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Author: Emily Promise

How to Evaluate Your Financial Health

How to Evaluate Your Financial Health

Posted on by Emily Promise

As we approach the midpoint of the year, it’s the perfect time to check in on your financial health.  To help you assess your financial health, we’ve compiled a list of key indicators to gauge your financial well-being. By reviewing these indicators, you can make informed decisions toward achieving your financial goals.  

1. Do you stick to a budget?

A budget is an integral part of your financial plan. A budget can keep you from overspending and help you stay on track with saving. If you don’t have a budget yet, it’s not too late to create one. Alternatively, if you have a budget but it doesn’t seem to be working, you can change tactics.

 There are several budgeting methods you can use, some of which include: 

  • The 50/30/20 budgeting rule: With the 50/30/20 budget, you allocate your income into three main categories according to percentages. 50% goes to “needs” (such as groceries, housing, and utilities), 30% goes to “wants” (such as entertainment, shopping, and takeout), and 20% goes to savings (towards an emergency fund, retirement, or long-term goals). 
  •  Zero-based budgeting: The zero-based budgeting method (also known as the zero-sum budget) encourages you to give every cent a purpose. When you’re done allocating where your income goes, there shouldn’t be any money left without a plan for it. 
  • Cash envelope budgeting: The envelope system (also known as cash stuffing) allows you to physically portion out your monthly income in specific categories and sort them into envelopes. Similar to the zero-based budgeting method, you would make a plan for every penny. 

2. How much do you spend?

The aim is to live below your means. If you spend less than you make, then you’re off to a good start. 

Tracking expenses is a helpful way to determine if you’re living below your means. You can use a spreadsheet, write each expense down in a notebook, or use a budgeting app. After you have tracked your expenses for at least one month, you will have a realistic idea of how much you spend. 

3. Are you saving?

Setting up direct deposit or automatic transfers into your savings from your checking account each payday are great ways to ensure that you are saving a set amount of money, rather than spending it.

4. Are you prepared for unexpected expenses?

Having an emergency fund for unexpected bills, emergencies, or major life events/changes is a necessary piece of your financial health. Ideally, you should have enough in your savings to cover 3-6 months of expenses.

5. Are you set to reach your financial goals?

In order to ensure you will reach your financial goals, it’s important to identify what your goals are. Write down your short-term and long-term savings goals, and be sure to make these goals measurable with deadlines. If you need a more sustainable approach to your finances, working with a financial advisor can make all the difference.

When you are financially secure, life feels more manageable. If your plan needs some tweaking, consult with your trusted financial advisor today to stay financially healthy. 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.
Financial Spring Cleaning Tips

Financial Spring Cleaning Tips

Posted on by Emily Promise

Spring cleaning isn’t just for your home; it’s also an excellent time to give your finances a refresh. Whether you’re looking to get a better handle on your budget, pay off debt, or build your savings, taking some time to review your financial situation and make some changes can have a big impact.

Review Your Budget

Perhaps you started the year off strong by staying true to your budget, but you’ve fallen behind in recent months. Does your budget need a refresh? Look at the areas in which you are overspending, and make a plan to correct them in the future. Having too strict of a budget can set you up for failure and stress, so it’s important to make an accurate assessment of your spending habits rather than attempting to meet an unattainable goal. If your previously determined budget is no longer feasible, now is the time to make adjustments.

Pay Off Debts

If you have been avoiding debt, spring is the perfect time to sit down and get a full sense of what you owe. Ignoring your debt will only make it grow larger! Take inventory of your debt and decide what needs the most immediate attention. Prioritize payments according to billing due dates and interest rates. Create a timeline for yourself for exactly when you would like the debt to be paid by, and how much you need to contribute over time to reach that goal. 

Organize Documents

If your important documents are not in order you may find yourself frantic when you need to access them in the future. Prevent these issues by arranging your physical papers in a safe and secure spot, and digitizing wherever possible – this way, they are searchable! Prepare yourself by keeping your birth, marriage, and death certificates, social security cards, passports, and documentation of major loans and insurance policies in a firebox. Securely dispose of documents that are no longer necessary, such as paid utility bills or pay stubs from previous years. 

Check Your Savings

Whether your main priority is your retirement fund, your kid’s college fund, or planning a major life event, take the time to check in on all of your different savings accounts. If you notice some are not on track with your goals, plan how you will bolster these funds over the course of the year. One of the most important, but easily forgotten, aspects of a sound financial plan is an emergency fund. This money should be easily accessible, and significant enough to protect you from unexpected crises. Medical emergencies, car problems, and home repairs can severely affect your budget. Having cash set aside for such events will prepare you for the worst possible scenario and decrease your stress level, as you will be confident in your ability to handle anything life throws your way.

Look at the Big Picture

Once you have taken inventory of your progress so far this year, think broadly about how you are progressing in your long term financial plan. Some years are better than others, so it is okay if you are not exactly where you hoped to be by this point. The most important thing is to maintain a sound plan that will guide you on your path to financial freedom. Checking in with your overall progress in relation to your goals is a great way to round up a financial spring cleaning, and ensure that you are on the right track! 

 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.

 

5 Staggering Stats About Women & Finance

5 Staggering Stats About Women & Finance

Posted on by Emily Promise

As we celebrate Women’s History Month, it is important to look into the ways in which women differ from men in the financial world. Though women have been greatly increasing their stake in global finances in recent years, they still have fewer advantages than men. You may be surprised to learn just how large the gender gap is when it comes to high-power positions, investing, savings, and marital finances. 

Only 19% of women are confident they’re on track to retire without running out of money

The fact that only 19% of women are confident they are on track to retire without running out of money, compared to 35% of men, implies a significant gender gap in savings plans. Women are more likely to face financial insecurity in retirement due to various factors such as the gender pay gap, caregiving responsibilities, and longer life expectancies. Women tend to have lower lifetime earnings and savings than men, which makes it challenging to achieve their retirement goals and can lead to a lower quality of life in later years.

This gender gap in retirement savings highlights the need for greater financial education and support for women, including increasing access to retirement savings plans and financial advisors who can help women navigate the complexities of retirement planning. Additionally, policymakers and employers must address the systemic barriers contributing to the gender gap in savings, such as the gender pay gap and lack of paid leave for caregiving responsibilities.

40% of men have invested money in the stock market compared to just 22% of women

There are nearly twice as many men invested in the stock market than women. This difference could be incredibly costly. Though the cause of this discrepancy cannot be determined with certainty, it is likely rooted in social and cultural norms which discourage women from taking an active role in financial decision-making. Additionally, the lack of representation of women in the financial industry can also create a barrier to entry for women, as they may not see themselves represented in the industry and may not have access to female financial advisors or mentors.

Addressing the gender gap in stock market participation requires a multi-faceted approach which includes increasing financial education for women, addressing systemic barriers limiting women’s financial opportunities, and promoting greater gender diversity in the financial industry. By creating a more inclusive and equitable financial system, we can help ensure all individuals, regardless of gender, have the opportunity to achieve financial security and prosperity.

If given an extra $1,000 men are 35% more likely to invest it 

There’s an investing gap between men and women. And for women who earn six figures, this gap could cost them as much as $1 million over a 30-year period.The disparity in investment behavior may be attributed to differences in financial literacy, risk tolerance, and cultural and societal norms between men and women. Men may be more likely to invest an extra $1,000 due to greater exposure to financial education and encouragement to take financial risks, whereas women may be more risk-averse and may prioritize more conservative investment strategies.

58% of women married to men leave financial planning and investment decisions to their husbands

Every couple is different in their ideas about financial responsibility, but most women leave the long-term planning and investing decisions up to their husbands. When wives are not involved in the financial planning, they could potentially be blindsided by the adverse effects of failed investments or lack of saving by their husbands. Though many relationships are successful under this planning system, it can leave women at a disadvantage by limiting their control over the long-term financial decisions for the marriage. 

Only 10% of Fortune 500 Company CEOs are Women

This statistic has remained around 8% for many years, so the increase is certainly a good sign of the increased power of women in the business world. However, 10% is still a shockingly small number considering the overall contribution of women to the workforce. This underrepresentation of women in top-level positions not only limits their opportunities for professional growth and economic advancement but also reinforces the systemic barriers preventing women from achieving their full potential in the workplace. Additionally, the lack of diverse perspectives in corporate leadership can lead to a lack of understanding of the needs and experiences of women, which can negatively impact company culture, policies, and decision-making.

Moreover, women’s underrepresentation in top corporate positions also contributes to their overall financial power. When women are excluded from the highest echelons of corporate leadership, it can exacerbate gender inequalities in wealth and income, perpetuating a cycle of economic disadvantage for women.

The Bright Side & Next Steps

Thankfully, plenty of progress has been made, and there is more to come. According to Fidelity’s 2021 Women & Investing Study of over 5 million investors in the last 10 years, on average, women outperformed their male counterparts by 40 basis points. The study goes on to share more women are investing than ever before.

Here are a few steps women can take toward financial freedom:

  • Seek the advice of a trusted advisor (like Blakely Financial). Investing can be intimidating, but working with an expert is the best way to make sure you’re getting the most out of your money.
  • Improve your financial savvy, you can improve your financial savvy by speaking with your financial advisor, referencing trusted online resources, and attending financial webinars.
  • Get a clear image of your financial situation, analyze your monthly expenses, and divide them into your needs, wants, and wishes. This will help you identify any extra income you can use towards investing.
  • Take advantage of all employer-offered benefits, for example: your employer may offer a 401k match. Make sure you are utilizing every financial opportunity your employer has to offer.

We believe strong representation of women in the financial field can encourage and inspire other women to make the most of their wealth. With an experienced financial advisor, successful women can take full control of their money and build a strong long-term financial plan. 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.
Investing as a Couple

Love & Finances: How to Invest as a Couple

Posted on by Emily Promise

In a perfect world, both halves of a couple share the same investment goals and agree on the best way to try to reach them. It doesn’t always work that way, though; disagreements about money are often a source of friction between couples. You may be risk averse, while your spouse may be comfortable investing more aggressively — or vice versa. How can you bridge that gap?

First, define your goals

Making good investment decisions is difficult if you don’t know what you’re investing for. Make sure you’re on the same page — or at least reading from the same book — when it comes to financial goal setting. Knowing where you’re headed is the first step toward developing a road map for dealing jointly with investments.

In some cases, you may have the same goals, but put a different priority on each one or have two different time frames for a specific goal. For example, your spouse may want to retire as soon as possible, while you’re anxious to accept a new job that means advancement in your career, even if it means staying put or moving later. Coming to a general agreement on what your priorities are and roughly when you hope to achieve each one can greatly simplify the process of deciding how to invest.

Make sure the game plan is clear

Making sure both spouses know how and (equally important) why their money is invested in a certain way can help minimize marital blowback if investment choices don’t work out as anticipated. Second-guessing rarely improves any relationship. Making sure that both partners understand from the beginning why an investment was chosen, as well as its risks and potential rewards, may help moderate the impulse to say “I told you so” later.

Investing doesn’t have to be either/or. A diversified portfolio should have a place for both conservative and more aggressive investments. Though diversification and asset allocation can’t guarantee a profit or protect against a loss, they are ways to manage the type and level of risk you face — including the risks involved in bickering with your spouse.

It takes two

Aside from attempting to minimize marital strife, there’s another good reason to make sure both spouses understand how their money is invested and why. If only one person makes all the decisions — even if that person is the more experienced investor — what if something were to happen to that individual? The other spouse might have to make decisions at a very vulnerable time — decisions that could have long-term consequences.

If you’re the less experienced investor, take the responsibility for making sure you have at least a basic understanding of how your resources are invested. If you’re suddenly the one responsible for all decisions, you should at least know enough to protect yourself from fraud and/or work effectively with a financial professional to help manage your money.

If you’re the more conservative investor …

  • If you’re unfamiliar with a specific investment, research it. Though past performance is no guarantee of future returns, understanding how an investment typically has behaved in the past or how it compares to other investment possibilities could give you a better perspective on why your spouse is interested in it.
  • Consider whether there are investments that are less aggressive than what your spouse is proposing but that still push you out of your comfort zone and might represent a compromise position. For example, if you don’t want to invest a large amount in a single stock, a mutual fund or an exchange-traded fund (ETF) that invests in that sector might be a way to compromise. (Before investing in a mutual fund or ETF, carefully consider its investment objective, risks, charges, and expenses, which can be found in the prospectus available from the fund. Read it carefully before investing.) Or you could compromise by making a small investment, watching for an agreed-upon length of time to see how it performs, and then deciding whether to invest more.
  • Finally, there may be ways to offset, reduce, or manage the risk involved in a particular investment. Some investments benefit from circumstances that hurt others; for example, a natural disaster that cuts the profits of insurance companies could be beneficial for companies that are hired to rebuild in that area. Many investors try to hedge the risks involved in one investment by purchasing another with very different risks. However, remember that even though hedging could potentially reduce your overall level of risk, doing so probably would also reduce any return you might earn if the other investment is profitable.

If you’re the more aggressive investor …

  • Listen respectfully to your spouse’s concerns. Additional information may increase a spouse’s comfort level, but you won’t know what’s needed if you automatically dismiss any objections. If you don’t have the patience to educate your spouse, a third party who isn’t emotionally involved might be better at explaining your point of view.
  • Concealing the potential pitfalls of an investment about which you’re enthusiastic could make future joint decisions more difficult if your credibility suffers because of a loss. As with most marital issues, transparency and trust are key.
  • A spouse who’s more cautious than you are may help you remember to assess the risks involved or keep trading costs down by reducing the churn in your portfolio.
  • Remember that you can make changes in your portfolio gradually. You might be able to help your spouse get more comfortable with taking on additional risk by spreading the investment out over time rather than investing a lump sum. And if you’re an impulsive investor, try not to act until you can consult your partner — or be prepared to face the consequences.

What if you still can’t agree?

You could consider investing a certain percentage of your combined resources aggressively, an equal percentage conservatively, and a third percentage in a middle-ground choice. This would give each partner equal input and control of the decision-making process, even if one has a larger balance in his or her individual account.

Another approach is to use separate asset allocations to balance competing interests. If both spouses have workplace retirement plans, the risk taker could invest the largest portion of his or her plan in an aggressive choice and put a smaller portion in an option with which a spouse is comfortable. The conservative partner could invest the bulk of his or her money in a relatively conservative choice and put a smaller piece in a more aggressive selection on which both spouses agree.

Or you could divide responsibility for specific goals. For example, the more conservative half could be responsible for the money that’s being saved for a house down payment in five years. The other partner could take charge of longer-term goals that may benefit from taking greater risk in pursuit of potentially higher returns. You also could consider setting a predetermined limit on how much the risk taker can put into riskier investments.

 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being

Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.

The Importance of Establishing a Budget in the New Year

Establishing Your 2023 Financial Goals

Posted on by Emily Promise

As we enter 2023, there is constant talk about New Year’s resolutions and how to make this year better than the last. If you’re looking to start this year on the right foot, your finances are a great place to start. Below are tips to get started and a few ideas to keep you on track. 

1. Examine your financial goals

Before you establish a budget, you should examine your financial goals. Start by making a list of your short-term goals (e.g., new car, vacation) and your long-term goals (e.g., your child’s college education, retirement). Next, ask yourself: How important is it for me to achieve this goal? How much will I need to save? Armed with a clear picture of your goals, you can work toward establishing a budget that can help you reach them. At Blakely Financial, we often refer to your needs, wants, and wishes. This method can work for retirement as well as monthly budgeting.

2. Identify your current monthly income and expenses

To develop a budget that is appropriate for your lifestyle, you’ll need to identify your current monthly income and expenses. You can jot the information down with a pen and paper, or you can use one of the many software programs available that are designed specifically for this purpose.

Start by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support. Next, add up all of your expenses. To see where you have a choice in your spending, it helps to divide them into two categories: fixed expenses (e.g., housing, food, clothing, transportation) and discretionary expenses (e.g., entertainment, vacations, hobbies). You’ll also want to make sure that you have identified any out-of-pattern expenses, such as holiday gifts, car maintenance, home repair, and so on. To make sure that you’re not forgetting anything, it may help to look through canceled checks, credit card bills, and other receipts from the past year. Finally, as you list your expenses, it is important to remember your financial goals. Whenever possible, treat your goals as expenses and contribute toward them regularly.

3. Evaluate your budget

Once you’ve added up all of your income and expenses, compare the two totals. To get ahead, you should be spending less than you earn. If this is the case, you’re on the right track, and you need to look at how well you use your extra income. If you find yourself spending more than you earn, you’ll need to make some adjustments. Look at your expenses closely and cut down on your discretionary spending. And remember, if you do find yourself coming up short, don’t worry! All it will take is some determination and a little self-discipline, and you’ll eventually get it right.

4. Monitor your budget

You’ll need to monitor your budget periodically and make changes when necessary. But keep in mind that you don’t have to keep track of every penny that you spend. In fact, the less record-keeping you have to do, the easier it will be to stick to your budget. Above all, be flexible. Any budget that is too rigid is likely to fail. So be prepared for the unexpected (e.g., a leaky roof, failed car transmission).

Tips to help you stay on track

  • Involve the entire family: Agree on a budget up front and meet regularly to check your progress
  • Stay disciplined: Try to make budgeting a part of your daily routine
  • Start your new budget at a time when it will be easy to follow and stick with the plan (e.g., the beginning of the year, as opposed to right before the holidays)
  • Find a budgeting system that fits your needs (e.g., budgeting software)
  • Establish your needs, wants, and wishes.
  • Build rewards into your budget (e.g., eat out every other week)
  • Avoid using credit cards to pay for everyday expenses: It may seem like you’re spending less, but your credit card debt will continue to increase

Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.

Blakely Financial Investment Committee Updates

2022 Investment Committee Updates

Posted on by Emily Promise

As 2022 comes to a close, it is helpful to look back on the changes we have made to keep up with the market to help you continue on the path toward your financial goals. We hope this information gives you more insight into our investing philosophies and strategies, so you can be confident in your choice to work with Blakely Financial. 

What has the Investment Committee been doing to keep up with the volatile market?

Here at Blakely Financial, we base our decisions on the long-term future of your investments combined with your overall goals. Though it can be difficult to navigate a bear market, rational thinking and patience are the best ways to ensure the success of your investments over time. There were a number of changes this year but none of them would be considered radical adjustments or departures from our long-term investment objectives; the overall allocations of stocks to bonds remains largely the same and we don’t recommend any changes in that area. It’s very possible that the drawdown in the first half – and the ongoing choppiness today – is the market pricing in this economic weakness. By the time a recession arrives, if it ever does, the market may have already moved on.

How does the Investment Committee stay up-to-date on market trends?

We constantly monitor the economy, the markets, and your portfolios to assess how our chosen investments are performing, and decide if changes are necessary or prudent. These efforts constitute a significant part of our everyday work. We keep a close eye on even the slightest changes in trends so that you don’t have to! Though we do not use market timing as a strategy, we use all of the information we gather on a daily basis to inform any portfolio adjustments. 

What are some examples of portfolio adjustments? 

We recently executed a number of trades in early August, here is a high-level summary of those changes:

  • Decreased international developed exposure
  • Increased U.S. exposure in Large-Cap Growth and Value
  • Increased U.S. exposure in Mid-Cap Value
  • Marginally increased duration positioning
  • Adjusted credit exposure
  • Systematic Multi-Strategy fund replaced some fixed income.
  • Proportionately reduced all fixed-income funds; using alternative and multi-strategy funds as complement/substitute for fixed income.

 

Though nobody can predict for certain what 2023 has in store for us, here at Blakely Financial we are confident in the future of your investments, and the decisions we have made in the past year. 

 

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

401k Contributions Blakely Financial

401K Contributions: What you need to know

Posted on by Emily Promise

The IRS recently announced an increase in the maximum amount you can contribute to your employer-sponsored retirement plan in 2023. 

Due to high inflation, the cost-of-living adjustment means maximum retirement contributions will be rising almost 10% in the upcoming year. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has been increased to $22,500 ( which is up from $20,500 in 2022). Annual contribution limits have also been increased for traditional and Roth IRAs, up to $6,500 from the $6,000 limit of 2022.

 

What Does This Mean For Me?

If you are already making the maximum contribution to your 401(k) each year, this is good news for you, as you will be able to set aside even more money for retirement. If you are looking to maximize your retirement fund, you may want to consider contributing to both your employer-sponsored retirement plan and an IRA. 

 

If you cannot contribute the maximum amount to your retirement plan in 2023, don’t be concerned. Though the number has grown in recent years, only about 10-12% of people maximize their 401(k) contributions each year. Simply participating in an employer-sponsored plan puts you in a great position for a successful retirement, especially if you start early and remain consistent with your contributions. Remember that this increase is due to the high cost of living, so you may not have the funds left over to make your ideal contribution in 2023.  

Making the Most of your 401(k)

One of the most important financial planning strategies in saving for retirement is to maximize your employer’s 401(k) match. Taking advantage of that extra money can be a huge help to your retirement fund, especially if you are consistently contributing enough money to get the maximum match. If you are unsure about the specifics of your company’s plan, take the time to read over it thoroughly, perhaps with your financial advisor, so you can make the most of your money. 

A few key points to remember about a 401(k): it is a retirement savings plan, so once you put money in, it is always best to leave it in. There are penalties if you take the money out before retirement age. Also keep in mind that if you change employers, you can roll your vested balance into your new employer’s 401(k) plan or into another qualifying retirement account such as an IRA.

If you have questions, it is always a great idea to call your financial advisor for guidance. But no matter what, please take advantage of any type of savings plan your current employer offers as the earlier and more aggressive you are, the closer you will come to achieving your financial goals.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Your Guide to Asset Protection in Estate Planning

Posted on by Emily Promise

You’re beginning to accumulate substantial wealth, but you worry about protecting it from future potential creditors. Whether your concern is for your personal assets or your business, various tools exist to keep your property safe from tax collectors, accident victims, health-care providers, credit card issuers, business creditors, and creditors of others.

To insulate your property from such claims, you’ll have to evaluate each tool in terms of your own situation. You may decide that insurance and a Declaration of Homestead may be sufficient protection for your home because your exposure to a claim is low. For high exposure, you may want to create a business entity or an offshore trust to shield your assets. Remember, no asset protection tool is guaranteed to work, and you may have to adjust your asset protection strategies as your situation or the laws change.

Liability insurance is your first and best line of defense

Liability insurance is at the top of any plan for asset protection. You should consider purchasing or increasing umbrella coverage on your homeowner’s policy. For business-related liability, purchase or increase your liability coverage under your business insurance policy. Generally, the cost of the premiums for this type of coverage is minimal compared to what you might be required to pay under a court judgment should you ever be sued.

A Declaration of Homestead protects the family residence

Your primary residence may be your most significant asset. State law determines the creditor and judgment protection afforded a residence by way of a Declaration of Homestead, which varies greatly from state to state. For example, a state may provide a complete exemption for a residence (i.e., its entire value), a limited exemption (e.g., up to $100,000), or an exemption under certain circumstances (e.g., a judgment for medical bills). A Declaration of Homestead is easy to file. You pay a small fee, fill out a simple form, and file it at the registry where your deed is recorded.

Dividing assets between spouses can limit exposure to potential liability

Perhaps you work in an occupation or business that exposes you to greater potential liability than your spouse’s job does. If so, it may be a good idea to divide assets between you so that you keep only the income and assets from your job, while your spouse takes sole ownership of your investments and other valuable assets. Generally, your creditors can reach only those assets that are in your name.

Business entities can provide two types of protection — shielding your personal assets from your business creditors and shielding business assets from your personal creditors

Consider using a corporation, limited partnership, or limited liability company (LLC) to operate the business. Such business entities shield the personal assets of the shareholders, limited partners, or LLC members from liabilities that arise from the business. The liability of these owners will be limited to the assets of the business.

Conversely, corporations, limited partnerships, and LLCs provide some protection from the personal creditors of a shareholder, limited partner, or member. In a corporation, a creditor of an individual owner is able to place a lien on, and eventually acquire, the shares of the debtor/shareholder, but would not have any rights greater than the rights conferred by the shares. In limited partnerships or LLCs, under most state laws, a creditor of a partner or member is entitled to obtain only a charging order with respect to the partner or member’s interest. The charging order gives the creditor the right to receive any distributions with respect to the interest. In all respects, the creditor is treated as a mere assignee and is not entitled to exercise any voting rights or other rights that the partner or member possessed.

Certain trusts can preserve trust assets from claims

People have used trusts to protect their assets for generations. The key to using a trust as an asset protection tool is that the trust must be irrevocable and become the owner of your property. Once given away, these assets are no longer yours and are not available to satisfy claims against you. To properly establish an asset protection trust, you must not keep any interest in the trust assets or control over the trust.

Trusts can also protect trust assets from potential creditors of the beneficiaries of the trust. The extent to which a beneficiary’s creditors can reach trust property depends on how much access the beneficiary has to the trust property. The more access the beneficiary has to the trust property, the more access the beneficiary’s creditors will have. Thus, the terms of the trust are critical.

There are many types of asset protection trusts, each having its own benefits and drawbacks. These trusts include:

  • Spendthrift trusts
  • Discretionary trusts
  • Support trusts
  • Personal trusts
  • Self-settled trusts

Since certain claims can pierce domestic protective trusts (e.g., claims by a spouse or child for support and state or federal claims), you can bolster your protection by placing the trust in a foreign jurisdiction. Offshore or foreign trusts are established under, or made subject to, the laws of another country (e.g., the Bahamas, the Cayman Islands, Bermuda, Belize, Jersey, Liechtenstein, and the Cook Islands) that does not generally honor judgments made in the United States.

A word about fraudulent transfers

The court will ignore transfers to an asset protection trust if:

  • A creditor’s claim arose before you made the transfer
  • You made the transfer with the intent to defraud a creditor
  • You incurred debts without a reasonable expectation of paying them

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Understanding Your 401(k) - Key Terms to Know

Understanding Your 401(k) – Key Terms to Know

Posted on by Emily Promise

Planning for retirement is a key point of financial wellness- but how can you make the most of your 401(k) plan without understanding all of the vocabulary? We’ve compiled a list of the most common terms used in employer-sponsored retirement plans to help you invest with confidence. 

Types of Retirement Plans

401(k): A 401(k) plan is a company-sponsored retirement plan that eligible employees can contribute a portion of their salary into through a variety of investment options. In some instances, employers may also offer to make matching contributions. Many people find success in using both a 401(k) and a Roth IRA to fund their retirement. 

IRAs: IRAs are a type of savings account designed to help you put money away for retirement in a tax-advantaged way. Two of the most common types are traditional and Roth IRAs. Though they are quite similar, the key differences lie in the tax restrictions and in the fact that traditional IRA’s require minimum distributions starting at age 72. 

Types of 401(k) Contributions

By employees

401(k) contributions are typically ‘before tax’ money. The amount you choose to contribute is deducted from your paycheck before taxes are taken out. This means you are paying taxes on a smaller portion of your salary. There are limits each year on just how much you can put in your 401(k).  In 2021, the maximum amount one can contribute was $19,500. If you are 50 or older, you can make a catch-up contribution of $6,500 in addition to the $19,500 for a total of $26,000.

Roth contributions: Many plans also offer options for employees to make post-tax ROTH 401(k) contributions from their paychecks. Post-tax ROTH contributions do not lower an employee’s taxable income, but they do grow tax free and aren’t taxed upon withdrawal.

Rollovers: After a job change, you have a few options for how to proceed with moving your retirement funds. This is a personal decision that depends on the employee offerings, read our blog to learn more about this transition! 

By employers

Matching: Many employers offer matching contributions. For example, your employer may offer a 4 percent match. This means they will contribute the same amount that you do, up to 4 percent. Of course, you can personally contribute more, but the company will match only 4 percent. If you are not contributing to your company’s 401(k) plan and they have a match, you are leaving money on the table! 

Profit sharing contributions: Your employer may choose to make a voluntary contribution to your 401(k) plan called a profit share. This contribution is not based on how much you contribute and is completely voluntary on the part of your employer, meaning it can vary one year to the next. 

Investment Options

Most employer-sponsored plans give you a selection of mutual funds or other investments to choose from. Make your choices carefully. The right investment mix for your employer’s plan could be one of your keys to a comfortable retirement. That’s because over the long term, varying rates of return can make a big difference in the size of your balance.

If you have questions, it is always a great idea to call your financial advisor for guidance. But no matter what, please take advantage of any type of savings plan your current employer offers as the earlier and more aggressive you are, the closer you will come to achieving your financial goals.

 

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Planning for Financials around Divorce

Financial Planning After a Divorce: What Women Should Know

Posted on by Emily Promise

The truth is, after a divorce, women tend to be hit harder financially than men. And, given that women experienced the highest rates of job losses in 2020, divorce in the current environment is even more likely to disrupt their financial stability. For women who find themselves experiencing the increasingly common  “gray” or late-life divorce, the financial consequences may be even more acute. The decision to end a  marriage after age 50 could mean unraveling assets and finances that have been shared for decades. 

If you’re facing financial challenges or decisions after divorce, how can you better understand and take control of your financial future? To start, consider seeking guidance on some of the planning issues discussed below. 

Splitting Marital Assets 

This topic can become highly complicated. Assets acquired during the marriage are split according to your state’s law. Generally speaking, most states follow equitable distribution rules that will consider all marital assets, and a court will determine their distribution between you and your former spouse. There are nine states that have community property laws, which means each spouse owns 50 percent of the assets acquired during their marriage (with certain exceptions). When it comes to debts, in community property states the same approach holds. Debts acquired during the marriage are generally attributable to both spouses. In noncommunity property states, however, debts usually stay with the spouse who incurred the debt, unless the other spouse cosigned or otherwise guaranteed it. 

Retirement savings

The contributions you or your former spouse make to employer-sponsored retirement plans and IRAs during the marriage are generally considered marital property, with some exceptions. Contributions made outside of the marriage, for example, can be considered separate property. Pay particular attention to any qualified plans you may have, such as pensions or 401(k)s, as these should be divided according to a qualified domestic relations order (QDRO). 

A QDRO allows for a tax and penalty-free transfer to a nonowner ex-spouse. Neither the original owner nor the divorcing nonowner should be taxed or penalized if the nonowner rolls the assets directly into a  qualified plan or an IRA. Keep in mind, if the nonowner spouse receiving the distribution uses the funds in any other fashion, a tax will be imposed on that distribution—but only to that spouse. 

We can discuss the QDRO with you in greater detail, as options can vary from plan to plan. Pensions, for example, will generally not pay a lump sum but will make payments to the ex-spouse the same way they would be made to the employee-owner. The sooner a QDRO is presented to a plan administrator, the clearer the understanding you’ll have about your options. 

Creditor protection is another consideration. Keep in mind that 401(k) plans are covered by the Employee  Retirement Income Security Act (ERISA), so they have creditor protection. If the 401(k) is rolled into an  IRA, it will continue to be protected from bankruptcy creditors, but it will only receive general creditor protection as provided by state law. 

Dividing an IRA is different, though. ERISA does not cover IRAs, and the division of an IRA does not require a QDRO. For federal tax purposes, if the division follows a court-issued divorce decree and is made as a trustee-to-trustee transfer as opposed to an outright distribution, an IRA owner can avoid tax and penalties. Once the asset is transferred, each spouse becomes solely responsible for tax and penalties of any future distributions. 

Family Home

If you or your ex-spouse want to hold on to the home, the marital estate can be equalized from other assets, if necessary. Current circumstances related to the pandemic may complicate the equalization, though. Because inventories and interest rates remain low, demand exceeds the supply of homes for sale. In this seller’s market, we’re seeing homes sold immediately after the Coming Soon sign is posted. Plus, the rise in home values across the U.S. increases the likelihood that the equalization may involve the exchange of additional liquid assets to keep the house. 

If you’re interested in keeping the family home, we can help you factor ongoing mortgage payments,  property taxes, and maintenance expenses into your current cash flow and long-term financial plan to see whether it’s feasible. If not, there are other alternatives we can look at, including refinancing or downsizing. 

Life insurance.

The accumulated cash value of a life insurance policy is subject to division—much like any other marital asset. If it’s necessary to divide the cash value, transferring a policy’s ownership can be included as part of your divorce decree. If you are transferring a policy, be sure to update beneficiary designations before doing so. 

Considering Income and Cash Flow 

If you or your spouse was the breadwinner, income may need to be equalized in the division of assets.  State family laws determine any alimony amounts. Whether you’re paying or receiving alimony payments,  we can help factor the effect into your monthly or annual cash flow plan. 

Alimony

Under the Tax Cuts and Jobs Act of 2017, alimony payments are no longer deductible by the payer, and, consequently, the payee can’t include the money as taxable income. This change applies to divorce settlements made after December 31, 2018. It can also apply to existing agreements that are modified after that date, but only if the modification explicitly states that the new rule applies. 

Social security

You may be able to collect social security income on your ex-spouse’s working record  (even if your ex-spouse remarries) as long as you have not remarried, your marriage lasted more than 10  years, and you have been divorced for more than two years. To qualify, you and your former spouse must be 62 or older. If you were born before December 31, 1953, you can file a restricted application allowing you to receive up to 50 percent of your ex-spouse’s full retirement age benefit amount, and your own benefit can grow with delayed retirement credits. Your ex-spouse will not be aware of or involved in your claim. 

If you’re caring for a child younger than 16 and you’re not remarried, children’s social security benefits may be available to you, regardless of your age.  

Child support

Based on their sensitive nature, child support issues, including financial support and physical care, are usually resolved in court. The divorce decree should specify the amounts, if any, of child support paid from one spouse to the other, as well as who will be entitled to claim the children as dependents for tax purposes. Although the pandemic’s impact on women has been largely disproportionate, one positive outgrowth is a growing consensus that childcare is, in fact, infrastructure.  This focus may ease the childcare burden if you are the custodial parent. 

Estate Planning 

Following your divorce, it’s important to update your estate plan to accommodate any adjustments.  Although most state laws nullify a beneficiary or fiduciary designation of an ex-spouse, you may need to amend or get new trusts, wills, and powers of attorney, as well as change beneficiary designations. If you named your former spouse as your trusted person or beneficiary in documents or on accounts, these designations should be changed as soon as possible. And, if you retain custody—even partial custody— of a minor, your estate planning documents should address the issue of guardianship for your child and the child’s estate.  

Taking the Long-Term View 

If you feel financially unprepared for the breakup of your marriage, you’re not alone. Only about one-third of divorcées have a comprehensive plan in place (see chart below), according to a 2017 Fidelity  Investments survey. That’s one reason it’s critical to get the guidance you need to help you navigate the financial challenges of a divorce. 

Need Additional Information? 

As a Certified Divorce Financial Analyst (CDFA®) I am able to guide women through all of the financial implications of a divorce. Join me on Wednesday, August 31st at 12pm for a Live Webinar: Financial Independence: A Divorced Woman’s Guide. REGISTER TODAY!

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful,  we recommend you consult a tax preparer, professional tax advisor, or lawyer.