It’s already fall and as we approach the new year, we have some exciting changes afoot at Atwood Financial Planning and Fearless Finance that we want to share with you!   On Jan. 1st, we’re rolling out a new approach to financial planning with flat fee initial plans (more details on why this will be great for new clients in a few weeks). Don’t worry, this DOES NOT AFFECT any current clients who will continue to be charged by the hour for check-ins and specific topic meetings.   We’re also continuing to grow our corporate financial wellness business. Please let us know if you think your employer or company could benefit from improved financial wellness!   Inflation has hit us as well. We will be increasing our prices firmwide for our hourly clients as of January 1, 2023.  All Associates will charge $220/hour for check-ins moving forward. New clients (signing engagement letters after Jan. 1, 2023) with any Associate will be subject to the flat fee plan offerings discussed above.   Lori Atwood will continue to charge hourly ONLY and will not participate in the flat fee plans. Her hourly fee will increase to $290/hour for new clients on Jan.1st. Lori’s clients who signed Engagement Letters before Jan. 1, 2023 will still get the current hourly rate until April 1, 2023, when all of Lori’s clients will then pay $290/hour. We will still charge to the nearest quarter hour.   We’re also excited to welcome Katie Van Wyngarden to our team. Katie brings personal finance and tax planning experience to her client work and is located in southeastern Washington state, near Spokane. We are thrilled to have her onboard!   Please email us at help@fearlessfinance or email your planner directly if you have any questions.   Best, Fearless Finance and Atwood Financial Planning

Wait a Minute. How Can They Afford That When I Can’t?
Those expensive vacations and costly college educations may not be as hard-earned as you thought.

Credit…Thomas Pullin
By Alina Tugend
Nov. 6, 2019

I’ve done it and you probably have, too: looked at a neighbor or friend who seemed to be in roughly the same financial bracket and wondered, “How do they do it?”

How do they afford the elaborate remodel and the luxury vacations they’re bragging about on their Instagram accounts and the private school tuition?

The feeling is envy, but it’s mixed with curiosity. And it often comes with a large dollop of self-criticism. They somehow must be better at managing their money than my husband and me. What are we doing wrong?

Just look at a forum on the popular financial blog Mr. Money Mustache. The question asking whether “the ‘everybody seems wealthy’ illusion — is it really just fueled by debt?” attracted a wide variety of opinions, but more than a few expressed the sentiment of the commenter GeorgeC.

“I often have this struggle where it seems as if everybody around me is wealthy,” he wrote, adding that he often wondered how people he knew earned as much or less than he did could afford things he could not.

“To be honest, at times, it kind of makes me feel dumb and sometimes even like a failure at what I do,” he added.

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No doubt, most people could improve how they handle their finances. But better money management isn’t usually the culprit: When people seem to be able to afford much more than their income would suggest, it’s often because there is hidden wealth or hidden debt.

“Wealth is even more hidden than income, because there’s no job to correlate,” it to, said Dalton Conley, a professor of sociology at Princeton University. We have a general idea what a professor or corporate lawyer makes, but “in terms of family wealth, there’s zero cues.”

Ellen, who lives in the Washington area, knows that feeling of envy and curiosity. Like everyone else talking about their personal experiences for this article, Ellen (her middle name) spoke on condition of anonymity in order to publicly share her private thoughts about friends’ spending habits.

For years, Ellen watched her friends, who had similar jobs and the same number of children as she did, spend much more lavishly on just about everything compared with Ellen’s family. They did expensive home additions. They took twice as many vacations to places farther away. They drove nicer cars.

And she felt bad about it, assuming she and her husband were simply worse financial managers.

“We go to self-blame when we don’t know the whole story,” she said.

Then it all collapsed. It turned out that the family was largely living on debt. They were under water on their house and had to sell it. They’re now renting an apartment.

“I did feel very vindicated,” Ellen said. “I guess we weren’t doing anything wrong.”

Of course, not all people who seem to be living beyond their means are running up their credit cards.

Sharon (not her real name), who lives in Westchester County, N.Y., has relatives who have paid her children’s full college tuition and give the family additional help.

She doesn’t like sharing that with people, “a little bit because I’m protecting the image of my husband that he rolls with the big boys,” she said. “And I also feel really lucky and it doesn’t feel fair. I’m not comfortable, but I’m thrilled we have it.”

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Frederick Wherry, also a professor of sociology at Princeton University, recognizes that sentiment. “One of the things that helps to protect us as we’re trying to make our way through life is that we rely heavily on secrecy,” he says. “We’re really trying to protect our understanding of who we are and other people’s understanding of who we are.”

I identify with that feeling. My parents contributed to our sons’ university tuition and while I may mention it when discussing college costs, I certainly don’t highlight it. I’d rather be seen as someone disciplined and savvy enough to sock away hundreds of thousands of dollars for eight years of college than as someone relying on parental assistance. So I am part of the problem.

Not only do people want to play down their inherited wealth or money from family “but they actively try to hide it,” Mr. Conley said. “We have this ideology of individualism and worshiping of the self-made man or woman.”

And theoretically, there’s a correlation between getting more because you work harder, said Evan Polman, a professor of marketing at the University of Wisconsin at Madison School of Business. “Inheritance is a violation of that correlation.”

So, why does this matter? What if we don’t know where our neighbors got the money for that new deck? Few would want everyone’s financial status to be transparent.

Image
Credit…Thomas Pullin
But this secrecy helps reinforce the idea that it is only individual choices, not laws and policies, as well as our national history, that comes into building wealth.

“It seems like a straight-up cultural issue, but public policy plays a role in how we view secrecy about money and also the consequences that secrecy has,” said Mr. Wherry, who is also director of the Dignity and Debt Network. People need to understand others are in a similar situation — struggling to pay for college or retirement or health care — to realize it’s not a personal failing and to push for reforms.

“That’s what we need to fix the problem,” he said. “If it’s just about you, nothing’s going to change.”

These issues most likely play out differently in affluent areas compared with low- and moderate-income communities, where “you’re probably much more aware of the struggle that neighbors are feeling,” Mr. Wherry said. “Yes, we need to be responsible, but there’s much more of a sense that there are things that go well beyond me as an individual that affect how we live.”

“The secrecy surrounding money may also differ to some extent in countries with higher rates of unionization,” Mr. Conley said, “where salaries are more transparent.”

Some say we’re focusing on the wrong thing if we’re looking at the outward signs of wealth. The reality now is that if we’re going to envy our neighbors, it shouldn’t be for their BMW or new swimming pool. It should be for their fat 401(k) or gold-plated health insurance, because the ability to put away large amounts of money to secure our future and our children’s future is the sign of real wealth now.

The top 1 percent of households still spend money on conspicuous consumption but “the thing that really separates them is their spending on inconspicuous consumption,” said Elizabeth Currid-Halkett, a professor of public policy at the University of Southern California, who analyzed Americans’ spending habits for her book “The Sum of Small Things: A Theory of the Aspirational Class.”

Over the last few decades, wealthy people have increased how much of their spending they direct to education and retirement, compared with members of the middle class, whose expenditures in those areas have remained more or the less the same.

For example, in 2014, the last year of Ms. Currid-Halkett’s analysis, the top 1 percent of American earners — those making at least $340,000 annually — directed, on average, 6 percent of their total expenditures to education. According to her research, that percentage has climbed significantly since 1996.

Only about 1 percent of the expenditures of the middle class — people making about $40,000 to $60,000 annually in 2014 — was devoted to education, a number that has stayed static for almost two decades, Ms. Currid-Halkett said.

And about 20 percent of the top earners’ expenditures go to personal insurance and pensions — an annual average of $32,500 in 2014 — compared with just under $4,000 or about 8 percent for the middle class.

“The change in spending patterns among the rich are probably the biggest signifier of class divide in America today,” she said.

No doubt, some will scoff at people comparing themselves to their neighbors and offer the advice that they should just focus on their own lives. And there’s some sense in that. But competitiveness and inquisitiveness are part of being human.

Charles (his middle name) who lives in the metropolitan Phoenix area, said he speculated about friends who seem to spend and spend and spend with no visible income coming in.

“They do things that absolutely leave my wife and I scratching our heads,” he said. “I would consider our lives completely fine. But I do think people look at all these types of people around the country and wonder: ‘How are they doing that? How can they afford it?’”

Everyone is talking about refinancing now because rates are mind-bogglingly low.  Refinancing can make sense, but you want to ask yourself one key question: How long will I stay in this property?  Refinancing and whether it makes sense revolves around the answer to that question.

If your answer is: 

• Less than 3 years – don’t bother refinancing except in rare circumstances, because you will probably not make back the fees you spend to do it.
• Less than 5 years – do the calculations to see if the reduction in rate pays for the fees. 
• Over 5 years – consider it!

How do you know what the fees are and whether they make sense?  Well, in an urban area, you can expect $3-4k of LENDER fees including lender origination fees, processing fees, and any admin fees. THESE FEES ARE NOT THE SAME AS TITLE FEES AND TAXES. Those are separate fees and you pay them with any refinancing. You want to focus on Lender fees to compare mortgage deals. 

To know if the fees make sense, figure out how much you will be saving each month with your new rate after refinancing.  If, for example, you are saving $110/month with your new rate. Take your fees and divide them by the savings.  For example, $3000 of fees divided by $110/month is about 27 months (3000/110=27.27).  If you do NOT plan to live in the house for at least 27 months, this is not a good deal to do, which is why living in a home at least 3 years after refinancing is a good rough guide. 

When you refinance, you’re looking for a good rate that is significantly lower than your current rate. “Significantly” means something different for everyone, but you would want at least 0.75% reduction in rate to make the hassle worthwhile.  If you’re unsure, get the quote and see if the saving is significant and worthwhile in terms of how long you expect to live in the property. Do the math as shown above, but as a rough guide you would want a reduction of at least 0.75%.

There are other things to think about like resetting the mortgage clock. If you’ve been paying more than 3 years on your mortgage, you may not want to reset the mortgage clock back to 30 years. You can consider a 15 year mortgage, but most people can’t handle a 15 year mortgage payment since it can be materially more than you’re paying now. You can also pay the amount to your mortgage each month that would be required to pay it off in the number of years you currently have remaining. There are a lot of calculators online to help you figure that out or ask your mortgage broker to help you AMORTIZE your loan as if you were paying it off with the same amount of years remaining on your current mortgage. 

There are 2 items that go into knowing the right property value range you should focus on for your household:

1. The down payment needed to avoid PMI and secure a reasonable monthly payment
2. The monthly payment you will have to pay.

You can see that they are related.  Your mortgage broker may say you are approved to borrow up to a high number, but that RARELY the right amount to borrow, because it rarely makes sense both from a down payment and monthly payment perspective.

Let’s do an example. Say you find your dream house and it’s worth $500k.  Your mortgage broker says you are approved for a mortgage up to $450k and you have $50k of savings.  That all seems to work, but you have to do the full math to make sure as shown below:

You can afford the down payment and you’ve been approved for the mortgage, but a housing payment of $2557/month is too much for your cash flow.  What if you can only handle a $1800/month housing payment? You would need to wait, and save more to be able to put down 20% ($100k in this case) and avoid PMI. With a larger down payment, your monthly payment would also be significantly less. 

Here you can see that you need to balance down payments AND monthly payments to make sure you do not jeopardize your household financial wellbeing by being “house poor” and not being able to do anything else all month because you have to pay the mortgage. Remember, when you buy a property you need to balance both.

Before you sign a divorce decree, make decisions on a house, negotiate marital resources, you need to know what your new life will look like after your divorce. The first step is putting together a Cash Flow for the new you.

First, think about your household separately and estimate your monthly expenses once you’re single like rent, cable, insurance, cell phone, groceries, etc. Total them. Remember to add any children’s expenses that you are responsible for entirely. Also, don’t skimp too much on Full Discretionary. You and the kids will need a way to release stress after a divorce. Estimate Annual Needs like Vacations, camp, and car insurance that are large expenses and come up yearly or a few times per year.

Total up all your income including your salary, child support, other income and alimony, if applicable.  Subtract your expenses from your income. If the number is not positive by at least $300-500/month, go back and start trimming expenses. 

Here’s an example of what a cash flow looks like:

Here you see the sample person has $200/month of MARGIN for goals and savings. In this case, the person could trim expenses or find a cheaper housing situation to make sure he/she can save a bit more each month. 

Make sure you do a cash flow of your new life before committing to any decree. You need to know that you can live in your new financial situation and take care of your children.  Even if you want to stay in your house or desperately want to move, make sure you do a cash flow and see how much you can realistically afford for housing. Get help figuring out your new financials if you need it!

Getting a divorce is an enormous upheaval in anyone’s life and with enormous upheavals usually come big bills. Try to keep in mind the following Do’s and Don’ts even if you really can’t think at all during this tumultuous time.

DO:  make a list of all expenses on a monthly and yearly basis for you and for you children to make sure you can live comfortably after the divorce

DO: Try to think about future expenses for the children like college visits, braces or activities because it will be hard to renegotiate your decree later.

DO: Make sure ALL children’s expenses are considered no matter whose house the child is in. “Isn’t it funny, Junior always needs new shoes when he arrives at my house?” Don’t get sucked into doing all the buying.

DO: consider retirement and how this changes how you are saving for retirement.

DO: have a financial professional help you with your new life financial plan to make sure you can live on the financial proceeds outlined in the decree.

DO: make sure you have the support you need. If you need therapy or even more babysitting time, set aside funds each month to do it. There will be other expenses that can be cut. 

DO: get a separate credit card in just your name and stop charging any joint cards to make sure you separate your expenses and are not on the hook for any of your former spouse’s expenses.

DO: get a separate checking account and have your paycheck deposited in it as long as you are in compliance with any agreements you’ve already made.

DON’T: just take whatever deal is offered. Make sure you think ahead about what financial resources you might need and negotiate for them now before you sign the decree.

DON’T: – this can be difficult – purposefully try to spend your former spouse into bankruptcy. It’s rarely one-sided. It will usually ruin you, too. 

DON’T: buy a home right away if you move to a new area. Live there for a year at least and get to know the area. Many people buy too soon and then have to sell.

DON’T: rely on taking your ex-spouse to court for a lot of things if possible. It’s unbelievably expensive, try to solve the issue in your initial decree.

DON’T: forget you need to update your will. Think about whether the child’s other parent is the right guardian.

DON’T: forget your spouse might need life insurance with you as the beneficiary if he/she is paying you alimony and/or child support.

DON’T give up your rights to spousal retirement or other assets until you’ve seen a financial planner and know that you are doing the right thing for your future.

DON’T worry.  You will get back on your feet financially even if life does not look the same.  Get help figuring out what you need and what your new life will look like BEFORE THE DECREE IS SIGNED to make sure you get everything you need, if possible. Attorneys are usually not experts on finance. Get a financial planner professional to help.

What a beautiful time! You’re expecting your first baby and you spend your days thinking of names, wondering what color eyes he or she will have and which cool new stroller you should put on your baby shower list. You also need to think about how your new baby will affect your finances. I’d like to list the top three financial items you need to think about when you’re expecting:

1. How will you fit childcare into your monthly budget?
2. Do you have enough life insurance to make sure your child is protected?
3. How will your discretionary spending change with a baby?

Let’s start with #1.  You have to think about what kind of childcare you’re comfortable with and how much it will cost. In an urban area, good daycare could cost $2k/month or more. Nannies are much more. You should know your monthly expenses and your income and figure out if you have $2k/month to devote to childcare. If you don’t, you will have to start cutting expenses until you do or figure out some other strategy for childcare.  You do not want to use savings for childcare, since it will be ongoing for years especially if you live in a place where children cannot start public school until kindergarten.

For #2, you HAVE TO HAVE LIFE INSURANCE IF YOU HAVE A CHILD.  You may never think about life insurance, but as soon as you hear that very first scream, there is a human dependent on your income.  If that income goes away, that human will be impoverished.  You need to protect your income for your child’s welfare. The best way to do that is to have adequate TERM life Insurance. Term life insurance has the word TERM in the title and pays the beneficiary if the insured should pass IN THE TERM of the policy. You need it until your child is financially launched (25 years if you believe the child will attend college, 20 years if not).  

As a basic guideline, each parent should have about $1m of death benefit. This is a basic guideline only and your situation may differ greatly, but $1m should insure that the remaining spouse does not need to move right away and can afford college and to replace retirement savings that will not be saved if you are gone. 

Number 3 is a challenge for all new parents. You may be used to going out and buying whatever you want before your baby comes along, but what about after the baby arrives.  You should expect to spend several hundred dollars more per month in the first few months of life (think take-out, glider rockers, bouncy seats, etc.).  Make sure your monthly cash flow is ready and you’ve increased your discretionary spending, if possible, or cut other expenses to make sure you have a few hundred dollars per month for the first few months. Thereafter, hopefully, your spending becomes more consistent. 

Elizabeth Westendorf here. I’m an Associate with Fearless Finance® by Atwood Financial Planning. I’ll be launching and leading our new small group financial planning course, and I wanted to tell you a little bit about why this course is so important to me.

When I graduated from college, I made a lot of the typical financial mistakes. I signed a lease on an apartment that was too expensive, I got food delivered instead of cooking at home (a LOT), and I built up credit card debt. And then, I decided to adopt a new pet on top of all that. If you’ve made financial mistakes, I know how that feels. I’ve been there, too.

Finances are just math. So in theory, they shouldn’t be that hard. But they ARE. Why? Because it’s math with human emotion built-in. It’s personal, and it’s vulnerable. I get that. And as I dug myself out of my own financial hole and started learning the nuances and complexities of financial planning, I decided to devote my career to helping others do that, too. I firmly believe that financial planning advice should be accessible to everyone. My goal is to help as many people as possible find financial security and reduce stress about finances. This group course is an attempt to do that.

So many of us enter adulthood without having the personal finance information we need to be successful. It’s not consistently taught in school (high school OR college), and to add insult to injury, the traditional financial planning industry is not built for the average American. Those financial planners won’t even work with you until you already have $1 million, but most people need help getting to that stage (or even starting down that path).

We’re taking our hourly planning model and making it more affordable for people who aren’t ready to do one-on-one planning. We’re also incorporating a unique community element. The course will have a group of people who are striving toward the same things – achieving their financial goals.

If you want to make sure you’re the first to know when we open a new group course registration window, sign up for the Interest List. That way, you’ll have first dibs when registration does open. And, if you have any questions about our Small Group Planning Course, or about our philosophy and approach to financial planning, you’re welcome to email me at elizabethw@atwoodfinancial.com or view our Q&A videos on Instagram.

I thought I’d compile an FAQ because I’m getting the same sorts of questions in my inbox (not in person, since I’m only seeing clients by Google Meeting!). Here they are with my answers:

1. Should I refinance my mortgage – Yes, get some quotes IF:
• you plan to live in the house for a while to defray the service fees AND
• resetting the mortgage clock does not ruin your plans to be paid off by retirement OR
• you can refinance for a shorter period. Don’t be afraid to ask for quotes for 20 or 25 year mortgages. They will roll their eyes, but yes, they do offer them.
2. OMG!! The markets!!! What should I do? – NOTHING.
   • You are a long-term investor and you have to chill out and know that the stock market will return to normalcy at some point in the future before you need ALL of your savings.
   • However, I think it’s highly likely we will have a recession because of lack of demand (all those poeple staying home and saving) and some companies and jobs won’t make it through. The best way to prepare for this is… say it with me… HOARD CASH not toilet paper.
3. Surviving work stoppages and possible losses of income. We’re all being hit and we don’t know how long. Make sure you have enough liquid cash for co-pays and deductibles, if possible. This is what your Emergency Savings is for and I know you have it because you read my newsletter. If you’re new and maybe don’t have a full 3-6 months of expenses saved AND liquid, try this:
• Trim everything you can trim to reduce expenses. If the kids are home, can you freeze daycare? Freeze the gym, you’re not going anyway, etc.
• If you’re getting a tax refund, FILE YOUR TAXES NOW
• Take a look around your house and see if you have things you can sell like books and knick-knacks you probably don’t need anyway. Remember, you are socially distancing so having people come look at furniture is going to be tough, but you can sell stuff that can be shipped.

It’s hard all over. It’s scary and isolating, literally. I get it. The last thing you want to worry about is finances. Don’t panic, think long-term and if you are lucky enough to have paid time off or work from home – HOARD CASH.

I’m ALWAYS here for specific email questions.

I’ve been meaning to write this post for a while, because I keep seeing this trend among my clients. People are spending HUNDREDS, and even over a thousand dollars, EACH month on ride share. Ride sharing is super convenient and a great safety measure if you intend to have an adult beverage, but seriously people…

First, let’s talk about ride share DON’Ts from a financial perspective:

1. Don’t live someplace where the only way you can get to work/school is by ride share
2. Don’t rely on ride share to get your child to and from school/daycare
3. Don’t get lazy and take ride share EVERYWHERE instead of mass transit
4. Don’t think you’re saving the environment by taking ride-share instead of owning a car

That leaves me with the DOs, which are basically use rides shares when you intend to drink and OCCASIONALLY if driving or mass transit doesn’t work for you. Did everyone read the word occasionally?

Let’s do some math. If you take ride-share to and from work, you’re talking about $16-20/day, if you’re lucky, but it could be more. If you then take a few ride-shares over the weekend or maybe you take a ride-share from work to daycare and then home. Yep, I know you’re out there, and I know you do that. Why? Because it’s easy. I get it. You also don’t want to pay a fine at daycare for being a nano-second late, but here’s the thing, this all adds up to over $400/month. Sometimes WELL over $400/month.

Why am I so fixated on “over $400/month?” Because at that point, consider owning a car. I know it feels good to say you don’t own a car, but honestly, you’re overspending on ride-shares. More math:

Slightly used, good quality, Japanese car: $18k
Keep it for: 10 years
Insurance: $900/year ($9000 over 10 years)
Gas: $80/month (2 tanks) or ($9600 for 10 yrs)
Maintenance: $500/year ($5k for 10 years)
Total cost of owning a car: $346/month for 10 yrs

These are just estimates. Obviously, your situation may differ, but you get the point. If you really want to do something good for the environment AND your wallet, take public transportation, walk, use an electric scooter or bikeshare. The bottom line is you should not consider ride share your main source of transportation for work, school or childcare. It’s too frequent. For your wallet, ride share should be seen as an occasional convenience.

Hi all, Happy New Year! I wanted to announce that Elizabeth Westendorf, who wrote the post below and is an Associate at Atwood Financial Planning, has moved to Cleveland, OH. She will be a full-time Atwood Financial Planning Associate bringing our approach to hourly, no-commitment, no-commissions financial planning to Ohio. Please tell your friends in OH! She can be reached at elizabethw@atwoodfinancial.com. Thank you!

We all know how this goes. January 1st rolls around, you set a resolution for the year, and by the end of the month, you’ve forgotten about it entirely. Gym memberships get used for only a couple weeks, healthy grocery shopping gives way to take-out or frozen meals (just me?), etc. Setting a resolution isn’t enough—you have to make sure you’re setting appropriate resolutions. An all-or-nothing mentality just sets you up for failure.

The same is too often true for financial resolutions as well! Resolving to bulk up your emergency fund? Pay off debt? Save more in retirement? If you completely cut out all optional spending, track every cent coming in and going out of your accounts, and penny pinch your way to lower bills, you aren’t likely going to be able to sustain that pace. It’s like saying that unless you go to the gym every day for at least an hour, you’ve failed at your goal of getting in shape. Instead, break goals into manageable pieces.

Typically, budgeting options are all or nothing, even those that profess to be hands off. But by cutting out most of the noise in your monthly cash flow (those items that are mandatory spending or fixed expenses), it’s much easier to stay on track with your finances and only pay attention to what is really going to move the needle. Your budget should work on autopilot for you. Otherwise, being smarter with your money is likely going to go the same way as all those other failed New Year’s resolutions.

Are you already monitoring your Full Discretionary spending (Blue Points, if you’re an AFP client already) and want to jumpstart your saving more in the New Year? Try a temporary resolution! Here are a couple of suggestions:

1. Try a low-spend month. See what you can cut back on in your Blue Points spending–not permanently, but just for a month! Look for free activities and entertainment. Try setting a limit for optional spending that is lower than your typical amount. See how that feels throughout the month, and then next month, return to normal. If any of the changes you implemented in your “low-spend” month were pretty painless, then maybe consider making those permanent.
2. Cook from your pantry! This doubles as a great way to get rid of the odds and ends that have been lurking in the back of your cupboards for too long. Get creative, find new recipes, and see how much you can do without extensive grocery shopping.
3. Focus on your energy bills. Can you turn off the lights more regularly? Can you drop your thermostat by a degree or two? Fun fact—it takes about 2 weeks to adjust to a new household temperature. After that, what might have been originally chilly will start to feel comfortable. In some areas (like Cleveland, OH!), you can request a free energy consultation. Someone comes out to your house to make recommendations, and they also give you free low-flow sink faucet aerators and showerheads. You’re saving money and conserving resources when you implement some of these changes.

The common theme here is that all of these ideas would become exhausting if you practiced them for too long. Short spurts are the goal here—and any money you save by doing one of these challenges can go straight into savings or your investment account. On top of money saved, you’ll come away with new entertainment ideas, new recipes you like, or more environmentally conscious habits! It’s a win-win all around.

Written with AFP Associate, Erik Attias, in LA.

Freelancer, gig worker, temp…three different terms for essentially the same thing and these days it is becoming “the new black”. More and more people are finding themselves in these types of jobs. The financial challenge is that your income is inconsistent, which is why it is important to figure out how to navigate the financial realities of gig work.

There are a lot of positives in the world of gig work. The biggest one being autonomy. You have some control over when and where you work. But, you may never be sure when you’ll be working or how much you’ll be making. With all the uncertainty that comes with being a gig worker, there are few critical financial things to get right:

1. Have separate accounts for your business and your household
2. Pay yourself a “salary” each month
3. Pay your taxes on time and make sure its enough to avoid surprises

Have separate accounts: always keep your gross/pretax money separate from your net funds for your household. Never let pretax funds hit your household accounts. Generally, money gets consumed in the vortex of your household checking account and you never remember or you don’t have enough to set aside for item #3 on our list. Having separate accounts will help you make sure you only send money to your household AFTER you’ve set aside some for taxes.

Pay yourself a “salary” each month: Figure out what your business can CONSISTENTLY net each month after deductible expenses, retirement savings and estimated taxes. Try to do this for the year or month by month, whichever is easier with your line of gig work. If you consistently net over $4000/month, then make your “salary” $4k/month and leave at least $500/month of “cushion” to accumulate in your business account for months where work is slow or you’re on vacation. That way, you can still pay yourself $4k in slow months, because you have enough cushion to supplement your slow month earnings.

Pay your taxes on time: this can be a viscous cycle if you do not start paying your taxes on time from the beginning. You get more and more in the hole to Uncle Sam and you can’t see your way out. It just keeps compounding. Remember, your tax funds are NOT YOURS. They are the government’s. Try to see taxes as an expense like your car payment or cable bill. It’s not negotiable, it’s not yours and it can’t wait. You can even ask the IRS to take funds out of your account monthly to make sure you stay on top of it.

If you can live by the three rules I’ve listed above, you should be able to weather the ups and downs of gig work and maybe even enjoy the autonomy and variety it affords you.

You may hear the term Fiduciary a lot especially when friends and family give you advice on who to choose as a financial adviser. The challenge is that it can mean different things to different people. A fiduciary is a person who is a trustee for someone else’s assets (usually, money). If you work with a CFP professional, the standard is that he/she must act solely in the client’s best interest with regard to financial planning advice.

However, its pretty hard to live up to that standard when you make your livelihood off commissions. I would argue it would be near impossible to make your income off selling insurance, as a CFP or any other fiduciary, and only sell the insurance that someone actually needs, which, by the way, is usually the least expensive product (Term Life Insurance), producing the least commissions for the salesperson. It’s a tough standard, and nobody is actively policing it until a possible “wrong” is committed.

Sometimes advisers say they are “fee-only,” usually meaning they are paid by a “wrap-fee.” A wrap-fee is taking a percentage of a client’s assets no matter how well the adviser does or whether the holdings produce a commission or not. A wrap-fee is typically ON TOP of the underlying mutual fund expense ratios and other underlying fees. On the face of it, it seems like the client’s and adviser’s interests are aligned. The Adviser does not care about commissions (good), and makes more money if the client’s assets increase (also, good). Right, but who sets the wrap-fee?

If you have $1m of assets, and an adviser is charging you 1%, which happens all the time, the client is making a LOT less over the long-haul. To illustrate this, John Bogle, founder of Vanguard, often uses the example: if you invested $1 in an S&P 500 index fund 50 years ago, you’d have $33 today. If you invested the same $1 with an actively managed account (wrap-fee on top of expense ratio, etc.) which is typically about 1.5-2.5% all-in fees, you’d have $11 today. Whose interests are being served? The difference is almost totally based on fees.

What should a regular person do? My advice is to look for the following:

1. transparent, consistent fees explained clearly up-front
2. no conflicts – no commissions or payment for recommending products or services to the client
3. no wrap-fees or clear pricing for wrap-fees that decreases as asset levels increase
4. parameters and guidelines provided for making choices on service providers and always suggesting more than one provider for investment related service providers

As an hourly-paid, fiduciary financial planner, I still make recommendations on things like term life insurance, bank accounts, and of course, investing. Is there any conflict there? Nope, not if the adviser (like me) does not get any financial benefit from making one recommendation over another. Ask your adviser if he/she gets ANY financial benefit from any recommendation he/she makes. If there is any hesitation or murkiness in the answer. Run for the hills!

Bottom line: even if the adviser is a CFP practitioner, or uses the term fiduciary, it’s your job as the client to understand how he/she is being paid. There are no fiduciary police checking to make sure the adviser is truly unconflicted and acting in your best interest, even if the adviser has CFP credentials. You have to be your own advocate and ALWAYS KNOW HOW your adviser EARNS HIS/HER LIVING.

Hi all,
As usual our blog takes a summer break over July and August. I hope you enjoy our last post until September. Jason Ross, our Associate located in NJ, wrote this post and he can be reached at jasonr@atwoodfinancial.com. He is also an hourly, fee-based, fiduciary planner, under Atwood Financial Planning. Contact him if you’re interested in working with him. Also take a look at his page on our site.

You Can Afford It!

I hate hearing people say they “can’t afford” something that’s critical to their desired lifestyle. The truth is, if something is important enough to you, you can probably find a way to make it happen, even if it’s not easy to figure out. In my case, the “discretionary” item that feels as if it’s essential, is to take a few “big mountain” ski trips each year and teach my children the sport I love. Sadly, from my home base in New Jersey, this is not a convenient or inexpensive hobby.

Ask How

Don’t ask whether you can afford something, ask how you can afford it. Find ways to increase your income or spend less on other lower priority items and make it happen. When I created a spending plan for the first time the very first line item I added was my ski vacations (not a mortgage payment, car payment or even food). My ski vacations were so important to me, I was willing to put them first. I would then decide how much to spend on the rest of my expenses to make sure they fit around the lifestyle of winter travel I wanted.

Prioritize

Figuring out “how” is always a matter of priorities and trade-offs. Ask yourself, what matters most to your household. Is it worth living simply during the year to take big vacations? Are you willing to sacrifice a big house to have a more modest one in a great school district? Do you prefer driving a brand new car without having any cash left to travel or do you prefer to drive a well-loved vehicle and travel twice a year?

Compromise

Life is about compromise. If you’re in a relationship, having up-front discussions and commitment to each of your high priority items is essential. In my case, my wife supports, maybe just tolerates, my passion for skiing. She loves to travel, but is more of a warm weather person. We’ve struck a balance where we don’t use all of our vacation time and resources in the winter. We have a completely separate line in the spending plan for warm weather vacations, which lets us both enjoy the travel we desire.

Buy Efficiently

Just because something is a priority for you, does not mean you should spend frivolously on it. You need to be economical about decisions instead of just throwing money at things. To enjoy the experience I want and keep the costs down, I plan my trips well in advance. I buy a season pass, which brings down my cost per ski day and we choose resorts that have great (and affordable) lesson programs for our children.

We sometimes stay further away from the hill to save on lodging. I use points and miles earned from credit cards to pay for flights and hotels. Lastly, I try and pick quiet times of the year when conditions are still good to find additional savings and enjoy a less crowded experience. What are the ways you can keep the cost down and still enjoy the most important parts of that thing you really love?

Focus

Planning around your priorities can be applied to whatever your priorities and passions are. The most important advice is to put some time aside and focus on how to get what you really want. I so often hear people say in passing “I’d love to travel more but can’t afford it,” or talk about being stressed by having debt and not being able to save for retirement. While every circumstance is different, the approach to sitting down and thinking about your priorities and putting them first will often show that you can have what you really want by just spending less on the things that are not as important to you anyway.

Hi all, this post was written by one of Atwood Financial Planning’s Associates, Elizabeth Westendorf. She focuses on millennial clients, but will work with you whatever age you are. You can reach her at elizabethw@atwoodfinancial.com if you want to find out more about working with her on your financial planning. Hope you enjoy her post!

I’m not sure what it is about spring (probably the end of gray and cold weather), but this time of year makes me want to start cleaning things. To throw open the windows and start a Goodwill box and refresh my living space.

And I’ve done this “Spring Cleaning” routine with other things as well. Around this time of year, I usually purge my podcast playlist of all the old episodes that I know I’ll never get to. I pare down my Amazon.com wish list and my library holds requests. You get the idea. It’s exciting and frees up time for new passions and more productivity.

This same principle also translates to finances. In between dusting and vacuuming and beating rugs, take some time to also clean out your financial life. Here are some good places to start:

1. Get rid of zombie subscriptions. You know the ones I’m talking about. That random streaming service that you don’t really use but just kept paying for after the free trial expired. Look through your past month of credit card statements—are you getting value out of all the monthly charges on there? These include gym or training memberships, monthly subscription boxes, streaming services, etc.
2. Make sure your savings are working for you. My first savings account was attached to my checking account, which was helpful because it was separate from my checking account, but easy to transfer funds back and forth. The downside was the abysmal interest rate. If your savings aren’t in a high yield savings account, you’re leaving money on the table. Here’s a great website I’ve used in the past to compare savings rates. It’s still easy to transfer money – just a 2-3 day waiting period.
3. Raise your 401(k) contributions by 1%. While you’re on a roll cleaning up your finances, how about increasing your retirement savings? It is unlikely to make much of a difference to your monthly cash flow. Of course, if you’re already maxing out your 401(k) and an IRA, you might need to raise contributions to a taxable investment account instead, but that’s a pretty good problem to have.
4. Return any internet orders that are collecting dust. I’m guilty of this one. Online clothing orders are convenient, but the extra step of printing labels and shipping returns gets pushed way down on my to-do list. But that’s money you need back! Leave boxed returns by the front door or in your car. It’s easier to swing by USPS or UPS while running errands. Same for small returns to grocery or retail stores, which add up.
5. Check in with your spending plan. Has your spending been creeping up? Look back at your monthly credit card statements again. If you’ve worked with Lori on your financial planning, you know her “Blue Points” system. When is the last time you checked in to make sure you’re still spending what you should? Now’s a good time to get it back in line with your goals.

Even doing one of these spring-cleaning exercises should save you money or increase what you’re putting away for the future. So, take 5 minutes (maybe when you’re taking a break from physical spring-cleaning) and pick a financial area to tackle. Your future self will thank you.

I thought I’d write about this topic because I just had to return my leased car and I get questions about this pretty frequently. Generally, when it comes to cars, I have 3 rules, from a financial perspective:

1. Only buy used (one to 4 years used) and keep it for at least 10 years
2. If you want a new car, consider leasing it, but only if you can control the miles/mess
3. Try not to ever buy new, and if you do, keep it for at least 10-15 years

Rule #1 has two parts: 1) buy used and 2) keep it for 10+ years. Buy used because you do not want to pay for the depreciation that happens immediately after taking ownership. You want to avoid a situation where you OWE MORE THAN ITS WORTH (also called being “upside down”) , which is easy to do nowadays when cars are so expensive and we still use 3-5 year loan terms.

Years ago, when a car cost $10k, 3-5 years of payments were fine and you might be upside down for 6-12 months. Now, a car costs $35k and is therefore upside down for half of payment period due to the still relatively short term of the loan. Think about it, your grandparents’ house might have cost what your luxury SUV costs now and they had 15 or 30 years to pay it off. Buying used should allow you to avoid being upside down on the car or at least it will minimize this period.

The second part of rule #1 should be obvious. The longer you keep it, the longer you do NOT have a car payment and therefore have more cash flow for other things like paying for college. The natural question after my recommendation to keep the car for at least 10 years is “what happens when things start to break?” I’m going to say it and deep your heart you know its true: ITS ALWAYS CHEAPER TO FIX AN OLD CAR RATHER THAN REPLACE IT. As long as professional mechanic confirms the car is safe, it is cheaper to fix it. Do not BUY a car if you cannot stomach when small/medium things start to break at 5-10 years of age.

Rule #2: In the last 5 years or so, I’ve been telling clients that safety and environmental technology seems to be changing overnight. It’s reasonable to not want to keep a car for 10+ years when your family could be safer with the newest gadget. As such, leasing could be a good option. You should only lease if you can always manage a car payment each month and can keep miles and wear and tear under control. Leases are a big commitment and you will always have a car payment. Note: there is no reliable way to get out of a lease. Not even death in some cases. Do not sign a lease without thinking all this through.

Lastly, should you ever buy out your lease? Usually never. The only time it COULD make sense to buy it out is if the leasing company got it wrong and the car is actually worth MORE than its buyout price at the end. It’s rare. You may need to buy it out if the car is a mess by the end, to avoid huge penalties. Otherwise, assume you are turning it back in and therefore you need to keep it in good shape and make sure your cash flow can always handle a car payment.

Remember these 3 things when it comes to cars:

• BUY AND KEEP FOR A LONG TIME
• LEASE, BE GENTLE, and EXPECT TO ALWAYS HAVE A PAYMENT
• AVOID BUYING NEW UNLESS YOU WILL KEEP IT FOR 10-15 YEARS

When you are a fiduciary and do not make any commissions like me, you are free to give honest advice about a subject many planners do not want to discuss: Cash. Any planner that makes his/her living by commissions would never want you to have cash around, you have to invest it and make returns on it (and commissions for the planner). The financial infotainment industry is the same. Books, podcasts, and tv shows all want you to invest, cash is boring and does not sell advertising. They tell you its downright stupid to sit on a bunch of cash.

The refrain is the same:

• You’re not making any return.
• You’re losing money to inflation.
• You’re too conservative.

First, of all. Always know how the person who is advising you is paid. Also know that well-intentioned friends sometimes want to sound like they know what they’re talking about because they listen to the latest podcast from some hedge fund guru. Disagreeing makes them question their own beliefs. Oops, ego bruising.

Here’s my advice on how much and when to keep cash. Always have the following in cash/cash equivalents:

1. $3k for “stuff” that happens like car/home repairs, emergency flights, etc.
2. 3-6 months of expenses for a total loss of income (i.e. job loss, divorce, disability)
3. Enough for an expense coming IN THE NEXT 3-5 YEARS like a replacement car or bathroom remodel

Okay, now you ask WHY does it have to be in cash. You can sell equities or bonds with a mouse click. You can appreciate why you would not want to tie up cash in an illiquid investment like a condo or boat, but why not equities, bonds or even commodities like gold. You can have cash the next day when you sell.

Here’s why:

• Market risk – you lost your job in a bad economy and need cash. Market is way down and you have to sell.
• Taxes – if you sell a holding in a gain position because the roof just caved in, you may owe capital gains on it
• Psychology – Don’t feel as secure without cash and/or you’re nervous about liquidating securities.

The third reason should not be dismissed. If you invest your cash and you need to replace the water heater, chances are you will use credit instead of selling equities to do it. We’re all like that. We don’t see investments as cash, because they are NOT. You subconsciously know there is additional cost to selling investments to pay for a home repair and you avoid it. Also, if you happen to remember 2008, you might remember that you wanted CASH, not bonds or equities. It’s the one thing that makes everyone feel safe.

Get comfortable with having cash around. Consider short term CDs, money markets or high yield savings accounts, in order to keep pace with inflation, but be savings secure with some cash.

Hope you had a great summer! I’m starting Fall blog posts with Good News – as of Friday 9/21/18, consumers do not have to PAY to freeze their credit reports anymore. Just when you think nothing good ever comes for free.

First, what does a credit report freeze do:

• Restricts access to your credit report
• Can prevent thieves from trying to open accounts in your name or with your identity.

What does a credit report freeze NOT do:

• Stop lenders you want from seeing your credit report, but you have to LIFT the freeze to let them see it
• Stop thieves from CHARGING GOODS TO YOUR ACCOUNTS – sorry! You still have to monitor your accounts and credit cards for theft and fraudulent charges
• Stop pre-screened offers (you know, the 0% credit card mailings)
• Stop existing creditors (e.g., your mortgage holder) from seeing your credit report
• Stop you from getting a free annual credit report

Up until last week, depending on your state, you may have paid up to $10 dollars to put a freeze on. I know $10 is not much to protect you from the headache of identity theft, but given the way Equifax was breached last spring, that’s the least regulators can do for consumers. Plus, it gets more people to sign up and get protected. The downside is you still have to contact each of the three main credit reporting companies to put a freeze on your credit report. I’ve listed the links below to make it easy.

• TransUnion – https://www.transunion.com/credit-freeze
• Equifax – https://www.equifax.com/personal/credit-report-services/
• Experian – https://www.experian.com/freeze/center.html

There’s no good reason NOT to do this. It’s easy and gives you a bit more safety than without it. You do have to “unfreeze” your credit report if you want to apply for a loan somewhere.

Last thing, this does not mean you’re totally safe. It’s just one GOOD THING TO DO to try to stop thieves from opening accounts with your identity. There’s lots of other fraud and theft out there. Make sure you CHECK YOUR CREDIT CARD BILL and accounts. If you are specifically worried about your account, e.g., your wallet was recently stolen, you may also want to place a FRAUD ALERT on your account. A Fraud Alert will force anyone trying to get a copy of your credit report to take extra steps to verify your identity.

What does it mean to be rich? Clients ask me this question a lot and I thought it was a good topic to leave you with for my blog’s summer break (back in September). We’re all striving for something. Some of us end up a wreck because of our striving. What are we striving for? Is there a number?

No, it’s not like 2 + 2. There’s no universal number. Rich means something different for everyone. Instead, we should strive for our own financial security and knowing how much we need for it. For me, financial security means being able to:

1. Have your house paid off or be secure wherever you rent (meaning the rent won’t go up beyond your means)
2. Age as you want to age (in your home, in an assisted living community, etc.) and not be dependent on the kids
3. Do the things you want to do now and in retirement like travel, hobbies, giving to favorite causes
4. Provide your kids whatever you think you should (it’s VERY different for everyone)
5. Have enough cash saved to not stress out about emergencies or even a temporary loss of income

Don’t confuse the items listed above with pursuing a life that “looks good on social media.” You will never be rich enough for that, because it’s a bottomless pit. There will always be some new contraption you just have to own or some new place you just have to “summer” in. Oddly enough, the five points listed above can only be achieved the old fashion way, working hard, living beneath your means, and saving. Or, of course, inheriting it.

If you’re talking about private jets and buildings named after you, you have to remember that most of that kind of money comes from people who are still working (unless it is family money). They may be working at venture capital or running the business they took public, but income is still coming in from work, not just from investments. That means the person can continue to expect more money to come in and is not just living on a finite amount.

To just live off the money you have (a finite amount), conservatively, the “number” would be enough money to be able to live the way you want to live on about 4-5% of the total each year. Here’s the gray area: “the way you want to live” means a million different things to a million different people. Living in Manhattan is a vastly different number than living in a cabin you love on a lake somewhere. Know what matters to you, and what makes you feel financially secure. You may even calculate your own personal number and strive for it, but don’t strive for someone else’s.

Have you ever heard the old adage, “just because you can, doesn’t mean you should?” Well, it’s especially appropriate when it comes to personal finance. Just because the bank will lend you a certain amount does not mean you should take it. Live beneath your means, borrow beneath your limit.

Car and Mortgage lenders will tell you what you can borrow based on a narrow view of your income and very basic expenses. The reality is that you have A LOT more expenses and therefore even though you can get a certain loan, you really can’t handle it comfortably on a monthly basis.

You have to think about the down payment, but you also have to think about the monthly payment. Both have to be within your means. You may have enough saved up for a down payment on a bigger house, but you really can’t handle the monthly payment.

There are a million car, mortgage and student loan calculators online (not all of them are great, but some of them are). Make sure you know the exact payment you will have to make on your new mortgage, car or student loans and then run your cash flow. Here’s an example evaluating if you SHOULD or SHOULD NOT buy that dream house:

If you do not have at least $500/month left at the bottom of your Cash Flow (Cushion), you should not do the deal. You will feel a lot more stress and if anything comes up like your child needs a tutor or you have some extra medical needs, you don’t have the money.

Before you embark on a large expense, make sure you can be personally comfortable with both the down payment AND the monthly payment. Prove it to yourself with a quick table like this and know you’re okay. Live beneath your means, borrow beneath your limit!