Are Multiple Financial Advisors a Smart Idea? What You Need to Know

Working with a financial advisor to help you achieve your financial goals has become increasingly common. Where once people considered financial advisors and financial planning in general only appropriate for the very wealthy, now people from a broader range of income levels are interested in creating a comprehensive financial plan for themselves and using a professional to help them do so.

If you have one financial advisor, you might wonder whether that one is enough. Maybe you have considered multiple financial advisors to address multiple distinct financial needs. Maybe you’re wary about putting all your assets in one advisor’s hands and are wondering if multiple advisors might mitigate that risk. Whatever your motivation, if you’re considering hiring more than one financial advisor, here are a few pros and cons to think about.

The Cost Factor

First and perhaps most importantly, you should think about the overall cost implications of employing more than one financial advisor. Financial advisors are instrumental in helping you achieve your overall long-term financial goals, helping you invest your money, reduce your tax burden, and save for your retirement. However, if you’re employing multiple financial advisors, it could be possible that the amount you are spending for their services outweighs the benefits they are providing. For example, you could end up paying more in fees and commissions if you split your money among several advisors, rather than investing one large amount with one advisor or firm. Calculate the combined cost of your financial advisors before deciding on that particular course of action, because the expenses could outweigh the benefits for your situation.

The Time Factor

Something else you might consider is the amount of time you’re likely to spend dealing with your different financial advisors. Multiple advisors can be a benefit, but you won’t see those benefits unless there is someone in a leadership role who has oversight of everything. In many cases, that role falls to you, meaning you have to spend a considerable amount of time managing all the advisors you are employing. Two advisors means twice the meetings, twice the phone calls, and so on. You’ll have to serve as a go-between as well.   

Alternatively, you could decide instead to designate one primary advisor and direct the rest of your financial advisors to report to that person before they make decisions. This can be a workable alternative to free up your time, since you can communicate your needs and goals with one primary individual, rather than having to spend a lot of time talking with each advisor individually. The key to effective use of multiple advisors is, of course, communication.

Consider a Specialist

If you already have a financial advisor helping you manage your goals, a second advisor could fill in the gaps in the other’s skills and expertise. For example, your primary financial advisor may manage your retirement savings, but may not have expertise in estate planning. In this case, engaging with a second financial advisor who specializes in estate planning could be an excellent idea. No matter your financial situation, multiple financial advisors are always most effective when they work in coordination and fill in each other’s knowledge gaps. When your financial advisors’ work overlaps, or when they aren’t coordinating, problems can arise.

The Cons and Caveats

In many situations, multiple financial advisors can be effective, in particular for high net worth individuals. With considerable means at your disposal, multiple financial advisors can mean multiple investment strategies that provide good portfolio diversification.

However, for this strategy to be effective, you must ensure that your assets really are being diversified, and that your team is working in concert. In some cases, the overlap created with multiple financial advisors has the potential to put you at risk. If more than one advisor chooses to purchase the same assets, the result could be that you end up with too much exposure in one asset class.

That’s why all your advisors must be working under the same strategy, and each must know what the others are doing. Remember that none of them will be able to provide good advice if they do not have a comprehensive understanding of your finances. They need to be able to see the entire picture—your total income, liquidity, wealth, debt, and risk exposure—and not just the assets they’re managing. Advisors have a fiduciary duty to do what’s best for their clients, and they usually need to understand your whole picture to fulfill that.

For those individuals looking for a more diverse approach and reduced risk, but who are not comfortable with multiple financial advisors, the alternative is to look for an advisor or firm with experience in multiple financial specialties. In many cases, an advisory firm that utilizes this kind of team approach is a great solution. This way, you can get the benefits of multiple advisors with different specialty areas.

Consider Your Goals

Before deciding to use multiple financial advisors, consider the solution that will work best for your specific financial goals. You may be looking for an advisor specifically for your retirement or estate planning needs, or you might be looking for someone who can handle all your finances. Depending on your goals, multiple financial advisors could be beneficial. However, always be sure to weigh your options—including the financial and time expenses of having multiple advisors—before deciding to add more to your team.

What Is Dogecoin? Understanding the “Joke” Cryptocurrency

The cryptocurrency market is perhaps one of the most volatile and unusual investment opportunities in existence today. From the original Bitcoin came hundreds of other cryptocurrencies of all types and for all different purposes. Of these, the most well-known are probably still Bitcoin, Litecoin, and Ethereum.

However, there is another cryptocurrency that has spent a great deal of time in the news lately, which you might be wondering about: Dogecoin. Originally created in 2013 as a joke based on a popular internet meme, Dogecoin is the latest cryptocurrency in the news. Here is a look at what has fueled the strong interest in Dogecoin and what’s driving the latest surge.

What Is Dogecoin?

Dogecoin came onto the cryptocurrency scene as a joke—literally. It was meant as a sort of satirical homage to Bitcoin, the original cryptocurrency that surged onto the market in 2008. Dogecoin began as a joke tweet from Jackson Palmer, then an employee of software company Adobe. He purchased the domain dogecoin.com and created a website with the meme image. IBM software engineer Billy Markus saw the site and reached out to Palmer, and together they co-created the cryptocurrency.

In many ways, Dogecoin is similar to Bitcoin. Like Bitcoin, Dogecoin is a form of cryptocurrency—a digital asset that functions as a unit of exchange and allows people to conduct peer-to-peer transactions without a central banking authority.

Cryptocurrencies are facilitated by blockchain technology. Blockchain is essentially a digital record of transactions linked together using cryptography. Each “block” of records contains a cryptographic code from the previous block, making it virtually impossible to alter records after the fact. In this way, blockchain facilitates peer-to-peer transactions without oversight of a central authority.

Dogecoin differs most drastically from Bitcoin in that it does not have a hard limit on the total supply of Dogecoin available. Bitcoin is limited to about 21 million coins, though not all of these have been mined yet. By comparison, Dogecoin currently has more than 100 billion coins outstanding, and even more hit the supply each year.

The Dogecoin mascot, the shiba inu, originally became popular as a 2013 internet meme that included a picture of the Japanese dog with a quizzical look on its face, accompanied by colorful text intended to display the dog’s internal monologue in broken English. Originally, the meme borrowed its “doge” name from an Internet cartoon series popular in the early 2000s; in one episode, the misspelling “doge” was used to refer to a dog.

When it debuted in December 2013, one Dogecoin was valued at around USD $0.00026; it rallied on December 19th of that year to increase more than 300% to $0.00095 within 24 hours. Dogecoin’s trading volume briefly exceeded that of Bitcoin and all other cryptocurrencies combined in January 2014. During the early 2018 cryptocurrency bubble, Dogecoin reached a value of $0.017/coin and a market capitalization of $2 billion.  

The Influence of Elon Musk

Speculators have flocked to Dogecoin recently. In late January 2021, Dogecoin’s value increased by more than 600% in one day. It ultimately reached $0.085/coin on February 9, 2021. By the 12th, it had fallen slightly to $0.071/coin. These figures mean that Dogecoin’s year-to-date rally is nearly 1,500%.

But why now? What happened?

The answer lies with well-known entrepreneur Elon Musk. He has been credited with sparking this latest round of speculation through a series of tweets about Dogecoin. Several of his past tweets have caused spikes in Dogecoin and Bitcoin, though he has often been quoted as saying the tweets are just jokes.

Rocker Gene Simmons and rapper Snoop Dogg also helped fuel Dogecoin’s recent surge, with Snoop Dogg tweeting a mock album image captioned “Snoop Doge” and Simmons calling himself the “God of Doge.”

Dogecoin’s surge is also likely due to activity on TikTok and Reddit, and further demand for cryptocurrency fueled by Bitcoin’s recent surge. Investors on Reddit and elsewhere have openly said they are trying to push Dogecoin’s value to $1 and have called on others to hold their coins until it reaches this peak—just for kicks, it seems.

All this activity has pushed the market valuation of Dogecoin above $10 billion, making it the tenth most valuable cryptocurrency currently in circulation.

However, Dogecoin remains a risky and extremely volatile investment—it’s more a news headline. The value is almost guaranteed to collapse. Experts say that the speculation resembles a “frothy market” where investors ignore market principles and inflate the value of an asset beyond its real worth. Apparently, enough traders have cash to burn and want a laugh, so this fact doesn’t matter much to them! However, serious investors would do well to avoid the speculation.

Featured Image courtesy Ivan Radic | Flickr

How to Choose a Life Insurance Policy

Retirement planning covers a variety of different areas, from 401(k) plans to estate planning. Navigating this complex area on your own can be a challenge, so it is beneficial to seek out the services of an experienced financial planner, particularly one who is knowledgeable about retirement. One aspect of retirement planning that is sometimes overlooked is life insurance. Many different types of life insurance plans are available, and the one you choose will depend on a variety of factors specific to your situation. Today, the two most popular types of life insurance are term life insurance and whole life insurance. When considering which type of plan is right for you, there are a few things you should consider:

Term Life Insurance

A popular option, term life insurance is cheaper and often easier to understand than others. The reason is because it is simple and straightforward, without any accompanying extras. Term life insurance, as its name suggests, refers to life insurance designed to cover a specific term or period of time. Due to the simplicity of these plans and the limitation of the term, they are less expensive than whole life insurance policies. The purpose of a term life insurance policy is to provide a death benefit for your beneficiaries in the event that you pass away during the term. If for some reason this does not happen, the policy will simply expire and offer no additional value. A term life insurance policy has no “cash value,” and it cannot be used as a way to save on taxes or to build wealth.

Term life insurance is used to provide for your family in the event that you should die prematurely. For example, you might choose to take out a term life insurance policy that would cover the amount of time until your children finish college and enter the workforce so that they could be protected financially if you should die before them. By the time a term life insurance policy expires, many people would be in a position where they would not need it anymore. It may seem to some as though they have spent a large amount of money simply for their own peace of mind.

Whole Life Insurance

Another popular type of life insurance is known as “whole life insurance,” and this type of policy can offer a great deal more in terms of benefits than a simple term life insurance policy. The biggest difference between a whole life insurance policy and a term life insurance policy is that a whole life insurance policy will not expire, and will cover you for your “whole life”, so long as you continue to make premium payments. Whole life insurance policies can also provide cash value separate from the death benefit that can be used for other purposes.

Typically, this type of life insurance policy has a “level premium,” where you pay the same monthly amount for the duration of the policy, or for a period of years. A portion of this payment goes towards the insurance component of the policy, while the other goes toward building the cash value of your policy. Initially, and for many years, the full amount of your premium payment will likely be more than the actual cost of the life insurance. Known as “front-loading” the policy, this eventually results in a payment that would be less than what a term life insurance policy might cost for an older individual. This type of policy also allows you to make a withdrawals from the cash value of your policy. The cash value in a whole life insurance policy will grow on a tax-deferred basis, and it is possible to use occasional or regularly occurring ( once the policy has had 10-20 years to “bake”) loans on a tax free basis for various purposes, including  college tuition or costly repairs and renovations to your home, or a supplemental income in retirement. While it is usually a good idea to pay back loans, in the case of these policies, you would be taking out intentional loans that you do not intend to pay back. You would be taking out some of the growth that has occurred in the policy, and would be content to leave the remaining death benefit to loved ones. 

Remember, however, that taking a withdrawal from the cash value of your policy will result in a lower death benefit, unless you pay back the full amount, which could end up causing your beneficiaries to lose out on monetary benefits. This type of policy is also significantly more expensive than a term life insurance policy, sometimes as much as 15 times the cost of a term life insurance policy. This can make keeping up with the payments challenging for many people, but those much higher payments are also intentional, as cash value life insurance has a number of tax-free benefits that other financial vehicles do not offer.  Also, whole life policies do not have the income or contribution limits that ROTH IRAs have.

Stopping payment on a whole life insurance policy is more complex than doing so on a term life insurance policy. With term life insurance, you can simply stop making payments and allow the policy to lapse. But a whole life insurance policy often comes with a surrender charge of as much as 10% of the cash value, which will decrease over the years. It is also possible to keep the policy in place without paying more premiums, making it a “reduced paid up” policy.

A professional financial advisor can help you to weigh the benefits and disadvantages of life insurance policies so that you can choose the right plan for yourself. Take the time to consider which life insurance policy best fits your needs.

RMDs And Your Retirement: How Will You Be Affected?

For most Americans, large portions of their money sit in retirement accounts without a second thought. Few even consider those funds again until they begin to approach retirement age. One often-overlooked area in retirement is the issue of required minimum distributions (RMDs) and how they might affect you in the future.

Many people reach their 60s with little to no knowledge of what the rules are for RMDs and how this could affect them during their retirement years. What is happening for the most part here is that Americans are simply postponing taxes on 401(k)s or other IRAs until they retire. But this might not always be an ideal scenario, depending on your situation.

What should you consider about RMDs as you approach retirement age? Let’s find out!

What Is an RMD?

The law prohibits leaving your money in a retirement account indefinitely. Unless you have a Roth IRA, you are required to take what are called ‘required minimum distributions,’ or RMDs, each year once you reach a certain age. That age requirement used to be 70 ½, but it has recently been changed to 72.

If you do not take your RMD, there can be serious consequences for you, in addition to the normal taxes that will be due on the distribution.  There is a 50 percent tax penalty on any funds you do not remove by the deadline, and you are, of course, still required to take out your RMD in addition to paying the tax penalty.

Aside from this tax penalty for not taking the RMD for which you are eligible, you can also experience tax issues with the RMD itself. RMDs are taxed just like any other ordinary income despite being obligatory. Even if you have large long term gains on many holdings in your IRA or 401k, you will not receive the more favorable capital gains treatment when you take that money out. All dollars leaving an IRA or 401k or 403B are taxed as ordinary income! These distributions can increase your overall tax bill, and make up to 85% of your Social Security taxable every year as well.

Pandemic Effect

This past year, 2020, the world experienced a global health crisis with the onset of the coronavirus pandemic. Because of the CARES Act passed by the United States government, RMDs were waived for the year 2020 to offer seniors some necessary tax savings during an extremely trying time for the nation.

But so far, RMDs will be back for the year 2021, so you must plan for the consequences. Not taking your RMD in 2020 may save you some on taxes, but it may also have increased your RMD for next year, leaving you with an increased tax bill for 2021.

Planning for RMDs

For some individuals, the RMD is not something they consider. Many Americans need this money for daily living expenses during retirement and rely on those funds held in their 401(k) or IRA to pay the bills.

But if you are in a position where you do not need to withdraw that money, or even a good part of it,  for your everyday expenses, RMDs can become more of a hassle and create an unnecessary tax burden. It is for those individuals that planning for your RMDs can become a huge benefit. If a single person, or married couple, has a significant income from Social Security, having all that Social Security income be tax free every year, instead of largely taxable, can be a very big difference for lifestyle and net spending purposes. By using a series of ROTH conversions over time, many retirees can avoid or reduce the taxes on their Social Security income.  

The Roth Conversion Option

Postponing taxes until retirement might serve some people well. For others, it would be better to have a tax-free source of income to access during retirement. Thankfully, there are ways to make that happen. One is to utilize a Roth 401(k) option if offered by your employer, and another is to convert your IRAs and 401ks or 403Bs to Roth IRAs before reaching the age at which RMDs begin.

Unlike other retirement accounts, Roth 401(k)s and Roth IRAs do not have RMDs and individuals can receive those benefits tax-free during retirement. Though there are income limits on Roth contributions, there are none for Roth conversions. This means that you could conceivably transfer or “convert” your funds to Roth status and Roth accounts over several years, paying taxes along the way. This can help you spread out your tax burden and minimize your taxes during retirement.

Traditional tax advice often assumes you will be in a lower tax bracket during your retirement. Those for whom this will be the case are generally advised to max out their tax-deferred accounts for as long as they can. However, that is not always the case. For some, retirement might bring about an even higher tax bracket, in which case another strategy is required.

The Early Distribution Option

When considering RMDs in the future, it is helpful to consider your total assets and the size of the RMD you expect. If you have large amounts in tax-deferred accounts in retirement, your RMDs could be quite substantial, resulting in a significant tax burden. Many states also tax IRA distributions as well.

Another strategy for lowering your tax burden during retirement is taking withdrawals before reaching the age for RMDs (72). Though it is possible you will pay higher taxes initially, taking withdrawals early might help to lower or even eliminate your RMDs later on, since the amount held in your tax-deferred accounts will be lower, or zero if you have converted it all to ROTH status.

Planning for RMDs and other aspects of retirement can be challenging. It can be useful to consult a financial planner to help you make these decisions.

Resolutions You Need to Change Your Finances in 2021

A new year is a time for people to reflect on new resolutions and changes they want to make, and finances are no exception. Nearly 97 million Americans have plans to make a resolution in the year 2021, according to a recent survey by WalletHub. Many people choose to attempt financial resolutions to change their financial future for the better and establish better habits when it comes to money.

As 2021 begins, consider establishing a few financial resolutions of your own to help improve the way your money can work for you in the new year. Here are a few of the most popular financial resolutions people often make at the start of a new calendar year.

Getting Out Of Debt

One of the most common financial resolutions is to start paying down or eliminate completely any outstanding debts. These debts can be anything from high-interest credit card debt to student loan debt, but reducing them can make a big difference to your overall financial health. With less debt, you’ll free up more money to go toward savings and retirement— and you’ll also simply feel less stressed about your finances.

Some easy ways to start paying down outstanding debt can include taking on a side job to make extra money, cutting back on your spending, reducing your credit card use, and directing money toward an emergency fund. Though it might not seem like putting money in an emergency fund can help pay down debt, having one available can help you avoid using credit cards to cover any emergency situations or other unplanned expenses.

Find the Right Job

A lot of people search tirelessly for ways to save money, reduce debt, and improve their budgets, but few consider the overlooked second half of improving your finances: your job. Especially during this past year in dealing with the coronavirus pandemic, it has become clear that having the right job with the right pay and benefits is vitally important. Jobs that allow for remote work have been extremely important as businesses shut down offices and in-person work, but remote work has benefits beyond those seen during the pandemic.

If you have a job that allows you to work remotely, you can save significantly on commuting costs and even potentially move to a new area with a lower cost of living. Maybe this year should be the one you start looking for a better paying job with more benefits.

Getting a new job is not completely within your control, of course—but it never hurts to start looking and asking yourself what you can do to position yourself for a better career. For example, do some research to see if getting a certification or taking a few low-cost classes (for example, at a community college) could set you on the right path to a higher-paying job.

Retirement Plans

If you haven’t already begun saving for retirement, now is the time. Retirement planning is essential to ensure your financial future, and the earlier you start saving, the greater your returns. Check into the retirement options from your employer. If you have access to a 401(k) plan that provides matching contributions, do what you can to contribute the maximum amount your employer will match. Employer matching allows you to add additional money to your retirement for free. Another smart strategy is to increase your 401(k) contribution with every raise you receive, to be sure you are getting the most out of your paycheck.

Increase Your Savings

New Year’s resolutions that focus on finance are frequently focused on saving. WalletHub notes that the top financial resolution for 2021 is to save more. To get started on a savings goal in the new year, you might try a temporary spending freeze or other smaller types of savings challenges. Even a small increase in your savings—say $10 per week—can start you on the right path to improving your financial health. The coronavirus pandemic has shown that a savings cushion is extremely important in successfully navigating emergencies and other unexpected financial situations. If you have not already started building up an emergency fund, now is the time.

Create a Realistic Budget, and Stick with It

Many people struggle to stay within their established budge because it’s not realistic for their needs. The new year is a great time to reassess your current budget and ensure that it accurately reflects your income, needs, and wants. Make sure that your spending limits work for you. Sometimes, people get overzealous and create a budget that is extremely restrictive in an attempt to save money. However, this can backfire and encourage more overspending—leading you to become frustrated and give up the budget altogether, in exasperation. Always remember that good budgets allow for spending in “fun” categories like entertainment, while prioritizing basic needs.

The Bottom Line: Ensure Your Financial Future

As we head into the new year, consider focusing your resolutions on improving your financial health to ensure a secure and prosperous future. Though some things are out of your control—like the movements of the larger economy—there’s almost always something you can do to improve your spending, saving, investing, or earning.

Important Steps in the Retirement Planning Process

Planning for retirement is an important part of securing your financial future. But many people either do not have any sort of plan at all, or are simply not doing enough to ensure their financial security in their retirement. Retirement planning is similar to regular financial planning in many ways, although it requires longer-term thinking and thus more estimates and guesswork. Like any other financial plan, retirement plans should be able to evolve over time, changing and shifting with your financial situation.

If you are ready to start planning for your retirement, here are a few steps you need to take to establish the best plan for you.

Account for Longevity

One of the steps that is often overlooked when creating a retirement plan is the issue of longevity. In order to plan properly, you must at least consider how long you and any dependents (for example, a spouse or an adult child) might live. It may sound a bit morbid, but the truth is that it is essential to helping you ensure you have enough to last. Try the Social Security Administration’s life expectancy calculator to obtain a reasonable estimate.

With advancements in medical treatment, people are living today longer than ever. Many end up draining their retirement savings early because they underestimated their lifespan—perhaps a welcome mistake! However, many people also fail to account for the cost of long-term care because they don’t think they’ll need it, or they mistakenly assume it is covered by Medicare. (It’s not.)

According to the US Department of Health and Human Services, about half of Americans turning 65 will need long-term services and supports (LTSS)—this includes people who will need long-term care in a facility as well as those who need in-home assistance with daily tasks like getting dressed, bathing, and eating. The department’s research also indicated that people turning 65 in 2016 would rack up about $138,000 in LTSS costs. Since women tend to live longer than men, they are more likely to require LTSS, as are people who live alone.

Consider Your Lifestyle

Once entering retirement, most people simply assume they will downsize their lifestyle. Generally speaking, the traditional advice was to assume that your monthly expenses during retirement will be around 70-80% of what you spent previously. But that assumption is not always realized, and in fact, it is often untrue, especially considering medical expenses and other costs like a mortgage that is not paid off. Look carefully at your own lifestyle now and consider what it costs you on a monthly basis to maintain it. If you truly think you’ll downsize, estimate those new monthly expenses as well.

However, be honest with yourself about whether you’ll actually be able to cut back, or whether you even want to. Perhaps you want to maintain your current lifestyle, or perhaps you want to travel extensively or purchase a vacation home. That’s something you’ll need to plan for if you want your retirement plan to work for you.

Think about Generating Income

Though savings are certainly an important part of any retirement plan, one often-overlooked aspect is earnings. Think about how you’ll generate income in retirement. Investments can help you establish a revenue stream that will make your savings last longer. You might also consider taking on a part-time position to earn wages during the early years of your retirement. Many people find an abrupt retirement, from working full-time to not working at all, boring. They miss having a job in some capacity. Working a part-time job can ease you into retirement and provide some intellectual and social stimulation, in addition to generating extra income to help your savings last.

Keep in Mind Your Risk Tolerance

Risk tolerance is an important part of assessing your retirement investment portfolio. In general, experts advise that the younger you are and the further from retirement, the more risk you can afford to take on in your investments. Conversely, as you start to approach retirement age, you may want to reduce your risk exposure by adjusting your portfolio. The idea is that you can afford to take greater risks when you’re younger because you’ll have more time to recover from any mistakes or downturns; when you’re older, you won’t have time to build back after a significant loss.

That said, risk tolerance is an extremely individual aspect of investing, one which you’ll need to determine for yourself, in consultation with a professional financial advisor. Remember that risk tolerance can change from year to year, and it is completely acceptable to adjust your portfolio depending on your financial health. When you’re doing well financially, you can afford to take on more risk in your investments when compared to other years when things are tight.

Start Early

No matter your financial situation, your best bet for ensuring financial stability throughout your retirement is to establish and start contributing to a plan as early as possible. Let time work for you, rather than against you, as many people who start saving too late discover. The earlier you begin to save, the better—thanks to compound interest, your investments will generate exponentially more money the more time you give them to grow. Start saving and investing for your retirement today!

Financial Planning Mistakes You Need to Avoid

Establishing a stable financial future is a common goal, but it’s hard to know if you are doing things right. You might wonder whether or not you even need a financial planner, or you may think that your savings plan right now is more than enough to help you reach your financial goals.

Even if you think you are already headed in the right direction with your financial plan, there may be some common financial mistakes you are making that can inhibit your progress. Here is a look at a few of the most common financial planning mistakes:

Mistake #1: Not Focusing on Saving at All

The first step towards setting up your financial plan is to get started with savings. Unfortunately, many American households are not saving at all. Instead, they are living paycheck to paycheck. Federal Reserve data notes that the 2018 savings rate in American households was just 3.1 percent, a startlingly low number.

Insufficient savings can quickly become a disaster in the event of a large, unexpected expense or economic downturn. Many families have experienced this personally during this year (2020), due to the massive economic recession caused by the global coronavirus pandemic.

Most financial planning experts encourage setting aside a minimum of three months of expenses into a savings account in case of an emergency. Just that amount could make the difference between surviving a crisis or suffering serious loss. It may be difficult to accumulate a 3-6 month expense buffer, but it should be a top priority if it is not already in place.

Mistake #2: Not Tracking Spending

As many financial planners will tell you, an early step towards creating a budget is in tracking your everyday expenses. Before you can implement budgets to help you divert funds into savings or other investments, it helps to track your common expenses and look for places to eliminate them. Tracking expenses like this can also give you a jumping-off point for creating a personalized budget for yourself.

Once you see where your money is going each month, you can make some changes to increase the amount of money you are socking away into your savings and retirement accounts. Even small changes to the amount you save can make a big difference to your finances, especially when you consider how compounding can affect the amount you put away in tax-advantaged retirement vehicles.

Mistake #3: Not Paying off Debt

Though it may be tempting to start looking into investing as a way to increase your net worth, starting that process before you eliminate excess debts won’t have the impact you want. There is little point in achieving a 5 percent return on your investments when you are also paying 17 or 18 percent interest rates on outstanding credit card debt, for example.

Focus on eliminating high-interest debt, such as outstanding credit card debt, before you start exploring options for investment. You will save yourself a substantial amount of money at the outset by eliminating the extra money you are paying in interest.  The monthly amount saved from paying off the first debt can then be re-directed toward the next highest cost monthly debt and payment, and so on.

Mistake #4: Not Starting Soon Enough

Financial planning is often aimed at long-term goals, such as retirement or large purchases like a home. As a result, many people do not think about starting the process until later in life. However, as most financial planners will tell you, the sooner you can start the process of saving for your retirement and establishing a solid financial plan, the better the result will be for you.

Creating your financial plan as early as your 20s can give you decades longer to accumulate savings and start checking off your long-term financial goals. The earliest savings you put away will turn out to be the most important, due to the principle of compounding interest.

Setting aside just 100 dollars a month for 30 years, assuming an average rate of return at about 8 percent, could result in the accumulation of nearly 150,000 dollars. However, the longer you wait to start saving, the more money you have to put away to reach the same savings goals in a shorter period.

Mistake #5: Spending Too Much on Vehicles

People might not think about their vehicle purchases as having a large impact on their savings and financial planning, but it can have a big impact. More now than ever, people are spending large amounts of money to purchase large, brand-new vehicles, often taking out loans to cover the costs. Unfortunately for them, cars are depreciating assets, that begin to lose value the moment you leave the dealership’s lot.

Not everyone can pay cash for a car, but you might consider purchasing a car that won’t cost you significant amounts of money to maintain, with better gas mileage and lower insurance and maintenance costs. You might also look at used cars, rather than brand new cars, so that you can spend less money at the outset for a car that can serve you just as well.

4 Financial Planning Moves You Need to Make before the Year Ends

As 2020 draws to a close, now is the time to start considering what financial moves you will want to make before the end of the year and the start of 2021. This aspect of financial planning is sometimes known as ‘year-end’ planning, and it is a common undertaking when considering your long-term finances.

During this phase of planning, you will assess your finances, reflect on what things went well and what things went poorly during the current year, and start creating a plan for the future. Even if there are some financial moves you may have missed out on up to this point, there is still time to implement them to take full advantage of your financial plan during the coming year. Here are a few financial steps you can take to solidify your finances for the new year.

1. Examine Your Budget and Make Changes

Before you start to assess what things have gone right with your financial situation, it helps to first take a look at your budget, if you have one in place. If you don’t, now is a great time to establish one.

Looking at your budget can help show you how your money is currently being spent, and it can also serve as a tool to determine where your spending can be adjusted. Perhaps you never made it to the maximum amount in one area of your budget but you overspent consistently in another. That could be a place where you make some adjustments.

Think of a budget as a living document, not one that is set in stone. In other words, as you notice your spending habits changing, you can make changes to help ensure you stay within your budget and meet your savings goals.

2. Use Your Savings—Don’t Waste Them

As your income increases over the years, you may start to realize that you are holding too much of your assets in cash. Cash that simply sits in your accounts is not working for you, as it earns little, if any, in interest.

Instead, consider alternative places to move some of your cash savings so that you can put that money to work for you, allowing you to earn more with little upfront effort. One way to use this money is to max out your contributions to any 401(k)s, 403(b)s, or IRAs. If you’re over age 50, you will also qualify for catch-up contributions—$1,000 extra to your IRA or up to $6,500 to your 403(b) or 401(k) account. Also, if you believe tax rates are likely to rise in the future, making these contributions or deposits to ROTH IRAs or a ROTH 401k would be advisable.

In part because of the unique circumstances of the 2020 coronavirus pandemic, interest rates have dropped to historic lows. Consider taking advantage of some of your extra cash by refinancing your mortgage to cash in on these rock-bottom interest rates.

If these moves don’t appeal to you, consider taking some of your extra cash and paying down high-interest debt, like credit card debt, or making payments toward your student loans. Now is also a good time to put as much money as you can into your emergency savings fund. Experts recommend having at least six months of expenses put aside in an emergency fund, but if you have the extra cash, it might help to put aside enough for one year. It certainly won’t hurt you to have a little extra stashed away for an emergency.

3. Take a Look at Your Investments

As you approach year’s end, now is an excellent time to start diversifying your portfolio. This should be a regular activity to keep your investment portfolio working at its best. The end of the year is a good time to consider how your portfolio has been performing, as well as what your risk tolerance is and how that has affected your investments. With the markets up near all-time highs with a very questionable economic backdrop, reducing your risk exposures by selling into this strength may be wise as well.

 While you are reassessing your portfolio diversification, consider the opportunity for tax-loss harvesting. It is best to consider these two types of financial moves together to see the most overall benefit.

The process of tax-loss harvesting involves considering your investment portfolio and looking for assets that have lost value, allowing you to realize losses for tax purposes. These losses can be used to offset taxable capital gains, and in some cases, they could also be used to reduce your income by as much as $3,000. After that point, any leftover losses can be carried forward as tax deductions in later years.

4. Consider a Professional

If you are a busy working professional, it can be a challenge to keep up with your financial situation and ensure you are making the best moves possible. If you find yourself in this position, you should consider working with a financial advisor to discuss the best near term and longer term moves for your specific situation. Planning for the end of the year is a great time to start!

Spotlight – Retirement Planning by the Decade

Retirement savings are important for everyone, no matter what their age. The earlier that you begin putting money away for retirement, the greater the chances are that you’ll be able to live the life you have dreamed of in retirement. For most people, Social Security is not sufficient on its own to cover everyday expenses during retirement. Its purpose is to replace a portion of your pre-retirement income, not the entire amount. A large majority of the working population is vastly underprepared for retirement. A 2019 survey from GOBankingRates.com reported that 40% of the workers surveyed had no retirement savings at all, and around 64% reported that they had $10,000 or less in retirement savings.

No matter where you are in the retirement process—whether you are in your 20s or approaching 60—there are financial steps you can take to ensure that you are fully prepared for retirement. Here’s how you can prepare for retirement at any decade of your life:

Your 20s – Start Developing Good Habits

While most people in their 20s are thinking very little about retirement—if at all—it is an important period in your life in terms of helping you to establish good financial habits and to set yourself up for financial success in the future. Now is the time to set aside just a little bit of money from your paycheck each month. The earlier that you begin to establish good financial habits, the more likely it is that you will stick with them as you grow older. Be cautious of getting yourself into a financial situation from which you might not be able to recover. Carefully consider any debt you do take on, and do your best to avoid taking on any unnecessary or gratuitous debt. Now is also a suitable time to establish a responsible credit record. You will need a good credit score if you intend to make large purchases, such as buying a home or car later in life. You should also make on-time payments and establish responsible spending habits now to create a strong foundation for the future.

Your 30s – Create Retirement Goals

If you didn’t begin saving in your 20s, now is the time to do it. During your 30s, you still have time on your side to figure out what you will need for a comfortable retirement. You should begin to consider your plans for what you want your retirement to look like. Thinking critically about what you will need for expenses each month will help you to establish appropriate savings goals. This might also be an excellent time to meet with a financial advisor for some professional guidance related to your overall financial health. A financial advisor can help you to assess your financial situation and help you to make appropriate choices in order to reach your savings goals.

If you are fortunate enough to have an employer who offers you the option of a 401(k) plan with an employer match, now is the time to take full advantage of such an opportunity. Maxing out your employer match option is essentially like adding free money into your retirement savings account, so if it is at all possible for you to meet that threshold and take advantage of the full match, then you should do so. Now is also a good time to assess any debt you have and work toward paying it off as best you can. Paying off accumulated debt, such as credit card or student loan debt, will help to free up more of your income in order to save for retirement.

Your 40s – Buckle Down

Once you have reached your 40s, your life is probably becoming significantly more complicated. If you have been waiting to meet with a financial advisor, now might be a good time to do so. You will likely be considering additional expenses, such as helping your children with the cost of college and helping to care for aging parents. A financial advisor could potentially help you to navigate these sometimes tricky waters during this time. Additionally, you should start ramping up the percentage you are saving and aim to put around 12-15% of your income into savings, if possible. If you are just starting to save, you will want to increase that percentage to as much as 20% if you can.

Your 50s – Focus on Your Goals

Retirement is just around the corner now, and it’s time to narrow your focus. You should take advantage of catch-up contributions to put extra money into your 401(k). Put as much money as possible into your retirement accounts, especially if you are behind on your savings goals. Consider reassessing your budget in order to free up extra funds that you can put toward savings. Now is also an excellent time to develop an estate plan and to assess your health and life insurance needs. Consider meeting with a financial advisor who focuses on this type of financial planning in order to help you navigate this sometimes complex process. It’s never too early to save for retirement, so consider looking at the steps you can take today to achieve the retirement you want.

New to Cryptocurrency? Here’s What You Need to Know

Though a recent innovation, cryptocurrency has certainly taken the world by storm over the last several years. Originally introduced around 2009 with bitcoin, it did not at first attract international attention, viewed instead as a passing curiosity. But today, that has changed, and cryptocurrencies of all types are fast becoming an important focus of discussions on cybersecurity, regulation, and other financial issues as they continue to gain traction. For those new to cryptocurrency, here is more information about what you should know.

How Does Cryptocurrency Work?

Cryptocurrencies are, quite simply, forms of digital currency that can be used to purchase other goods or traded among users for profit. For most users of cryptocurrency, that trading is the main focus of their use. These virtual currencies are secured through the use of blockchain, a distributed ledger used to record and verify transactions made without a central authority. Cryptocurrencies are often called “tokens”, as well.

That essentially creates an important feature of cryptocurrency: the fact that it can bypass “the middleman,” so to speak, or that it can be used without one central regulating authority, like a bank or another type of financial institution. Practically speaking, this helps to lower transaction costs by allowing buyers and sellers to deal directly with each other, rather than with a middleman.

Understanding Blockchain Technology

cryptocurrency

If there is one aspect of cryptocurrencies that has captured the attention of industries outside of banking and financial services, it’s blockchain technology. Blockchain is what makes cryptocurrencies possible. However, blockchain has proven extraordinarily useful to many other sectors of the economy, including healthcare, supply chain management, insurance, real estate, and others.

The technology works with the use of a blockchain, a long chain made up of “blocks,” where each block contains information about transactions. These blocks can contain information about thousands of different transactions in the same place, and each block additionally contains a randomly generated cryptographic code, known as a hash, identifying it separately from every other block on the blockchain. The next block on the chain contains its own hash and the hash from the previous block.

This is part of why blockchain is so secure. For example, to change the details of a transaction after the fact, a hacker might try to edit the block, but that would generate a new hash, while the next block in the chain would still have the old hash. To alter details in a single block, the hacker would therefore have to change every single block after it—which would require a huge amount of computing power. 

All computers in the network contain a copy of the blockchain, essentially ensuring that there are thousands of copies in existence. This is why blockchain is described as “distributed” ledger technology; it is also another reason why blockchain technology is so secure. With so many copies in existence, it is even more difficult for hackers to change the information contained in the blocks. To make a change, all copies of the blockchain would need to be edited, a virtually impossible task.

Types of Cryptocurrency

Even though bitcoin was the first cryptocurrency on the market, today, there are nearly 6,700 different types of cryptocurrencies. As an industry, cryptocurrencies in total were valued at over $370 billion as of early September 2020. Bitcoin, the most popular cryptocurrency, is valued individually at nearly $210 billion.

Other than bitcoin, there are many other types of cryptocurrencies that you might choose to invest in, including Ethereum, Litecoin, Theta, and Chainlink. Though most have similar uses, the different cryptocurrencies do sometimes differ in processing times, with Litecoin notably having faster processing times, and lower costs for transactions than bitcoin.  Theta’s innovation is set to disrupt today’s rapidly growing online video industry, by improving video delivery at lower costs.

Purchasing Cryptocurrency

If you are looking to get into cryptocurrency as an investment asset, there are a few things you should know. First, consider that a cryptocurrency investment could be volatile, especially compared to more traditional types of investment assets. With regulation only recently beginning to be implemented and changing prices, enter cryptocurrency investment cautiously, only investing money you would be comfortable losing.

Many new investors in cryptocurrency also wonder where to purchase these assets. For most of the more popular cryptocurrencies, users can purchase them through a trading exchange like Coinbase, TradeStation, Kraken, or  SoFi. More obscure cryptocurrencies can be difficult to purchase and may not be available on popular trading exchanges.

To hold your cryptocurrency assets, you will need a “wallet,” a digital app to keep your cryptocurrency in. You may hear wallets referred to as being either “hot” or “cold.” That simply refers to internet connectivity; a hot wallet is connected to the internet, while a cold wallet is not. Cold wallets are external storage devices that can hold your assets, and they offer increased security, though they can take longer to access than hot wallets. Hot wallets offer easier accessibility, but they are more vulnerable to security breaches.

New Investments

Cryptocurrency as an investment is a relatively new asset class in the financial sphere, but it could have greater potential in the future. If you are looking to invest in cryptocurrency, consider that it is still a volatile market and prices can change often, and sometimes drastically. A handful of Self-Directed IRA Custodians already offer cryptos as investment choices for your IRA or ROTH IRA funds. Experts typically caution that you restrict your investments in cryptocurrency to a small and expendable portion of your portfolio. It’s also important to consider your own risk tolerance. With that said, cryptocurrencies can be an effective way to diversify your portfolio for the future. 

5 Financial Steps You Need to Take during a Recession

Recessions are a way of life when it comes to both local and global economies. The volatile nature of the stock market and other investments combined with the way world events affect economic trends means that swings between good and bad economic times are inevitable.

Like most people, you probably worry about the implications of a recession on your job and your finances. You also likely wonder what you can do to protect your family from an inevitable recession. Right now, this is more relevant than ever, as the world struggles with the economic impact of the global coronavirus pandemic.

If you already have a financial plan in place, you are ahead of the game. However, there are some additional steps you can take to help ensure that your finances can survive an economic downturn. Here are five:

Step #1: Understand How Recessions Work

Our economy has experienced recessions off and on throughout what we think of as the modern day. Following the end of World War II, the United States has experienced 12 different recessions, each triggered by a different type of event. From the Oil Embargo of the 1970s to the recent Great Recession caused by the housing crisis in 2007 and 2008, downturns have become a regular part of our financial situation.

Predicting recessions, however, can be tricky. By definition, the economic downturn that can be called a ‘recession’ must persist over a period of at least several months. Recessions are typically marked by higher unemployment numbers, a drop-off in certain types of economic activity (for instance, production and manufacturing), and a marked decrease in consumer spending.  Sometimes a recovery is swift and strong, and other times a recovery is slower and weaker.

Fortunately, these negative cycles don’t last forever. Eventually, the economy will make a comeback. But in the meantime, it is important that you take steps to reassess your own personal financial situation to help weather the economic storm.

Step #2: Reassess the Allocation of Your Resources

The first step in preparing for any type of economic crisis is to assess your financial situation. If you are fortunate enough to be in a comfortable place financially before a recession, that is a big plus.

During a crisis, you will want to strike a balance with your finances between how much return you are getting on your investments, how easy it is to access your money if you need it, and how safe your funds are right now. A professional financial planner can help you strike an appropriate balance for your particular situation.

When times are good, the best way for you to prepare for a potential downturn is to shore up your emergency savings accounts. Professionals typically recommend a minimum savings amount of three to six months of your current living expenses, but that recommendation is flexible depending on your particular situation.

Consider also making a plan for maintaining insurance coverage (like health insurance), especially if your coverage depends on your place of employment. In a recession, it is always possible you may lose your job. You don’t want to be caught without a backup plan if your insurance will be lost with it.

Step #3: Consider Your Risk Tolerance

You may have heard investment professionals discuss investment allocations based on your age. The general rule is the younger you are, the more risk you can tolerate. But the truth might be different for you. If your investments are giving you anxiety, don’t suffer through the feeling just because your assets are allocated how they are ‘supposed’ to be. If you are older, and closer to retiring, you will want to reduce your risk exposures ahead of recession warnings, or as soon as you hear about a downturn coming.  A professional planner or advisor is likely to be able to give you some advance warning and offer you lower risk steps to take and allocations to hold.

Do what feels right and what makes you the most comfortable. Particularly during an economic crisis, you may not want to take on more financial risk even if you are younger. The right answer is whatever makes you feel comfortable with your finances. A good financial planner will be able to help you arrive at an appropriate portfolio for your situation and preferences.

Step #4: Stay Focused on the Long Term

Even when taking your risk tolerance in consideration, try to stay focused on the long-term potential of your investments. Selling stocks at the bottom of the market often means you will lose out on significant amounts of money that could have been made if you had held on to them.  The old adage of “buy low and sell high” seems obvious, but in point of fact, is actually very hard to do for most people, because their emotions tell them not to sell when prices are high, and they are very comfortable with their holdings, and not to buy when prices are low, and there is plenty of fear and confusion and pessimism.  But the superior returns are made by not following the crowd-by buying assets when they are on sale and others are running away from them, and by selling into strength, when an asset is loved and demanded by the crowd.  Most people need the help of an advisor on this front, as proper buy and sell disciplines are quite difficult, even over longer periods of time. 

Trying to predict the market will almost always cause you trouble. The most-recommended strategy is usually to hold on to your investments, having faith that eventually the market will bounce back. Since it always does, your best bet is to focus on the long-term rather than the short-term potential of your investments. However, that “buy and hold” strategy may be inappropriate when you are in your late 50s or 60s, because if the market’s recovery takes a long time, it can alter your whole retirement outlook and time frame. For example, the S&P 500 Index reached the 1500 level in January of 2000, and did not see that level again until March of 2013—13 years and 3 months later! If a 10-15 year recovery period is too long for you to wait through, you need to use other investment vehicles that can keep your principal safe, while also keeping your money productive for you. Holding on to an unprotected portfolio can be dangerous as you approach retirement. We can have faith that the markets will always recover, but sometimes that recovery period is too long. After the great crash of 1929, it took 25 years for the markets to recover-1954!  Japan’s stock market crashed in December of 1989, and it is still down 35% from its highs 31 years later! A certain portion of your accumulated assets ( usually a majority percentage for most people) needs to be safe and produce income for you for as long as you live, in retirement. 

Step #5: Live within Your Means

An economic crisis is a great opportunity for you to reassess your monthly expenses. Check out your budget and where you are spending money now, looking for places you could save.

Perhaps there are monthly subscriptions you could put on hold or trivial expenses (like your daily coffee or even takeout) that could be cut down. Now is the time to tighten up your budget and live more frugally, to get through the bad cycle.

A Look at the Top Benefits of a Financial Plan

For many people, creating a financial plan is not a top priority, particularly when they’re young. Quite often, people don’t consider a financial plan until they begin to approach retirement age, a time when money concerns come to the forefront for most people. Many also think of financial planning as an activity that’s only necessary for the wealthy, not realizing the benefits it can have for those not part of the so-called 1 percent. None of this is a big surprise when you consider the lack of financial education in the US for elementary and high school students. Just 21 states require some type of personal finance class for high school students, and only 25 require an economics course.

Not only can a financial plan help you regardless of your income level, but it can also be a benefit no matter your current age. Most experts recommend establishing a financial plan when you’re young or when you start your career for the most benefit. If you have not yet considered a financial plan or you think it’s not worth your time, consider the following points.

Establish Clear Goals

Having any kind of financial goal is the first step forward. Creating a financial plan can seem somewhat unnecessary and time-consuming when you don’t have a goal to work toward. But if you have a few achievable financial goals in mind, this can make it easier to implement your plan and stay motivated to follow it. Your goal might be to pay off your credit card debt, establish a fund for your child’s education, or save up for a down payment on a house. Establishing goals for the short, medium, and long term will help you achieve financial success on your terms and get what you want out of life.

Get Confident about Money Management

Financial planners are not just for those who have more money than they know what to do with; working with a professional can be beneficial for anyone. If you’re a new graduate or just starting your career, engaging with a financial planner can help you immediately get on the right track with your spending and saving. Similarly, if you’re starting to plan for a baby, getting divorced, switching careers, buying a house, or coming into an inheritance, a financial planner’s advice can help you navigate these life events and make the best decisions for your money. Really, there’s never a bad time to work with a financial planner.

If you feel uncomfortable about managing your own money or you don’t know where to start, a few planning sessions with a financial professional might help to soothe your anxiety. They will try to get an in-depth view of your current finances, complete a cash flow analysis, help you define your goals, and come up with a detailed plan that will cover savings, investments, and so on.

Achieve Your Ideal Lifestyle in Retirement

Have you always dreamed of being able to travel the world during your golden years? Want to purchase a vacation home? A financial planner is invaluable in making your ideal retirement happen. Planning for retirement can be complicated—Social Security alone doesn’t provide enough for most people to live comfortably, and generous pensions are becoming a thing of the past. Even a 401(k) on its own may not be enough, especially if your employer fails to match your contributions.

For your ideal retirement, you may have to rely on a combination of Social Security, 401(k)s, individual retirement accounts (IRAs), health savings accounts (HSAs), and other sources of income. At the same time, you’ll likely confront higher healthcare expenses. You may also wish to move to a better location for your tax situation, or to leave a legacy for your family. With so many factors to consider and financial decisions to make, a good financial plan drawn up by a professional is practically a necessity if you want a retirement you actually enjoy.

Build Your Savings Faster

More people than you might think are unprepared when it comes to savings. Few have dedicated savings accounts for emergencies, and often those that do have such an account don’t have enough put away. Experts generally advise a minimum of six months of living expenses put aside for emergencies, but you might want to adjust that number depending on your situation.

At any rate, creating a comprehensive financial plan will go far in helping you save, and it can also help you reach your savings goals faster. Those with a financial plan often report saving a significantly higher percentage of their income than those who do not have a plan. A detailed plan also makes it easier to see when you’re falling behind or not meeting the savings benchmarks you need to meet to achieve your goals. Without a comprehensive plan, it’s all too easy to lose track of your goals and your progress toward them. You may be tempted to skip a month or two or savings here and there—which is fine if this happens rarely, but disastrous if it becomes a habit. A financial plan can help you take a more disciplined, consistent approach to saving.