rates that range from 6.36% to 9.57%. You’ll need to check a number of boxes to qualify, however.

Requirements include:

• Owning a U.S.-based business for at least two years
• A personal credit score of at least 650
• At least $50,000 in annual revenue
• No outstanding tax liens, bankruptcies or foreclosures in the past three years
• No recent charge-offs or settlements
• Being current on any other government-related loans.

If you meet the requirements, SmartBiz is a solid option for your business financing.

What to Consider Before Taking a Small Business Loan

Whether or not your company's cash flow is stable, taking out a small business loan is a big financial commitment. You’ll want to ask yourself the following questions before you move forward and request financing.

Do You Have Cash Reserves?

If something goes awry and your cash flow dries up, that could put you at risk of defaulting on your loan. It’s wise to have cash reserves in case of emergency. If you don’t have reserves and your cash flow is irregular already, you might want to focus on building in a stable, reliable stream of revenue via other means before looking for loans.

What’s Your Credit Like?

There are some lenders that don’t require a credit check, but if you don’t qualify there for other reasons, your options dry up pretty fast. You need a credit history and a strong credit score to qualify for most loans. Consider taking a few months to boost your credit score to improve your chances of getting approved. You can do this by taking out a business credit card, making regular payments on your bills on time and in full, and by watching your credit utilization ratio (keep it at 30% or less). (For related reading, see: 3 Easy Ways to Improve Your Credit Score.)

How Much Money Do You Actually Need?

Don’t go into this decision without knowing exactly what you need (which might be very different than what you’d like to have). If you take out too much, you’ll pay more in interest (and might have a tough time paying back the full balance when it’s due). If you take out too little, you could fall short of your goals. Analyze your goals and current financial situation to determine the best dollar amount.

When Do You Need It?

Some lenders offer to fund within a week or just a few days. Others, however, can take weeks or even months to go through the application and funding process. Start the process well in advance of when you actually need the money and consider funding timeframes with each lender.

Do Your Due Diligence Before Applying

Taking out a small business loan is no small decision. To make sure you’re getting the best loan for your business, consider several lenders and their interest rates, fees and eligibility requirements. Make sure, however, to first consider the pros and cons of getting a small business loan and your financial needs when applying. If you do your due diligence, you’ll be in a better position to get the funding you need when you need it.

(For more from this author, see: How Small Business Owners Can Create Cash Flow.)

Disclaimer: The information being provided is strictly as a courtesy. When you link to any of these web-sites provided here, you are leaving this site. Our company makes no representation as to the completeness or accuracy of information provided at these sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, sites, information and programs made available through this site. Registered Representative/Securities and Investment Advisory Services offered through Signator Investors, Inc. Member FINRA, SIPC, and Registered Investment Advisor. AspenCross Wealth Management is independent of Signator. 1400 Computer Drive Westborough, MA 01581

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The Importance of Durable Financial Power of Attorney

Most people are familiar with the concept of a power of attorney, a document that allows someone else to act on your behalf. According to legal definitions, the individual designating the power of attorney is the “principal” and the designated person is the “attorney-in-fact”. There can be multiple attorneys-in-fact, but of course they are making decisions in concert. The scope of the power can be limited or broad, but the purpose is for the attorney-in-fact to make decisions in the best interest of the principal. A broad power of attorney is an attempt by the principal to give their attorney-in-fact the same rights the principal would have if they were able to act on their own behalf.

What Does Adding “Durable” Do to a Power of Attorney?

A power of attorney goes into effect upon signing and terminates if the principal becomes incapacitated. Adding the durable specification means the power of attorney will stay in effect if the principal becomes incapacitated. There is also the option to add a “springing” specification, which means the durable power of attorney does not go into effect upon signing, but springs into effect if the principal becomes incapacitated. This addresses the situation whereby the principal wants to remain in control until they are unable to do so, and only at that point does the attorney-in-fact take over.

While this is efficient, a drawback of the springing specification is there could be disputes over whether or not the incapacity has occurred. In addition to the durable financial power of attorney discussed here (also called a durable power of attorney for finances), there is a durable medical power of attorney (also called a durable power of attorney for healthcare). (For related reading, see: Medical vs. Financial Power of Attorney: Reasons to Separate Them.)

With a durable financial power of attorney, the attorney-in-fact has the right to pay bills, deposit checks, file tax returns, buy and sell real estate, invest in securities, make gifts, and even sue, among other things. As one would expect, with the durable medical power of attorney, the attorney-in-fact has the right to make health care decisions for the principal in the event of incapacity.

The Benefits of Having a Financial Power of Attorney

Due to their different concerns, and even if the attorney-in-fact is the same for both of them, these two documents should be drawn up separately for purposes of privacy and simplicity. Families can benefit from having a durable financial power of attorney in place if there's a significant chance that an older family member will become incapacitated due to disability, illness, or age. A durable financial power of attorney can prevent the family from having to go through the court system to appoint a guardian or conservator to manage the principal’s financial affairs.

Additionally, a durable financial power of attorney can make it easier for a family member to take the helm and avoid conflict with other family members. You don’t have to be older to benefit from having a durable financial power of attorney in place, because you never know if an accident might happen that could lead to your own incapacity and leave financial chaos behind.

For example, it’s common for spouses to have durable financial powers of attorney for one another in case something happens to one of them. In community property states especially, many transactions require the signature of both spouses, so it's prudent for spouses to confer durable financial power of attorney upon one another. Some community property states such as California already provide that if one spouse becomes incapacitated, the other spouse automatically assumes the management of the community property. In this case, to avoid conflict, it is important the other spouse and the attorney-in-fact are the same person.

In your suite of estate planning documents, a durable financial power of attorney could be an essential one to avoid having a court appoint who will take care of your finances when you are no longer able.

(For more from this author, see: Medicare: Understanding the Basics.)

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Control What You Can for Financial Success

When I played with the Ottawa Senators, my coach often told us to stay focused on what we could control. In hockey, a lot can go wrong—the team could suffer through a string of bad luck with injuries, we could be bothered by the ice condition, etc..

Many people get frustrated and angry when such situations arise. But with experience, we came to understand our success depends on powering through adversity by preparing for the worst and planning for the best. Here are three ways you can apply this advice to your financial planning so you are prepared for those factors beyond your control:

1. Live Within Your Means

Many people complain that they can’t seem to save. They often point their finger at the fact they haven’t received a raise in a while. It can be frustrating to dedicate a lot of time to an employer who doesn’t seem to appreciate the value you bring to the table, but that’s for another discussion. When it comes to creating a budget and having enough money to save for future goals, focus less on the income you are making and pay attention to your expenses instead.

Many financially successful people are able to accumulate a nice nest egg with lower salaries. You can’t really control the income you make, but you can control the way you spend it. (For more from this author, see: To Save More, Focus on Your Needs, Not Your Wants.)

2. Spend One Hour of Your Day Learning

Getting a promotion often comes with a raise, which is great. However, there are a lot of factors affecting your chances of getting a promotion. Most of these factors are beyond your control, so you shouldn’t worry about them. Stay focused on what you can control, which is your dedication to the quality of your work and your education. Take an hour a day to continue learning about your craft and become an expert in your field. If you are able to accomplish that, the work opportunities and raises will come.

3. Invest in a Strategy That Makes Sense to You and Stick With It

Many people stress about the markets. They watch financial news and check their accounts every day. However, the biggest investment mistake comes when investors change their asset allocation at the wrong time, taking more risk at the top of the market and reducing risk after a large sell-off. Focus on what you can control. It is nearly impossible to know what the markets are going to do, however if you invest in a strategy that makes sense to you and stick with it, you will be able to avoid the biggest investor mistakes.

Control What You Can for Financial Success

A lot of things can affect our financial success. However, many of these factors are well beyond our control. The key is to put your time and effort into the things that will make you successful in your career, your finances and your life.

(For more from this author, see: How to Build Your Financial Foundation.)

Disclosure: MoneyCoach LLC and/or Patrick Traverse offer Investment advisory and financial planning services through Belpointe Asset Management, LLC, 125 Greenwich Avenue, Greenwich, CT 06830 (“Belpointe), an investment adviser registered with the Securities and Exchange Commission (“SEC”). Registration with the SEC should not be construed to imply that the SEC has approved or endorsed qualifications or the services Belpointe Asset Management offers, or that or its personnel possess a particular level of skill, expertise or training. Insurance products are offered through Belpointe Insurance, LLC and Belpointe Specialty Insurance, LLC. MoneyCoach LLC is not affiliated with Belpointe Asset Management, LLC. Additional information about Belpointe Asset Management is available on the SEC’s website at www.adviserinfo.sec.gov

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How Fixed Income Threshold Reduces Social Security Benefits

The income threshold that triggers federal income taxes on your Social Security benefits has not changed since 1984. But the national average wage index used by the Social Security Administration (SSA) to compute benefits has tripled since 1984, and the consumer price index has risen nearly two-and-a-half times.

As a result, more and more individuals and families are paying taxes on their Social Security benefits every year, not because their real incomes have risen significantly but mainly because of rising wage and price levels. The government’s use of a fixed income threshold not adjusted for either inflation or rising wages amounts to both an ongoing tax increase and a means test on Social Security beneficiaries, since taxing benefits based on your income effectively reduces them.

Social Security Benefits Not Always Taxed

On January 31, 1940, Ida May Fuller, a legal secretary from Ludlow, Vermont, became the first person in the United States to receive an old-age monthly benefit check under the then-new Social Security law, enacted in 1935. She was 65 years old. The check was for $22.54. Her total contribution to Social Security, made between 1937 and 1939 during her years of participation in the program, was $24.75. Ida lived to be 100, and collected a total of $22,888.92 in Social Security benefits. Ida never paid a dime of income taxes on her benefits.

For 44 years, Social Security benefits were exempt from federal income tax. Starting in 1984, however, beneficiaries whose income exceeded certain thresholds were taxed on up to 50% of their Social Security benefits. In 1993, the law was further amended to tax up to 85% of Social Security benefits after slightly higher income thresholds are reached.

How to Determine If Your Social Security Benefits Will Be Taxed

How much, if any, of your Social Security benefits are taxable depends on whether your total income exceeds the “base amount” for your income tax filing status. For this purpose, the IRS broadly defines your total income as one-half of your Social Security benefits plus “[a]ll your other income, including tax-exempt interest.” (For related reading, see: Social Security Benefits and Taxes: The Lowdown.)

Total income also includes exclusions and adjustments you’re permitted to take in arriving at your adjusted gross income (AGI). These include interest from qualified U.S. savings bonds, foreign earned income and housing, and the deduction for student loan interest. For a married couple filing a joint income tax return, up to 50% of their Social Security benefits are taxable if their total income exceeds $32,000. If their total income exceeds $44,000, up to 85% of benefits may be taxed. For single people and most other taxpayers, the thresholds are $25,000 and $34,000, respectively.

How the Tax Increase and Means Test Happen

Under our progressive income tax system, tax rates increase as your taxable income increases. To keep people from automatically being pushed into higher tax brackets simply because of inflation, indexing of the income tax brackets for inflation was enacted under President Reagan in 1981 and took effect in 1985. When Congress made Social Security benefits taxable in 1984, however, the income threshold of $32,000 for married couples ($25,000 for most others) was not indexed to inflation in either wages or prices.

In 1984, when the law went into effect, less than 10% of families had to pay income tax on their Social Security benefits. In 2015, 31 years later, a Social Security Administration Issue Paper projected 52% of Social Security beneficiaries would pay income tax on their benefits that year. Among those 52%, the median share of benefits owed as tax was estimated at 11%. In other words, those Social Security beneficiaries who paid taxes on their benefits had their benefits effectively reduced, half of them by more than 11%. A reduction in benefits based on your income, no matter what it’s called, is a means test.

To put this in perspective, if we adjusted the 1984 income threshold at which benefits become taxable to reflect average wage growth, using the SSA’s average wage index table (which SSA uses to make past earnings comparable with current earnings), the $32,000 threshold for married taxpayers today would triple to more than $96,000. The $25,000 threshold for single taxpayers and most others would exceed $75,000 before benefits were taxed. Because the income thresholds that trigger taxation of Social Security benefits are fixed, a family today making about the same inflation-adjusted income as a 1984 family pays tax on up to 85% of their Social Security benefits. The 1984 family paid no tax on their benefits. That amounts to a whopping tax increase.

A Marginal Tax Rate Example

If your total income is near the thresholds at which either 50% or 85% of Social Security benefits become taxable, one dollar of additional income can trigger a significant jump in your marginal tax rate.

For example: Nick and Nora are in the 12% federal income tax bracket. Every dollar of extra income they earn costs them 12 cents in taxes. But if that same extra dollar of income also causes 50% of a Social Security benefit dollar to become taxable, Nick and Nora must now pay tax at 12% on that 50 cents of taxable Social Security benefits, or 6 cents more (50 cents x 12%). Thus, one extra dollar of income now costs 18 cents in taxes (12 cents + 6 cents), and Nick and Nora’s marginal tax rate has now increased from 12% to 18%, a 50% increase!

Tax Planning Opportunities Limited, But Still Available

Unfortunately, because the IRS' definition of total income is so broad, opportunities for avoiding or reducing the tax on your benefits are limited. Most often, your only recourse is to pursue traditional tax-planning strategies to postpone income while accelerating or maximizing certain deductions taken in arriving at AGI (so-called above-the-line deductions).

These include:

Deferring the receipt of income — If you have the ability to postpone the receipt of income until the following year, you may be able to reduce both your overall taxes and the taxable amount of your Social Security benefits this year. Examples of items that might be deferrable into next year include taxable IRA or 401(k) distributions (other than required minimum distributions), business income or year-end bonuses.

Harvesting capital losses — Capital losses exceeding capital gains can offset up to $3,000 of ordinary income. Thus, harvesting capital losses could potentially make less of your benefits taxable by reducing your total income. (For related reading, see: How Tax-Loss Harvesting Can Save You Money.)

Maximizing allowable deductions and adjustments to income — Some above-the-line deductions are still allowed when arriving at your total income for benefits taxation purposes. These include IRA and health savings account (HSA) contributions, educator expenses and various deductions available to self-employed people, such as the deductible part of self-employment taxes and the deductions for health insurance and retirement plans.

A combination of these planning techniques could be highly beneficial not only in reducing your overall taxes but also in avoiding the punitive jump in marginal tax rates that results when additional Social Security benefits become taxable.

Putting It All in Perspective

Congress’s goal in making Social Security benefits taxable was to make their tax treatment comparable to that of private pension income, which is generally taxable to the extent that payments exceed worker contributions. The Social Security Administration has estimated the average worker directly contributed in taxes only about 15% of the benefits he or she receives. That is why only up to 85% (100 – 15) of benefits are taxable. This avoids double taxation on the portion of benefit income representing previous contributions. Whether that calculation remains the same for the future, as changes to Social Security are contemplated, remains to be seen.

Later retirement ages, higher limits (or no limits) on the earnings to which Social Security taxes apply, increased FICA tax rates, or lower benefits may argue for reducing the portion of taxable benefits. It’s also important to remember, for individuals and families with total income below the thresholds, all Social Security benefits continue to be tax-free at the federal level. Moreover, 37 states do not currently tax Social Security benefits. The income taxes you pay on your Social Security benefits are credited to the Social Security and Medicare trust funds, which in turn helps continue to fund those programs. Finally, the next time you hear someone saying Social Security benefits should be means-tested, realize that, to a certain degree, they already are.

(For more from this author, see: The Case for Collecting Social Security Early.)

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Control What You Can for Financial Success

When I played with the Ottawa Senators, my coach often told us to stay focused on what we could control. In hockey, a lot can go wrong—the team could suffer through a string of bad luck with injuries, we could be bothered by the ice condition, etc..

Many people get frustrated and angry when such situations arise. But with experience, we came to understand our success depends on powering through adversity by preparing for the worst and planning for the best. Here are three ways you can apply this advice to your financial planning so you are prepared for those factors beyond your control:

1. Live Within Your Means

Many people complain that they can’t seem to save. They often point their finger at the fact they haven’t received a raise in a while. It can be frustrating to dedicate a lot of time to an employer who doesn’t seem to appreciate the value you bring to the table, but that’s for another discussion. When it comes to creating a budget and having enough money to save for future goals, focus less on the income you are making and pay attention to your expenses instead.

Many financially successful people are able to accumulate a nice nest egg with lower salaries. You can’t really control the income you make, but you can control the way you spend it. (For more from this author, see: To Save More, Focus on Your Needs, Not Your Wants.)

2. Spend One Hour of Your Day Learning

Getting a promotion often comes with a raise, which is great. However, there are a lot of factors affecting your chances of getting a promotion. Most of these factors are beyond your control, so you shouldn’t worry about them. Stay focused on what you can control, which is your dedication to the quality of your work and your education. Take an hour a day to continue learning about your craft and become an expert in your field. If you are able to accomplish that, the work opportunities and raises will come.

3. Invest in a Strategy That Makes Sense to You and Stick With It

Many people stress about the markets. They watch financial news and check their accounts every day. However, the biggest investment mistake comes when investors change their asset allocation at the wrong time, taking more risk at the top of the market and reducing risk after a large sell-off. Focus on what you can control. It is nearly impossible to know what the markets are going to do, however if you invest in a strategy that makes sense to you and stick with it, you will be able to avoid the biggest investor mistakes.

Control What You Can for Financial Success

A lot of things can affect our financial success. However, many of these factors are well beyond our control. The key is to put your time and effort into the things that will make you successful in your career, your finances and your life.

(For more from this author, see: How to Build Your Financial Foundation.)

Disclosure: MoneyCoach LLC and/or Patrick Traverse offer Investment advisory and financial planning services through Belpointe Asset Management, LLC, 125 Greenwich Avenue, Greenwich, CT 06830 (“Belpointe), an investment adviser registered with the Securities and Exchange Commission (“SEC”). Registration with the SEC should not be construed to imply that the SEC has approved or endorsed qualifications or the services Belpointe Asset Management offers, or that or its personnel possess a particular level of skill, expertise or training. Insurance products are offered through Belpointe Insurance, LLC and Belpointe Specialty Insurance, LLC. MoneyCoach LLC is not affiliated with Belpointe Asset Management, LLC. Additional information about Belpointe Asset Management is available on the SEC’s website at www.adviserinfo.sec.gov

cr. https://www.investopedia.com/advisor-network/articles/focus-what-you-can-control/

Business Owners: What to Do After Disaster Strikes

Now that you've learned what to do prior to a natural disaster or other emergency in my previous article, it is time to prepare for what you would do during an actual emergency. The first step you will want to take is to keep track of any natural disaster by following weather reports and receiving live, updated information.

Monitoring Impending Weather Events

Keep track of any approaching storms or natural disasters. You can use a variety of apps to do this from the NOAA weather alerts and local station (NBC/other) apps to Google’s live tracking.

You will want to move your family, loved ones and business team away from the area as best as possible. This is the time that you will rely upon the supplies you have saved and possibly use backup generators. Run through any emergency drills ahead of time with your team so you are ready to go before a hurricane, earthquake, storm or other event occurs. You can also take proactive measures to close your business early and operate from another location and check in with your team ahead of time.

After the natural disaster has passed through your area and it is safe to go outside, these are the next steps to take. (For related reading, see: The Financial Effects of a Natural Disaster.)

After a Natural Disaster

1. Take photos of your home and business - After you experience a major disaster, it is advisable to take photos and video of the damage as soon as it is possible to go home. Do not move anything and do not start repairs yet. Be sure to file an insurance claim, get a claim number and reach an agreement with your insurance company before you start repairs. Make sure your insurance company considers the regional cost for repairs as it varies from state to state so you do not have to pay more out of pocket. Only cash your insurance check after you have agreed on the amount due. Document any loss or damage you see. You may need to take some temporary steps like boarding up walls, covering roofs with tarps or other short-term measures to prevent further damage, but first be sure to take photos and videos and speak to your insurance company.
2. Check in with your employees - Find out how your employees are doing. Some of them may have additional issues to deal with. Be considerate and patient.
3. Restore critical business functions - As soon as you can, restore critical functions. The planning you did ahead of time will help you now.
4. Call your creditors - Many companies ranging from banks to mortgage lenders and credit card companies will offer a longer grace period for payments after a natural disaster.
5. Check disaster status - You may be eligible for help through the government’s disaster relief efforts at https://www.disasterassistance.gov. FEMA typically offers help to individuals and not businesses and is usually just for essential survival needs.
6. Request an SBA disaster loan - You may be eligible for up to $2 million in disaster loans through the SBA at favorable terms that you can use to repair physical property or meet financial obligations that you could not because of the natural disaster. This loan can be used to cover losses that were not included in your insurance coverage.
7. Get extended tax filing date - When your business lies within an area that is declared a disaster by the federal government, you can receive more time to file and pay your taxes as well as other tax provisions for up to five years.

Creating an emergency plan is similar to having an estate plan in place that helps the family and loved ones after a person has passed away. It gives you a roadmap of what to do immediately and helps you think ahead.

Depending upon where you live, you may face different natural disasters. Whether your business survives and thrives after a natural disaster depends upon the planning that you do ahead of a disaster and what you do after a disaster strikes. With good planning, you can keep your home, loved ones and business safe and out of harm’s way.

(For more from this author, see: The Importance of Creating a Will.)

cr. https://www.investopedia.com/advisor-network/articles/business-owners-what-do-after-disaster-strikes/

What Makes Financial Markets Work?

410 days. That’s all it took to create one of the seven wonders of the modern world. Over 3,000 masons, architects, steelworkers and skilled laborers worked together on the Empire State Building. For nearly 40 years it stood as the tallest building on earth, an undeniable example of efficiency, produced through the collective use of knowledge. It’s a simple concept that can be applied to just about any industry and it underpins the basic idea of why markets work.

The functionality of financial markets, like any market, is based on open and ongoing participation in an environment where decisions are made based on an opinion of value. Market efficiency isn’t a new idea. The concept of exchange for equal or greater value is enshrined in our DNA. For every buyer, there must be a seller and vice versa. In order to execute a trade, each side has to at least initially feel like they’re getting a good deal. So what makes markets efficient? (For more, see: What Is Market Efficiency?)

Decision Making: Groups vs. Individuals

At any given moment, a single person acting independently is capable of making an uninformed decision. Individuals are at a distinct disadvantage in the decision-making process because they often draw conclusions from their own limited set of data. Groups on the other hand, while still capable of exhibiting poor judgment, are less likely to make mistakes due to the benefits of collective brain power. You’ve probably heard the old adage a thousand times, “two heads are better than one.”

Financial markets operate on the same premise, acting at the will of millions of participants who make judgments through the active buying and selling of companies based upon massive quantities of information. In a sense, they’re voting with their dollars. The act of buying or selling effectively moves stock prices in one direction or another until it reaches an equilibrium. Therefore, the current price that a stock trades at should represent a good estimate of what that company is worth because it captures the sentiments of millions of buyers and sellers. 

The Judgment of the Masses is Hard to Beat

Markets don’t trade on yesterday’s information or even today’s. Alternately, they look toward the future, and trade based on the collective masses' interpretation of tomorrow’s value. So, if two heads are better than one, millions of heads are most assuredly better than two. This is the main reason why stock mispricings are so hard to identify. A speculator would have to believe that they know something that everyone else doesn’t already know about a company because the current stock price is a reflection of all voting participants, i.e buyers and sellers.

In a world where news travels at the speed of light, what are the chances of that? Even if they did know something - and for argument’s sake, let’s say a speculator was in possession of information that wasn’t already reflected in prices - what are the chances they can act on this information fast enough to benefit from any price change? In a 24-hour news cycle, it’s hard to keep much of anything a secret. As word spreads, the value of information is depleted by the second.

With instant access to breaking news in the palm of our hand, information has never been so readily available as it is today. Collectively, the way we interpret information empowers us to freely evaluate the value of things, including companies we choose to invest in. In most every instance investors should operate under the assumption that prices are fair and accurate. Markets work because they are a global reflection of what we think works. (For related reading, see: Financial Markets: Random, Cyclical Or Both?)

cr. https://www.investopedia.com/advisor-network/articles/what-makes-financial-markets-work/