Getting a financial advisor in your 20s is a responsible thing to do. At the every least, it means that you are serious about your finances. Finding one in your local area is not hard, especially with SmartAsset free matching tool, which can match you up to 3 financial advisors in under 5 minutes. However, you must also remember that a quality financial advisor does not come free. So, before deciding whether getting a financial advisor in your 20s makes financial sense, you first have to decide the cost to see a financial advisor.
What can a financial advisor do for you?
A financial advisor can help you set financial goals, such as saving for a house, getting married, buying a car, or retirement. They can help you avoid making costly mistakes, protect your assets, grow your savings, make more money, and help you feel more in control of your finances. So to help you get started, here are some of the steps you need to take before hiring one.
Need help with your money? Find a financial advisor near you with SmartAsset’s free matching tool.
1. Financial advice cost
What is the cost to see a financial advisor? For a lot of us, when we hear “financial advisors,” we automatically think that they only work with wealthy people or people with substantial assets. But financial advisors work with people with different financial positions. Granted they are not cheap, but a fee-only advisor will only charge you by the hour at a reasonable price – as little as $75 an hour.
Indeed, a normal rate for a fee-only advisor can be anywhere from $75 an hour $150 per hour. So, if you’re seriously thinking about getting a financial advisor in your 20s, a fee-only advisor is strongly recommended.
Good financial advisors can help you with your finance and maximize your savings. Take some time to shop around and choose a financial advisor that meets your specific needs.
2. Where to get financial advice?
Choosing a financial advisor is much like choosing a lawyer or a tax accountant. The most important thing is to shop around. So where to find the best financial advisors?
Finding a financial advisor you can trust, however, can be difficult. Given that there is a lot of information out there, it can be hard to determine which one will work in your best interest. Luckily, SmartAsset’s free matching tool has done the heavy lifting for you. Each of the financial advisor there, you with up to 3 financial advisors in your local area in just under 5 minutes.
3. Check them out
Once you are matched with a financial advisor, the next step is to do your own background on them. Again, SmartAsset’s free matching tool has already done that for you. But it doesn’t hurt to do your own digging. After all, it’s your money that’s on the line. You can check to see if their license are current. Check where they have worked, their qualifications, and training. Do they belong in any professional organizations? Have they published any articles recently?
Related: 5 Mistakes People Make When Hiring a Financial Advisor
4. Questions to ask your financial advisor
After you’re matched up with 3 financial advisors through SmartAsset’s free matching tool, the next step is to contact all three of them to interview them:
Experience: getting a financial advisor in your 20s means that you’re serious about your finances. So, you have to make sure you’re dealing with an experienced advisor — someone with experience on the kind of advice you’re seeking. For example, if you’re looking for advice on buying a house, they need to have experience on advising others on how to buy a house. So some good questions to ask are: Do you have the right experience to help me with my specific needs? Do you regularly advise people with the same situations? If not, you will need to find someone else.
5 Reasons You Need to Hire A Financial Consultant
Fees – as mentioned earlier, if you don’t have a lot of money and just started out, it’s best to work with a fee-only advisor. However, not all fee-only advisors are created equal; some charges more than others hourly. So a good question to ask is: how much will you charge me hourly?
Qualifications – asking whether they are qualified to advise is just important when considering getting a financial advisor in your 20s. So ask find about their educational background. Find out where they went to school, and what was their major. Are they also certified? Did they complete additional education? if so, in what field? Do they belong to any professional association? How often do they attend seminars, conferences in their field.
Their availability – Are they available when you need to consult with them? Do they respond to emails and phone calls in a timely manner? Do they explain financial topics to you in an easy-to-understand language?
If you’re satisfied with the answers to all of your questions, then you will feel more confident working with a financial advisor.
In sum, the key to getting a financial advisor in your 20s is to do your research so you don’t end up paying money for the wrong advice. You can find financial advisors in your area through SmartAsset’s Free matching tool.
Find a financial advisor – Use SmartAsset’s free matching tool to find a financial advisor in your area in less than 5 minutes. With free tool, you will get matched up to 3 financial advisors. All you have to do is to answer a few questions. Get started now.
You can also ask your friends and family for recommendations.
Follow our tips to find the best financial advisor for your needs.
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How to Choose A Financial Advisor
5 Signs You Need A Financial Advisor
5 Mistakes People Make When Hiring A Financial Advisor
Thinking of getting financial advice in your 20s? Talk to the Right Financial Advisor.
You can talk to a financial advisor who can review your finances and help you reach your saving goals and get your debt under control. Find one who meets your needs with SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
The post Steps to Getting A Financial Advisor in your 20s appeared first on GrowthRapidly.
Taking care of aging parents is something you may need to plan for, especially if you think one or both of them might need long-term care. One thing you may not know is that some states have filial responsibility laws that require adult children to help financially with the cost of nursing home care. Whether these laws affect you or not depends largely on where you live and what financial resources your parents have to cover long-term care. But itâs important to understand how these laws work to avoid any financial surprises as your parents age.
Filial Responsibility Laws, Definition
Filial responsibility laws are legal rules that hold adult children financially responsible for their parentsâ medical care when parents are unable to pay. More than half of U.S. states have some type of filial support or responsibility law, including:
Puerto Rico also has laws regarding filial responsibility. Broadly speaking, these laws require adult children to help pay for things like medical care and basic needs when a parent is impoverished. But the way the laws are applied can vary from state to state. For example, some states may include mental health treatment as a situation requiring children to pay while others donât. States can also place time limitations on how long adult children are required to pay.
When Do Filial Responsibility Laws Apply?
If you live in a state that has filial responsibility guidelines on the books, itâs important to understand when those laws can be applied.
Generally, you may have an obligation to pay for your parentsâ medical care if all of the following apply:
One or both parents are receiving some type of state government-sponsored financial support to help pay for food, housing, utilities or other expenses
One or both parents has nursing home bills they canât pay
One or both parents qualifies for indigent status, which means their Social Security benefits donât cover their expenses
One or both parents are ineligible for Medicaid help to pay for long-term care
Itâs established that you have the ability to pay outstanding nursing home bills
If you live in a state with filial responsibility laws, itâs possible that the nursing home providing care to one or both of your parents could come after you personally to collect on any outstanding bills owed. This means the nursing home would have to sue you in small claims court.
If the lawsuit is successful, the nursing home would then be able to take additional collection actions against you. That might include garnishing your wages or levying your bank account, depending on what your state allows.
Whether youâre actually subject to any of those actions or a lawsuit depends on whether the nursing home or care provider believes that you have the ability to pay. If youâre sued by a nursing home, you may be able to avoid further collection actions if you can show that because of your income, liabilities or other circumstances, youâre not able to pay any medical bills owed by your parents.
Filial Responsibility Laws and Medicaid
While Medicare does not pay for long-term care expenses, Medicaid can. Medicaid eligibility guidelines vary from state to state but generally, aging seniors need to be income- and asset-eligible to qualify. If your aging parents are able to get Medicaid to help pay for long-term care, then filial responsibility laws donât apply. Instead, Medicaid can paid for long-term care costs.
There is, however, a potential wrinkle to be aware of. Medicaid estate recovery laws allow nursing homes and long-term care providers to seek reimbursement for long-term care costs from the deceased personâs estate. Specifically, if your parents transferred assets to a trust then your stateâs Medicaid program may be able to recover funds from the trust.
You wouldnât have to worry about being sued personally in that case. But if your parents used a trust as part of their estate plan, any Medicaid recovery efforts could shrink the pool of assets you stand to inherit.
Talk to Your Parents About Estate Planning and Long-Term Care
If you live in a state with filial responsibility laws (or even if you donât), itâs important to have an ongoing conversation with your parents about estate planning, end-of-life care and where that fits into your financial plans.
You can start with the basics and discuss what kind of care your parents expect to need and who they want to provide it. For example, they may want or expect you to care for them in your home or be allowed to stay in their own home with the help of a nursing aide. If thatâs the case, itâs important to discuss whether thatâs feasible financially.
If you believe that a nursing home stay is likely then you may want to talk to them about purchasing long-term care insurance or a hybrid life insurance policy that includes long-term care coverage. A hybrid policy can help pay for long-term care if needed and leave a death benefit for you (and your siblings if you have them) if your parents donât require nursing home care.
Speaking of siblings, you may also want to discuss shared responsibility for caregiving, financial or otherwise, if you have brothers and sisters. This can help prevent resentment from arising later if one of you is taking on more of the financial or emotional burdens associated with caring for aging parents.
If your parents took out a reverse mortgage to provide income in retirement, itâs also important to discuss the implications of moving to a nursing home. Reverse mortgages generally must be repaid in full if long-term care means moving out of the home. In that instance, you may have to sell the home to repay a reverse mortgage.
The Bottom Line
Filial responsibility laws could hold you responsible for your parentsâ medical bills if theyâre unable to pay whatâs owed. If you live in a state that has these laws, itâs important to know when you may be subject to them. Helping your parents to plan ahead financially for long-term needs can help reduce the possibility of you being on the hook for nursing care costs unexpectedly.
Tips for Estate Planning
Consider talking to a financial advisor about what filial responsibility laws could mean for you if you live in a state that enforces them. If you donât have a financial advisor yet, finding one doesnât have to be a complicated process. SmartAssetâs financial advisor matching tool can help you connect, in just minutes, with professional advisors in your local area. If youâre ready, get started now.
When discussing financial planning with your parents, there are other things you may want to cover in addition to long-term care. For example, you might ask whether theyâve drafted a will yet or if they think they may need a trust for Medicaid planning. Helping them to draft an advance healthcare directive and a power of attorney can ensure that you or another family member has the authority to make medical and financial decisions on your parentsâ behalf if theyâre unable to do so.
If you have an irregular income, you know how great the good times feelâand how difficult the lean times can be. While you can’t always control when you get paid or the size of each paycheck if you’re a freelancer, contractor or work in the gig economy, you can take control of your money by creating a budget that will help you manage these financial extremes.
Antowoine Winters, a financial planner and principal at Next Steps Financial Planning, LLC, says creating a budget with a variable income can require big-picture thinking. You may need to spend time testing out different methods when you first start budgeting, but, âif done correctly, it can really empower you to control your life,” Winters says.
How do you budget on an irregular income? Consider these four strategies to help you budget with a variable income and gain financial confidence:
1. Determine your average income and expenses
If you want to start budgeting on a fluctuating income, you need to know how much money you have coming in and how much you’re spending.
Of course, that’s the basis for any budget. But it can be particularly important if you’re trying to budget on an irregular income because you may have especially high- or low-income periods. You want to start tracking as soon as possible to build up accurate data on your average income and expenses.
For example, once you have six months’ worth of income and expenses documented, you can divide the total by six to determine your average income and expenses by month.
Many financial apps and websites can help with the tracking, including ones that can connect to your online bank and credit card accounts and automatically pull in your transactions. You may even be able to pull in previous months’ or years’ worth of data, which you can use to calculate your averages.
If you’re budgeting on a fluctuating income and apps aren’t your thing, you can use a spreadsheet or even a pen and notebook to track your cash flow. However, without automated tracking, it can be difficult to consistently keep your information up to date.
2. Try a zero-sum budget
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget,” says Holly Johnson. As a full-time freelance writer, she’s been budgeting with a variable income for over seven years and is the coauthor of the book Zero Down Your Debt.
With a zero-sum budget, your income and expenses should even out so there’s nothing left over at the end of the month. The trick is to treat your savings goals as expenses. For example, your “expenses” may include saving for an emergency, vacation or homeownership.
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget.”
Johnson says if you’re budgeting on a fluctuating income, you can adopt the zero-sum budget by creating a “salary” for yourself. Consider your average monthly expenses (shameless plug for tip 1) and use that number as your baseline.
For example, if your monthly household bills, groceries, business expenses, savings goals and other necessities add up to $4,000, that’s your salary for the month. During months when you make over $4,000, put the extra money into a separate savings account. During months when you make less than $4,000, draw from that account to bring your salary up to $4,000.
“We call this fund the ‘boom and bust’ fund,” Johnson says. “By building up an adequate amount of savings, you will create a situation where you can pay yourself the salary you need each month.”
3. Separate your saving and spending money
Physically separating your savings from your everyday spending money may be especially important when you’re creating a budget on an irregular income. You may be tempted to pull funds from your savings goals during low-income months, and stashing your savings in a separate, high-yield savings account can force you to pause and think twice before dipping in.
You earned it. Now earn more withÂ it.
Online savings with no minimum balance.
Discover Bank, Member FDIC
An easy way to put this tip into action when creating a budget with a variable income is to have all of your income deposited into one account, then disburse it into separate savings and spending accounts. “Transfer a set amount on the first of every month to a bill-paying account and a set amount to a spending account,” Winters, the financial planner, says.
“The bill pay account is used to pay for all of the regular expenses, like rent, insurance, car payments, student loans, etc.,” Winters says. These bills generally stay the same each month. The spending account can be used for your variable expenses, such as groceries and gas.
When considering your savings accounts, Winters also suggests funding a retirement account, such as an Individual Retirement Account (IRA).
If you’re budgeting on a fluctuating income as a contract worker or freelancer, you may also want to set money aside for taxes because the income and payroll taxes you’ll owe aren’t automatically taken out of your paychecks.
4. Build up your emergency fund
“The best way to weather low-income periods is to prepare with an adequate emergency fund,” freelancer Johnson says. An emergency fund is money you set aside for necessary expenses during an emergency, such as a medical issue or broken-down vehicle.
Generally, you’ll want to save up enough money to cover three to six months of your regular expenses. Once you build your fund, you can put extra savings toward other financial goals.
When you’re budgeting on a fluctuating income, having the emergency fund can help you feel more at ease knowing that you’ll be able to pay your necessary bills if the unexpected happens or when you’re stuck in a low-income period for longer than anticipated.
A budget can make living with a variable income easier
It can be challenging to budget on an irregular income, especially when you’re first starting. You might have to cut back on expenses for several months to start building up your savings and try multiple budgeting methods before finding the one that works best for you.
“Budgeting requires a mindset change regardless of which type of budget you try,” Johnson explains.
“The best way to weather low-income periods is to prepare with an adequate emergency fund.”
However, once in place, a budget on an irregular income can also help free you from worrying about the boom-and-bust cycle that many variable-income workers deal with throughout the year.
The goal is to get to the point where you can budget with a variable income and don’t have to worry about when you’ll get paid next because you set your budget based on your averages, planned ahead during the high times and have savings ready for your low times.
The post 4 Tricks for Budgeting on a Fluctuating Income appeared first on Discover Bank – Banking Topics Blog.
2020 has shaped all of us in some way or another financially. Whether it is being reminded of the importance of living within our means or saving for a rainy day, these positive financial habits and lessons are timeless and ones we can take into the new year.Â
While everyone is on a very unique financial journey, we can still learn from each other. As we wrap up this year, it’s important to reflect on some of these positive financial habits and lessons and take the ones we need into 2021. Here are some of the top financial lessons:
Living Within Your Means
Itâs been said for years, centuries even, that one should live within one’s means. Well, I think a lot of people were reminded of this financial principle given the year weâve had. Living within your means is another way of saying donât spend more than you earn. I would take it one step further to say, set up your financial budget so you pay yourself first. Then only spend what is leftover on all the fun or variable items.
Setting up your budget in the Mint app or updating your budget in Mint to reflect the changes in your income or expenses is a great activity to do before the year ends. Follow the 50/20/30Â rule of thumb and ask yourself these questions:
Are you spending more than you earn?
Are there fixed bills you can reduce so you can save more for your financial goals?Â
Can you reduce your variable spending and save that money instead?
The idea is to find a balance that allows you to pay for your fixed bills, save automatically every month and then only spend what is left over. If you donât have the money, then you cannot use debt to buy something. This is a great way to get back in touch with reality and also appreciate your money more.Â
Have a Cash Cushion
Having a cash cushion gives you peace of mind since you know that if anything unexpected comes up, which of course always happens in life, you have money that is easy to liquidate to pay for it versus paying it with debt or taking from long-term investments. Having an adequate cash cushion this year offered some people a huge sigh of relief when they lost their job or perhaps had reduced income for a few months. With a cash cushion or rainy day fund, they were still able to cover their bills with their savings.
Many people are making it their 2021 goal to build, replenish, or maintain their cash cushion.Â Typically, you want a cash cushion of about 3- 6 months of your core expenses. Your cash cushion is usually held in a high-yield saving account that you can access immediately if needed. However, you want to think of it almost as out of sight out of mind so it’s really there for bigger emergencies or opportunities that come up.
Having the right asset allocation and understanding your risk tolerance and timeframe of your investments is always important. With a lot of uncertainty and volatility in the stock market this year, more and more people are paying attention to their portfolio allocation and learning what that really means when it comes to risk and returns. Learning more about which investments you actually hold within your 401(k) or IRA is always important. I think the lesson this year reminded everybody that itâs your money and it’s up to you to know.
Even if you have an investment manager helping you, you still need to understand how your portfolio is allocated and what that means in terms of risk and what you can expect in portfolio volatility (ups and downs) versus the overall stock market. A lot of people watch the news and hear the stock market is going up or down, but fail to realize that may not be how your portfolio is actually performing. So get clear. Make sure that your portfolio matches your long term goal of retirement and risk tolerance and donât make any irrational short term decisions with your long-term money based on the stock market volatility or what the news and media are showcasing.
Right Insurance Coverage
We have all been reminded of the importance of health this year. Our own health and the health of our loved ones should be a top priority. It’s also an extremely important part of financial success over time. It is said, insurance is the glue that can hold everything together in your financial life if something catastrophic happens. Insurances such as health, auto, home, disability, life, long-term care, business, etc. are really important but having the right insurance policy and coverage in place for each is the most important part.
Take time and review all the insurance coverage you have and make sure it is up to date and still accurate given your life circumstances and wishes. Sometimes you may have a life insurance policy in place for years but fail to realize there is now a better product in the marketplace with more coverage or better terms. With any insurance, it is wise to never cancel a policy before you a full review and new policy to replace it already in place. The last thing you want is to be uninsured. Make sure you also have an adequate estate plan whether itâs a trust or will that showcases your wishes very clearly. This way, you can communicate that with your trust/will executorâs, beneficiaries, family members, etc. so they are clear on everything as well.Â
Financial lessons will always be there. Year after year, life throws us challenges and successes to remind us of what is most important. Take time, reflect, and get a game plan in place for 2021 that takes everything you have learned up until now into account. This will help you set the tone for an abundant and thriving new financial year.Â
The post Financial Lessons Learned During the Pandemic appeared first on MintLife Blog.
Dan Stous works in financial planning and wealth management. Online savings accounts initially came on his radar when he saw their interest rates steadily rise.
“The whole reason I was looking for an online account was because deposit rates at traditional brick-and-mortar banks have continued to stay low despite rising interest rates,” says Stous, who is the director of financial planning at Flagstone Financial Management in Lincoln, Nebraska.
He and his wife opted for a DiscoverÂ® Online Savings Account, named Best Savings Account by NerdWallet in 2020, and started making monthly transfers into it to help save for a car. They were pleased to find the funds growing quickly with the account’s high interest rate and annual percentage yield (APY).
Whether you’re saving for a new set of wheels like Stous and his wife, a home down payment, an emergency fund or [enter your next big financial goal here], an online savings account could be your ticket to success.
What are the benefits of a Discover Online Savings Account? Here are six things to know about a Discover Online Savings Account that will help you take your savings game to the next level:
1. You can grow your savings with a high interest rate
Regardless of your financial goal, you’ll want your savings to earn interest (and then you’ll want that interest to earn even more interest). One of the benefits of a Discover Online Savings Account is that you can grow your money with a savings account interest rate over 5x the National Savings Average.1
You earned it. Now earn more withÂ it.
Online savings with no minimum balance.
Discover Bank, Member FDIC
With online banks offering superior yields compared to traditional banks, Stous recommends online savings accounts to his clients as a financial strategy. “We have been steering people to online accounts because the rates have been so much better,” Stous says.
2.Â You can save yourself the hassle of fees
A bank account fee here and there can really add up. And who wants sneaky fees to eat into your hard-earned savings? One of the top benefits of a Discover Online Savings Account is that you won’t be charged an account fee.* Common fees that you won’t see with your Discover Online Savings Account include fees for:
Official bank check (there’s also no fee if you need expedited delivery of your check)
Deposited item returned
Stop payment order
Another thing to know about a Discover Online Savings Account is that the lack of maintenance or activity fees means you don’t have to stress about initiating certain account behavior (say, a regular direct deposit) to avoid a charge that could set your savings back.
“The whole reason I was looking for an online account was because deposit rates at traditional brick-and-mortar banks have continued to stay low despite rising interest rates.”
3. There’s no balance requirement
When considering important things to know about a Discover Online Savings Account, add no minimum balance requirement to the list. If you are just getting started with your savings (way to go!), it can be challenging to set aside a large chunk of cash just to avoid a balance requirement fee. With the Discover Online Savings Account’s no minimum balance requirement, you can start small and continue to add to your savings as your budget allows.
Getting ready to make a big withdrawal for an exciting big purchase? No problem. If you’ve reached a goal and need to put your savings to work, go right ahead. You won’t need to stress about getting charged for the lower balance that remains in your Discover Online Savings Account, and you can start building up your funds again for the next big thing.
4. You can manage your account onlineâand on the go
Your life is online and on the goâso your savings account should be right there with you. You can open a Discover Online Savings Account from the comfort of your couch (or when commuting in your rideshare) in three easy steps:
Enter the essentials (personal information like your address and Social Security number).
Fund the account with a starting balance of your choosing (or come back and do it later if you prefer).
Check your inbox for an email confirmation.
Once you are up and running, you can easily transfer funds between different accountsâDiscover accounts as well as external onesâand set up automatic transfers into your savings account so you can grow your funds on autopilot.
If you’re on the move, the account’s mobile app is control in your hands via your smartphone or tablet. Whether you’re in line for a coffee or waiting for your child’s extracurricular activity to wrap up, you can easily transfer money between your Discover Online Savings Account and other accounts, view your account activity and electronically deposit checks. Only have a second but want to check in? Quick View is a benefit of a Discover Online Savings Account that allows you to view your savings account balance without having to log in.
“The mobile app is very user friendly,” says Rick Vazza, financial planner and president of Driven Wealth Management. “It’s easy to use and easy to sync with a checking account. There’s a seamless flow.”
5. You can experience top-notch customer service
Customer service can be hard to evaluate, but the ability to quickly speak to a real person is certainly one sign of good customer relations.
“I’ve been seeing people particularly attracted to value-added services. The first being customer service,” Vazza explains.
Discover’s customer support is 100 percent U.S.-based and offers the ability to speak with a live person 24/7 without having to go through a bunch of automated prompts. Having knowledgeable and friendly customer service adds to the benefits of a Discover Online Savings Account.
“People like the fact that Discover is an all U.S.-based service,” Vazza adds.
“I’ve been seeing people particularly attracted to value-added services. The first being customer service. People like the fact that Discover is an all U.S.-based service.â
6. You can easily access your funds2
When and how you can withdraw money is important to know before you open a savings account. “How easy it is to get the money is a huge question, particularly with older generations,” Stous says. Having multiple ways to withdraw is a plus.
With a Discover Online Savings Account, your withdrawal options include:
Setting up electronic transfers between your Discover Online Savings Account and other internal or external bank accounts.
Requesting a no-fee official bank check.
Initiating an outgoing wire transfer.*
On your mark, get setâsave!
Understanding the things to know about a Discover Online Savings Account could help you make the decision to open an easy-to-use and high-yield financial solution for storing your cash. Whether you’re saving up for something special or creating a savings safety net, it’s tending to these areas of your financial plan that will better prepare you for what comes next.
Learn more about a Discover Online Savings AccountÂ today.
* Outgoing wire transfers are subject to a service charge.
1 The Annual Percentage Yield (APY) for the Online Savings Account as of 01/01/2021 is more than five times the national average APY for interest-bearing savings accounts with balances of $500 as reported by Informa Research Services, Inc. as of 01/01/2021. Interest rates and APYs are subject to change at any time. Although the information provided by Informa Research Services has been obtained from the various institutions, accuracy cannot be guaranteed.
2 Federal law limits certain types of withdrawals and transfers from savings and money market accounts to a combined total of 6 per calendar month per account. There are no limits on ATM withdrawals or official checks mailed to you. To get an account with an unlimited number of transactions, consider opening a Discover Cashback Debit account. If you go over these limitations on more than an occasional basis, your account may be closed. See Section 11 of the Deposit Account Agreement for more details.
The post 6 Benefits of a Discover Online Savings Account appeared first on Discover Bank – Banking Topics Blog.
A quick Google search of âfinancial literacyâ will yield thousands of results, listing an infinite amount of doâs and donâts that should (and shouldnât) be followed to guide you along on your financial journey.
However, when you think of financial empowerment â what comes to mind? As defined by Merriam-Webster, empowerment is âthe act or action of empowering someone or something: the granting of the power, right, or authority to perform various acts or duties.â No matter what your current sentiments are related to your finances, we will explore three key areas to not only embrace; but to help you prepare for a strong financial future.
Now more than ever, we all have a laser-sharp focus on our money and where itâs being spent. The pandemic has generated a hypersensitivity to how we treat our finances while also determining what essential expenses look like and where they fit into our budget.
Before life as we knew it to be shifted, many of us donât have to look too far back to remember a time where we didnât check our accounts as often, our savings plan would fluctuate month-over-month or our emergency fund was used to bail us out of some impulsive spending.
To make sure those days are forever of the past, make it a habit to take inventory and audit all of your accounts. Take at least 15 – 30 minutes to review over any transactions and deposits across all active accounts. Not only does this help improve your self-accountability, but you are also able to make any disputes if anything appears incorrect and resolve quickly.
Another small but impactful tip is to acknowledge your financial health. What top three areas will be your main point of focus? If this is something you donât know offhand, review your transactions from the last three months and categorize them. How much of your money went to impulsive buys or things that could have been purchased at a later date? Are you seeing an influx in overhead expenses or credit card payments? Are there any spending patterns you can explicitly see? Allow this exercise to serve as an eye-opening experience.
In order to determine where you want to be, you must first truthfully acknowledge where you are. This sets the blueprint and overall expectations with your personal finance journey. Knowing where you are may not feel pleasant but avoidance will lead to bigger consequences.
Even though we donât like to admit it, thereâs always room for improvement and our finances are no exception. The first thing that guarantees mastery is actually following the budget thatâs created. This serves as a guardrail â itâs used to keep us on track so we can greet our financial destination with open and inviting arms.
Once thatâs in motion, explore ways to enhance your financial experience. Begin by automating recurring expenses, such as cellphone service or utility bills. Thatâs why itâs so important to be as honest and accurate as possible when setting a budget. Nothing should come to you as a surprise outside of any emergencies. When you trust yourself and the financial work youâve put in, your finances have no choice but to follow suit.
If you havenât already (or need to get back on track), work to beef up your emergency fund and savings account. Emergency expenses have a tendency to appear out of nowhere, so you want to dedicate a set dollar amount or a percentage every pay period. Setting up an automatic transfer to these accounts establish a routine while putting your mind at ease in the process.
Is there a hobby or skill youâd like to put to use and monetize? No matter how grandiose or small, this can definitely expedite achieving your financial goals. The money earned from a passion project can go toward savings, paying off debt or simply getting back to a place of comfort financially. Vacation funds or prepping for large purchases such as a car or home can also fall within this category. If you want to seek the assistance of a professional, search for financial advisors or coaches that could help you with reaching your goals. Preparation is key and your future depends on it!
The foundation has been laid and youâve been committed to crushing your financial goals. The budget and savings goals are in motion; so whatâs next? Itâs time to celebrate! Walk into your financial future with your best foot forward. When times seem bleak, remind yourself of your goals early and often.
Reinforcement such as daily reminders on your phone, having goals posted somewhere in your home you can see daily or reciting positive financial affirmations will serve as a second wind when you want to throw in the towel. Be sure to celebrate wins along the way such as debt payoff, reduction or hitting a new savings goal. Never been able to invest before and now you have the additional income to get in the game? Celebrate that!
The best way to generate excitement is to rally your family and get them involved. Create family challenges to get your children excited about saving funds and reallocating money. Come up with creative ways you all can commemorate knocking out a goal by ordering from your favorite restaurant or saving for a family staycation.
In order to walk in confidence, you have to build up the courage to begin no matter where you are or how many times youâve had to start over. Each step counts â each successful budget, savings goal and consistent reduction of overall expenses. Be sure to keep in mind, financial freedom looks different for everyone and has the ability to pivot over time. While some may want to vacation throughout the year, save for their childrenâs college fund or wipe debt out completely, all are significant and take sacrifice. What is the key to achieving such a pinnacle level of confidence? Time.
Be kind to yourself and understand mistakes should never be equated to failures. Your commitment to this financial journey will always be rewarded.
The post The ABCs of Financial Empowerment appeared first on MintLife Blog.
Using donor-advised funds is a more advanced tax strategy that has gotten more popular recently with the introduction of the Tax Cuts and Jobs Act (TCJA) in February 2020. The TCJA nearly doubled the amount of the standard deduction, which makes it less advantageous to itemize deductions such as charitable contributions. For people with a lot of charitable contributions, donor-advised funds are one option to still get a deduction for charitable contributions.
What is a donor-advised fund?
A donor-advised fund (DAF) is a registered 501(c)(3) charitable organization that accepts contributions and generally funds other charitable organizations. While the concept of a donor-advised fund has been around for nearly 100 years, they were typically only used by the ultra-wealthy. And while it is true that donor-advised funds are still not going to be useful for the vast majority of people, recent tax law changes have made their use more prevalent.
You can set up a donor-advised fund with most brokerages, including Fidelity, Vanguard, and Bank of America. You can donate cash, securities, or other types of assets to the DAF. The exact list of assets eligible for donation depends on the brokerage. After you have contributed, you can then make charitable contributions from the balance of your account.
You can maximize your charitable tax deductions in one year
One common reason that people set up donor-advised funds is to maximize their charitable tax deductions in a particular tax year. To show why this can be beneficial, Iâll use an example:
Our example family files their taxes married filing jointly and has regular charitable contributions of $20,000 per year. The standard deduction in 2020 for married filing jointly is $24,800. Because their amount of charitable deductions is less than the standard deduction, they may not see any tax benefit from their charitable contributions (depending on their amount of other itemized deductions). In 2021 they again plan to contribute $20,000 to charitable organizations and again are unlikely to see any tax benefit from doing so.
Now consider this same family now decides to set up a donor-advised fund in 2020. They have extra money sitting around in low-interest savings or checking account or in a taxable investment account. So they set up a donor-advised fund in 2020 and fund it with $40,000 in cash, stocks, or other assets. They are eligible to take the full $40,000 as an itemized deduction, even if they only use $20,000 to donate to the charity of their choice. Then in 2021, they can donate the remaining $20,000 to their preferred charity. They will not be able to deduct any charitable contributions in 2021 but can instead take the raised standard deduction amount.
You may be able to deduct the full value of stocks or other investments
Another reason you might want to set up a donor-advised fund is that you may be able to deduct the full value of stocks or other investments. Again, Iâll use an example to help illustrate the point.
Letâs say that you have shares that you purchased for $20,000 that are now worth $50,000. Many charities, especially smaller organizations, are not set up to accept donations of stocks or other investments. So if you want to donate that $50,000 to charity, you may have to liquidate your shares. This will mean that you will have to pay tax on the proceeds.
With a donor-advised fund, you can donate the shares to your fund and deduct the full fair market value of your shares. Then the fund can make the contribution to the charity of your choice.
Donate a wide range of assets
Another benefit to setting up a donor-advised fund is the ability to donate a wide range of different classes of assets. As we mentioned earlier, many charities are not set up in such a way to be able to accept non-cash donations. While the exact list of assets that a donor-advised fund can accept varies by the firm running the fund, it generally will include more types of assets than a typical charity.
Why you might not want to set up a donor-advised fund
While there are plenty of advantages to setting up a donor-advised fund, there are a few things that you might want to watch out for.
Itâs definitely more complicated than just making charitable contributions on your own. You may find that the tax savings are not worth the extra hassle.
On top of the added layer of complexity, most firms with DAFs charge administrative fees that can cut into your rate of return.
You may be limited on the charities that you can donate to. Each donor-advised fund typically will have a list of eligible charities. So you may find that a charity that you want to donate to is not available.
You also lose control over the funds that you donate – the donation to the fund is irrevocable, meaning once youâve donated to the fund you cannot get the donation back. While most advisors state that they will donate the money as you direct, they are not legally required to do so.
The money in a DAF is invested, so it may lose value. That means that the amount you were hoping to donate may be less than you were anticipating. You also typically have a limited range of investments available for your investment, and those funds also often come with fees.
It’s also important to keep in mind, the annual income tax deduction limits for gifts to donor-advised funds, are 60% of Adjusted Gross Income for contributions of cash, 30% of AGI for contributions of property that would qualify for capital gains tax treatment; 50% of AGI for blended contributions of cash and non-cash assets.
The post 3 Reasons to Set Up a Donor-Advised Fund to Maximize Your Charitable Tax Deductions appeared first on MintLife Blog.