Category: Financial Planning
Mortgage and Debt Rules of Thumb
Presented by Robert C. Blakely
Most people carry some debt, whether a student loan, a mortgage, or a car loan. Indeed, making large purchases using someone else’s money is often a smart financial move. Borrowing is convenient, allowing you to purchase big-ticket items with less out-of-pocket cash. And, with today’s attractive interest rates, it’s a relatively low cost. But taking on any amount of debt comes with risk. A financial setback can reduce your ability to repay a loan, and any amount of debt may prevent you from taking advantage of other financial opportunities.
How Much Debt Can You Afford to Take On?
When analyzing your ability to carry debt, take a close look at your personal finances, focusing on the following factors:
Liquidity. If you suddenly lost your job, would you have enough cash at the ready to cover your current liabilities? It’s a good idea to maintain an emergency fund to cover three to six months’ worth of expenses. But don’t go overboard. Guard against keeping more than 120 percent of your six-month expense estimate in low-yielding investments. And don’t let more than 5 percent of your cash reserves sit in a non-interest-bearing checking account.
Current debt. Your total contractual monthly debt payments (i.e., the minimum required payments) should come to no more than 36 percent of your monthly gross income. In addition, the amount of consumer debt you carry—credit card balances, automobile loans, leases, and debt related to other lifestyle purchases—should amount to less than 10 percent of your monthly gross income. If your consumer debt ratio is 20 percent or more, avoid taking on additional debt.
Housing expenses. As a general rule, your monthly housing costs—including your mortgage or rent, home insurance, real estate taxes, association fees, and other required expenses—shouldn’t amount to more than 31 percent of your monthly gross income. However, if you’re shopping for a mortgage, consider that lenders use their own formulas to calculate how much home you can afford based on your gross monthly income, current housing expenses, and other long-term debt, such as auto and student loans. For example, for a mortgage insured by the Federal Housing Administration, your housing expenses and long-term debt should not exceed 43 percent of your monthly gross income.
Savings. Although the standard recommended savings rate is 10 percent of gross income, your guideline should depend on your age, goals, and stage of life. For example, you should save more as you age, and as retirement nears, you may need to ramp up your savings to 20 percent or 30 percent of your income. Direct deposits, automatic contributions to retirement accounts, and electronic transfers from checking accounts to savings accounts can help you make saving a habit.
Evaluating Mortgage Options
If you’re in the market for a new home, the myriad of mortgage choices can be overwhelming. Fixed or variable interest rate? Fifteen- or thirty-year term? If it were merely a question of which mortgage provided the lowest long-term costs, the answer would be simple. But, in reality, the best mortgage for a particular household depends on how long the homeowner plans to stay in the house, the available down payment, the predictability of cash flow, and the borrower’s tolerance for fluctuating payments.
How long will you be there? One rule of thumb is to choose a mortgage based on how long you plan to stay in the home. If you plan to stay 5 years or less, consider renting. If you plan to live in the house for 5 to 10 years and have a high tolerance for fluctuating payments, consider a variable-rate mortgage for a longer-term, such as 30 years, to help keep the cost down. If the home is a long-term investment, choose a fixed-rate mortgage with a shorter term, such as 15 or 20 years.
Is a variable-rate mortgage worth the risk? Because the monthly payments are typically lower with variable-rate mortgages, they are generally the easiest to qualify for—and may enable you to purchase a more expensive home.
Variable-rate mortgages also allow you to take advantage of falling interest rates without the cost of refinancing. But keep in mind that it’s generally not wise to take on a variable-rate mortgage simply because you qualify for one. Although these mortgages offer the lowest interest rate, they’re also the riskiest, as the monthly payment can increase to an amount that may prove difficult to meet. Again, selecting a shorter loan term, such as 15 years, can help lessen this risk.
Remember, when it comes to taking on debt, the loan amount you qualify for and the amount you can comfortably afford to repay may not be the same. So be sure to consider your special circumstances before taking on debt to buy a home or make another major purchase. For more tips on homeownership, please read our article on Five Tips When Shopping for a Mortgage.
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 ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other expert advice we can provide towards your financial well-being.
ROBERT BLAKELY, CFP® is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. He is the founder and president of Blakely Financial, Inc.
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.
Diversification and asset allocation programs do not assure a profit or protect against loss in declining markets, and cannot guarantee that any objective or goal will be achieved.
Five Money Tips: Shopping for a Mortgage
Presented by Robert C. Blakely
Shopping for a mortgage can be daunting, even for homeowners who have been through the process before. By being prepared, doing your homework, and asking questions, you can find a suitable mortgage for your circumstances.
Tip #1: Obtain your credit report. It goes without saying that borrowers with the best credit history get the best terms.
To determine your credit score, a tool used to determine your creditworthiness, lenders rely on three reporting agencies: Equifax, Experian, and TransUnion. Before you begin shopping for a mortgage, get your credit report from all three agencies at www.annualcreditreport.com. If you haven’t requested a report within the last 12 months, there is no charge. Correct any errors immediately and take steps to improve your score.
Tip #2: Know how much you can afford. There is a difference between what lenders are willing to lend you and how much you can afford. In their efforts to increase their compensation, real estate agents and mortgage brokers look to get you into the most expensive home and the largest mortgage you can qualify for. But only you can determine how much you can afford.
Review your current spending and obligations and add in closing costs, estimated monthly mortgage, property taxes, insurance, utilities, and maintenance. In addition, consider the following before you make your decision:
- Will you have enough to pay for moving expenses, furnishings, repairs, or remodeling and still have enough money to make regular contributions to your emergency fund?
- How soon will you be able to replenish your savings after the down payment?
- If you were to lose your job, would you have enough money saved to get you through a rough period?
- Would taking on too much debt prevent you from achieving other important financial goals?
- If you purchase a home, how would your lifestyle have to change? How would you feel about that?
After answering these questions, you will have enough information to help decide how much you can afford without compromising your future happiness.
Tip #3: Failing to shop around can cost you thousands of dollars. Get quotes from at least three mortgage brokers or lenders. Just because a mortgage broker is independent doesn’t mean that he or she will offer you the best value available in the marketplace.
When making comparisons between brokers and lenders, be sure that the quote is for the same type of mortgage—that is, for the same amount, down payment, term, and type. This can make it easier to compare rates, fees, points, and insurance costs. And because interest rates can change daily, ask that the interest rate quoted to you is available on a set date. It is also helpful to ask for the loan’s annual percentage rate, as this takes into account additional loan costs such as points, broker fees, and other charges.
Comparing interest rates alone does not give you a fair assessment; you also need to understand overage costs. Overage is the difference between the lowest possible loan price that a lender can afford and the amount you are willing to pay. It can be built into the interest rate, points, or other fees. It is negotiable, so shop around.
Remember that “no-cost” can actually mean “hidden costs.” Virtually every mortgage incurs costs. They can be built into longer prepayment penalties (back-end fees), into commissions from the sale of related products or services, or through the interest earned by rolling closing costs into the loan principal. Study the lender’s good faith estimate (GFE) for a full disclosure of your costs.
Tip #4: Read everything and ask questions. A mortgage is a financial commitment you will have to deal with for a long time. It is always wise to have your own real estate attorney review any contracts you are asked to sign that have to do with your home purchase. If you don’t understand the different types of mortgages, terms, or mistakes to avoid, you may want to consult a good educational resource like www.mtgprofessor.com, a website sponsored by a Wharton School professor who is a specialist in this field.
Tip #5: Lock in your interest rate. Quotes are only estimates, and rates are subject to change. Although there are laws governing the use of GFEs, market forces can change the rates and costs before you get to closing. Small changes can have a big impact on affordability. To guarantee the terms quoted, ask for a written lock-in from the lender. (If rates drop, a lock-in can work against you, but remember that only the rate is locked in, not you.) Let the broker or lender know you are going to shop for the best deal.
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.
Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other expert advice we can provide towards your financial well-being.
ROBERT BLAKELY, CFP® is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. He is the founder and president of Blakely Financial, Inc.
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.
Diversification and asset allocation programs do not assure a profit or protect against loss in declining markets, and cannot guarantee that any objective or goal will be achieved.
Family Financial Wellness
Family Financial Wellness
Presented by Robert Blakely, CFP®
Summer is almost here! Children will be out of school, and that means more time together as a family. What will you spend your time doing? Do you already speak to your children about financial matters? Perhaps this summer, as a family, you can focus on your family’s financial wellness.
What is family financial wellness? Simply put, it is how you and your family, together, prepare for the future.
Managing your finances can be stressful and take time. If you are not proactive and do not put a plan in place, your physical and mental health can be affected; you can lose sleep and lose focus. So it is imperative for a healthy family and your peace of mind that you follow some simple steps to ensure financial wellness for all.
There are four components to becoming financially well as a family: savings, expenses, debt, and risk protection. These can be crucial to your family’s financial wellness and improving in each area should be a priority for you and your family. The following are some simple steps that can help as you start down the path of family financial wellness.
To begin:
Spend less than you earn.
Begin by creating a budget. Keep track of every dollar that comes in and every dollar that goes out. This will allow you to see where you are spending your money and where you might be able to cut back.
Set up an emergency fund.
Relatively small expenses can be devastating if you do not plan for them. Set up an automatic transfer each month and put a portion of each check into this emergency fund. Then make a promise to yourself and your family that you won’t spend it unless it is in a true emergency.
Pay down your debt.
List all of your debt, including the monthly minimum payments and interest rates. Decide which you will pay off first and commit to that. Just do it!
Protect your family.
Purchase life insurance which will give you peace of mind knowing your family is taken care of should the worst happen.
Save for retirement.
The best way to do this is to participate in your employer’s offered retirement plan. Many employers offer a match, so make sure you contribute to the plan so you can get this ‘free money’ and maximum benefit. If your employer does not offer any type of plan, make sure to contact a financial advisor to set up an automatic transfer into a retirement account.
Taking these simple steps – and working together as a family – will help promote a healthy relationship with money for your children but also put you on the path to financial wellness as a family!
Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other expert advice we can provide towards your financial well-being.
ROBERT BLAKELY, CFP® is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Lane, Suite 109, High Point, NC 27262. He is the founder and president of Blakely Financial, Inc.
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. Fixed insurance products and services offered through CES Insurance Agency or Blakely Financial, Inc.
To Keep or Not to Keep: A Guide to Common Records-Retention Questions
Presented by Robert Blakely CFP®, AIF®, ChFC
Living in an increasingly paperless world has its benefits, but does it make a difference when it comes to records retention? Sure, digital recordkeeping on the cloud means more storage space, easy access, and less vulnerability to inadvertent destruction. But the questions of what to keep and how long feel just as confusing as ever.
Keep or Toss. Whether your files are physical or electronic, the same principles and time frames for record retention apply. Below, we review some rules of thumb to consider for a few common financial documents. Keep in mind, though, that this list is not exhaustive, and professional responsibilities and potential liability risks may vary.
ATM receipts, deposit slips, and credit card receipts. In general, you don’t need to hold onto monthly financial statements after you verify your transactions—that is, unless statements include tax-related information. Also, keep in mind that if you dispute a transaction included in a statement, you have 60 days from the statement date in most cases. Beyond 60 days, not initiating a dispute may alleviate the bank of liability associated with the charge—so you may be on your own to try to get your money back.
Paycheck stubs. Once you receive your annual W-2, it’s usually unnecessary to retain your paystubs for the prior year. However, you may want to keep your year-end stub if it includes any tax-related information not reported on your W-2. Additionally, if you anticipate a life event soon that will require proof of recent income—applying for a home loan, for example—then plan to hang onto pay stubs from at least the past two months.
Tax returns. Determining when to purge tax returns usually depends on how long the IRS has to contest a given year’s return. In most cases, it’s a period of three years—assuming tax returns are filed properly and do not contain any knowingly fraudulent information. However, the time frame can extend up to six years for severely underreported income, and there’s no time limit for the IRS to contest fraudulent returns. The same timing applies to the supporting documentation in preparing a tax return. Therefore, you should also retain the financial and tax documentation—investment statements showing gains or losses and evidence of charitable contributions, for example—pertinent to the corresponding year’s return. If you’re unsure how long you should keep a specific tax return and accompanying paperwork, check with your accountant. Additionally, the IRS offers useful information on time limitations that apply to retaining tax returns.
Old 401(k) statements. Once you’ve confirmed your contributions are recorded accurately, there’s little need to keep each quarterly or monthly statement. However, it may be a good idea to keep each annual summary until the account is no longer active.
Estate planning documents. Although there’s usually no distinction about whether records need to be retained in paper or digital form, there are certain instances where it’s essential to have original legal documentation with the “wet” signature. This requirement holds for estate planning documents. For example, a court will only accept a decedent’s original last will and testament in most circumstances—a copy will not suffice. If you’re unable to produce the original, the court may presume it doesn’t exist, deeming the copy invalid. There may be legal avenues you can pursue to get the court to accept a photocopy of a will, but this could prove to be a costly and stressful process.
Get Organized and Be Sure to Shred. A good records-filing system is a key to helping you maintain and easily access important documents. If you’re storing things digitally, you can retain much more than any filing cabinet could hold, making it easy to take a more liberal approach to what you save. Keep in mind that the retention guidelines for many documents aren’t clear-cut. When you’re unsure, start by assessing what purpose the document may serve in the future. And it’s always important to consult the appropriate financial, tax, or legal professional for advice on specific records. Finally, remember that when it comes to materials that include personal information, you should be shredding it if you’re not keeping it.
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 ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
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Blakely Financial, Inc. is located at 1022 Hutton Lane Suite 109 High Point, NC 27262, and can be reached at 336.885.2530.
Securities and Advisory Services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Blakely Financial, Inc.
© 2021 Commonwealth Financial Network®
Diversification: Having Your Eggs In Different Baskets
Diversification: Having Your Eggs in Different Baskets
Presented by ROBERT BLAKELY, CFP®, AIF®, CHFC®
We have all heard the saying, “Don’t put all of your eggs in one basket” which was coined in the early 1600s in Don Quixote by Miguel De Cervantes. When investing, particularly for long-term goals, there are two concepts you will likely hear about over and over again — diversification and asset allocation. Diversification is the art of not putting all your eggs in one basket and helps limit exposure to loss in any one investment or one type of investment. Asset allocation provides a blueprint to help guide your investment decisions. Understanding how the two work can help you put together a portfolio that targets your specific needs and keeps those eggs in different baskets.
After over 25 years in business at Blakely Financial, our team has seen the long-term benefits of diversification and firmly believe the following will help you in your long-term financial goals.
One way to lower your risk without sacrificing return potential is to spread your money out more widely. Diversification refers to the process of investing in a number of different investments to help manage risk. The theory is that if some investments in your portfolio decline in value, others may rise or hold steady.
For example, say you wanted to invest in stocks. Rather than investing in just domestic stocks, you could diversify your portfolio by investing in foreign stocks as well. Or you could choose to include the stocks of different size companies (small-cap, mid-cap, and/or large-cap stocks).
If your primary objective is to invest in bonds for income, you could choose both government and corporate bonds to potentially take advantage of their different risk/return profiles. You might also choose bonds of different maturities, because long-term bonds tend to react more dramatically to changes in interest rates than short-term bonds. As interest rates rise, bond prices typically fall.
Choosing different baskets for those ‘eggs’ is the key.
Asset allocation: Investing strategically
The second part of successful long-term investing is asset allocation. Asset allocation is a strategic approach to diversifying your portfolio among different asset classes that seeks to pursue the highest potential return within a certain level of risk. After carefully considering your investment goals, time horizon, and risk tolerance, you would then invest different percentages of your portfolio in targeted asset classes to pursue your goals. A careful analysis of these three personal factors can help you make strategic choices that are suitable for your needs.
Generally speaking, a large accumulation goal, a high tolerance for risk, and a long time horizon would typically translate into a more aggressive strategy and therefore a higher allocation to stock/growth investments. One example of an aggressive strategy is 70% stocks, 20% bonds, and 10% cash.
The opposite is also true: A small accumulation goal (or one geared more toward generating income), a low tolerance for risk, and a shorter time horizon might require a more conservative approach. An example of a more conservative, income-oriented strategy is 50% bonds, 30% stocks, and 20% cash.
Mutual funds and ETFs for Diversification
Because mutual funds and ETFs (Exchange Traded Funds) invest in a mix of securities chosen by a fund manager to pursue the fund’s stated objective, they can offer a certain level of “built-in” diversification. For this reason, mutual funds and ETFs may be an appropriate choice for most investors and their portfolios. Including a variety of mutual funds or ETFs with different objectives and securities in your portfolio will help diversify your holdings that much more. You can also select a combination of mutual funds to achieve your portfolio’s targeted asset allocation.
If you have accounts spread over multiple brokerage firms, think about consolidating. If you don’t have significant amounts of time, knowledge or desire to complete the research required for proper diversification, consider contacting a financial planning firm to assist with the decision process for proper diversification. Work with your chosen advisor to determine what steps need to be taken and if there are any exceptions to transferability. We cannot stress this enough for investors at or nearing retirement.
Rebalance to stay on target
Over time, an asset allocation can shift simply due to changing market performance. For example, in years when the stock market performs particularly well, a portfolio may become over-weighted in stocks. Or in years when bonds outperform, they may end up comprising a larger-than-desired percentage of the portfolio. In these situations, a little rebalancing may be in order.
There are two ways to rebalance. The first is by simply selling securities in the over-weighted asset class and directing the proceeds into the underweighted ones. The second method is by directing new investments into the underweighted asset class until the desired allocation is achieved.
Keep in mind that selling securities can result in a taxable event unless they are held in a tax-advantaged account, such as an employer-sponsored retirement plan or an IRA so make sure you plan accordingly and consult with your financial advisor with any questions.
By planning appropriately and diversifying your portfolio with a specific asset allocation based on your investment objectives, you can pursue your financial planning goals with more confidence. And just remember, don’t put all your eggs in one basket.
Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other expert advice we can provide towards your financial well-being.
ROBERT BLAKELY, CFP® is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. He is the founder and president of Blakely Financial, Inc.
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.
Diversification and asset allocation programs do not assure a profit or protect against loss in declining markets, and cannot guarantee that any objective or goal will be achieved.
Plan For A Vacation Day
Presented by EMILY PROMISE CFP®, AIF®, APMA®, CRPC®
Most of us are dealing with frigid temperatures, snow and ice but are probably dreaming of white sandy beaches, sunshine and perhaps a fruity drink with an umbrella in it. It definitely is a great time to begin to plan for vacation! Here are some simple ways you can prepare for that getaway to ensure you enjoy it to the fullest when the time comes.
Begin by estimating your costs
To begin planning your vacation, you will need to research your desired destination. This will give you a better understanding of how much the trip will cost. Take everything into account including identifying the average hotel rate. Factor in transportation costs and determine how much you will spend on food and entertainment. Do not forget to budget in a little extra for emergencies, such as a flat tire or parking charges. Once you gather all your costs, you will see just how much you will need to go on vacation.
Create a realistic budget
Vacations are meant to be fun and relaxing, so do not go into debt going on one. Create a realistic budget that everyone can agree upon. Identify where you can cut costs. Maybe for lunch one day you pack sandwiches for your family instead of eating at a local café or chose to self-park instead of valet. Identifying where you can free up money will help keep costs down and will allow you to enjoy yourself during the trip and when you get back home!
Open a vacation savings account
Opening a separate savings account dedicated to vacations is a great opportunity to put money away for that special trip. Each week deposit a decided amount and do not pull the money out until the time comes to take that vacation. Fifty to one hundred dollars a week will build up in no time and you will end up with a nice chuck of change to vacation with. Though it may not be enough to cover the entire cost of your vacation, it will certainly help with your budget.
Identify expenses that drain your pocket now
Do you really need that $5 cup of coffee every morning before work? Buy the same brand of coffee and make it at home. Try cutting back on unnecessary expenses and we promise you will not miss them. Take those dollars you save and put them in your vacation account. You will be pleasantly surprised at how much your vacation budget grows once you cut out those unnecessary purchases.
Do some extra planning ahead of time
Before arriving at your vacation spot, plan your stay. Is there a tourist spot that you would like to visit? Or a well-known restaurant that you are dying to try? Look up coupons for that area on-line or call the local travel center to see if they have any discount deals available. This will prepare you ahead of the trip and save you a couple of dollars in the process.
There is always a ‘Staycation’ Option
Of course, if money is tight, or you prefer the comfort of your own bed, you do not have to travel anywhere to relax. Plan a ‘staycation’. Turn off your phone and become a tourist in your own town. Visit museums. Go to local parks. Pack a picnic lunch and a blanket and go out into your backyard for a fun dinner under the stars. Get creative and you might even enjoy being able to just relax at home without worrying about a budget.
No matter where you might go for your getaway, remember that budgeting is always a good idea and planning ahead takes the stress out of travel.
Stay warm this winter while enjoying planning for your upcoming vacation and always remember to consult with your financial advisor to work towards your travel dreams and goals as well as your financial future.
Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other expert advice we can provide towards your financial well-being.
EMILY PROMISE, CFP® is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262 and can be reached at (336) 885-2530.
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.
Financial Wellness In The New Year
Financial Wellness In The New Year
Presented by STEPHEN LAFRANCE, CFP®, MBA
With the new year comes all sorts of resolutions and goal setting. It is excellent to vow to lose weight, eat healthier, spend more time with your family, etc. but have you taken inventory of your finances and your financial goals? Many of us have probably overspent during the holidays, and it is time to get ahold of our financial health and resolve to get our finances in check.
Achieving money–related balance and financial wellness isn’t necessarily about investing a set dollar amount or your ability to pay for something expensive without flinching. It is much broader. It is about getting your entire house in order. It can be as simple as chatting about starting your travel fund, saving $20 a month, or whether or not your company offers a 401(k) match. Financial independence allows us to live the life that we want. It is about developing a healthy relationship with money and feeling a sense of control over short-term obligations while working toward those long-term goals.
An essential first step towards financial wellness is actively talking about your finances. That is not to say you have to divulge personal details about your savings and debt to your whole group of friends, but choosing a mentor or meeting with a financial advisor to put together an action plan can help.
Here are some tips to help get you on the path to financial wellness.
- Develop goals and identify priorities.
- Assess your current assets and resources.
- Identify any barriers to achieving your goals. For example, if you have student debt or large balances on credit cards, tackle these. Then, work with a credit counselor to consolidate your debt and make it more manageable to pay off.
- Incorporate strategies into your plan like brewing your coffee and preceding that $3 cup from the local chain coffee shop. It’s incredible how small steps add up fast.
- Put your plan into action. Start saving more for your retirement. Even if it increases your contribution to your 401(k) by just 1% each year, the long-term benefit of this will surprise you.
- Consider looking into long-term care insurance. According to the statistics, we are all living longer, and more than 70 percent of Americans will require some care in their later years. Talk to your financial advisor today and see which LTC coverage is best for you.
- Monitor your progress, evaluate where you are, and adjust your plan as necessary.
Good planning and consulting with a financial advisor can take some stress out of your life and get you on the path to financial wellness today!
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.
STEPHEN LAFRANCE, CFP®, MBA is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. 336-885-2530.
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.
Outlook 2021
Outlook 2021: Where We Are and Where We’re Headed
Presented by Robert Blakely, CFP®, AIF®, ChFC
As we approach the beginning of a new year and consider what it may bring, it is helpful to reflect on the one now behind us. After what has been a tumultuous year of unbelievable events and unprecedented circumstances, we have made it to a point where there may actually be more good news than bad. The election is behind us. Vaccines look to be more effective than anyone expected. Jobs and confidence are holding up surprisingly well as the economy adapts. Although the third wave continues to worsen, and many people will face a financial cliff at the end of the year as subsidies expire, more good than bad seems to be what markets are banking on.
In today’s environment, it’s hard to predict what might happen next, but we do know enough to make some educated guesses. The biggest call is simply this: that next year will be much better than this year.
What Things Look Like Today
On the medical front, there are signs the third wave is starting to peak. With many states now implementing mask requirements and shutdowns, we should bring the pandemic back under control in the next couple of months. And as the third wave recedes, we should see the first wave of vaccinations start. Given what we know today, we can have some confidence that the virus will start to move from an urgent problem to a chronic but manageable one sometime in the first half of the year.
From an economic standpoint, the news is even better. Right now, growth is still positive even as the third wave crests. Job growth continues to be substantially higher than what we saw before the pandemic, indicating our economy is healing and adapting. Consumer confidence is holding up, supported by the improving job climate. Retail spending has recovered to new highs and continues to grow. And as the medical news improves, we can expect to see both confidence and spending grow even faster.
With the consumer economy resilient and likely to improve with the medical news, business should also do well. Business confidence is already above the levels seen before the pandemic and in 2019. Business investment dropped off in early 2020, but it has been recovering and should move back to growth. With rising consumer demand, those trends may accelerate as well.
The last major component of the economy, government spending, is the wild card. The big question will be whether there is another stimulus package. Right now, prospects appear good. Where a stimulus package would help most is at lower levels of government. Both state and local governments have seen revenues fall, and since they cannot run deficits, they respond to revenue shortfalls by laying local government workers off. Help from the federal government would save those jobs and their purchasing power, and that could provide a substantial tailwind over the next quarter or so. Without such stimulus, the government could be a roadblock to total growth.
Another piece of the puzzle for 2021 is monetary policy. The Federal Reserve (Fed) has been extremely accommodating of the economy, keeping interest rates low, and that is likely to continue through 2021. With inflation still low, there will be little pressure for the Fed to raise rates anyway.
What This Means for 2021
Overall, the strength of the consumer and business sectors should help carry us forward, supported by the Fed’s low-interest-rate policy. Declines in government spending, if not countered by a federal stimulus, are the principal risk here. All things considered, though, we should see faster growth throughout 2021.
Markets have been cheering the vaccine news, as well as economic resilience. If things go as expected, markets still have room to appreciate further through 2021, although their path is unlikely to be as smooth. When the inevitable setbacks hit, we will see more volatility throughout the next year.
And that takes us to the risks and uncertainties. For the pandemic, the primary assumption is that the virus will be brought under control in 2021. This means that the vaccines must work, they must be widely available in the next six months, and enough people must be willing to take them. These are reasonable assumptions, but nothing is guaranteed.
For the economy, the primary assumption is that once enough people are vaccinated, the economy will return to something close to normal. Despite many changes—working from home, less travel, more online shopping—consumers and the economy are adapting. Although the new normal will not be exactly like the old, it will likely be normal enough. How fast we get there, though, is uncertain.
There are real risks here, but macro indicators are already suggesting we may be moving out of the recession. If those risks do materialize, we’ll likely see a somewhat slower recovery, but not a collapse. Even if things get worse, we’ll still be moving forward.
It Can Only Get Better from Here
From where we stand in late 2020, the prospects for 2021 remain positive. The healing process—for public health, the economy, and what will become our new normal—will not necessarily be smooth or without setbacks, but it will continue. This year did not go as we expected it to at the start, but our position now is much better than it could have been under the circumstances. We’re making progress, but it takes time. And that will be the story of 2021.
Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. Emerging market investments involve higher risks than investments from developed countries, as well as increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation.
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Blakely Financial, Inc. is located at 1022 Hutton Lane Suite 109, High Point, NC 27262 and can be reached at 336-885-2530.
Securities and Advisory Services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Blakely Financial, Inc.
© 2020 Commonwealth Financial Network®
Year-End Planning Strategies
Presented by STEPHEN LAFRANCE, CFP®, MBA
The window of opportunity for many tax-saving moves closes on December 31, so it is important to evaluate your tax situation now, while there is still time to affect your bottom line for the 2020 tax year.
Timing is everything
Consider any income opportunities you may be able to defer until 2021. For example, you may consider deferring a year-end bonus, or delaying the collection of business debts, rents, and payments for services. Doing so may allow you to postpone paying tax on the income until next year. If there’s a chance that you’ll be in a lower income tax bracket next year, deferring income could mean paying less tax on the income as well.
Similarly, consider ways to accelerate deductions into 2020. If you itemize deductions, you might accelerate some deductible expenses like medical expenses, qualifying interest, or state and local taxes by making payments before year-end. Or you might consider making next year’s charitable contribution this year instead.
Sometimes, however, it may make sense to take the opposite approach — accelerating income into 2020 and postponing deductible expenses to 2021. That might be the case, for example, if you can project that you’ll be in a higher tax bracket in 2021; paying taxes this year instead of next might be outweighed by the fact that the income would be taxed at a higher rate next year.
Special concerns for higher-income individuals
The top marginal tax rate (37%) applies if your taxable income exceeds $518,400 in 2020 ($622,050 if married filing jointly, $311,025 if married filing separately). Your long-term capital gains and qualifying dividends could be taxed at a maximum 20% tax rate if your taxable income exceeds $441,450 in 2020 ($496,600 if married filing jointly, $248,300 if married filing separately, $469,050 if head of household).
Additionally, a 3.8% net investment income tax (unearned income Medicare contribution tax) may apply to some or all of your net investment income if your modified AGI exceeds $200,000 ($250,000 if married filing jointly, $125,000 if married filing separately).
The 2017 Tax Cuts and Jobs Act (TCJA) substantially reduced the number of households affected by the alternative minimum tax (AMT). If you’re subject to the AMT, traditional year-end maneuvers, like deferring income and accelerating deductions, can have a negative effect. That’s because the AMT — essentially a separate, parallel income tax with its own rates and rules — effectively disallows a number of itemized deductions. For example, if you’re subject to the AMT in 2020, prepaying 2021 state and local taxes won’t help your 2020 tax situation, but could hurt your 2021 bottom line.
High-income individuals are subject to an additional 0.9% Medicare (hospital insurance) payroll tax on wages exceeding $200,000 ($250,000 if married filing jointly or $125,000 if married filing separately).
IRAs and retirement plans
Take full advantage of tax-advantaged retirement savings vehicles. Traditional IRAs and employer-sponsored retirement plans such as 401(k) plans allow you to contribute funds on a deductible (if you qualify) or pre-tax basis, reducing your 2020 taxable income. Contributions to a Roth IRA (assuming you meet the income requirements) or a Roth 401(k) aren’t deductible or made with pre-tax dollars, so there’s no tax benefit for 2020, but qualified Roth distributions are completely free from federal income tax, which can make these retirement savings vehicles appealing.
For 2020, you can contribute up to $19,500 to a 401(k) plan ($26,000 if you’re age 50 or older) and up to $6,000 to a traditional IRA or Roth IRA ($7,000 if you’re age 50 or older). The window to make 2020 contributions to an employer plan typically closes at the end of the year, while you generally have until the April tax return filing deadline to make 2020 IRA contributions.
Roth conversions
Year-end is a good time to evaluate whether it makes sense to convert a tax-deferred savings vehicle like a traditional IRA or a 401(k) account to a Roth account. When you convert a traditional IRA to a Roth IRA, or a traditional 401(k) account to a Roth 401(k) account, the converted funds are generally subject to federal income tax in the year that you make the conversion (except to the extent that the funds represent nondeductible after-tax contributions). If a Roth conversion does make sense, you’ll want to give some thought to the timing of the conversion. For example, if you believe that you’ll be in a better tax situation this year than next (e.g., you would pay tax on the converted funds at a lower rate this year), you might think about acting now rather than waiting. (Whether a Roth conversion is appropriate for you depends on many factors, including your current and projected future income tax rates.)
Previously, if you converted a traditional IRA to a Roth IRA and it turned out to be the wrong decision (things didn’t go the way you planned and you realized that you would have been better off waiting to convert), you could recharacterize (i.e., “undo”) the conversion. Recent legislation has eliminated the option to recharacterize a Roth IRA conversion.
Charitable Giving
Charitable giving can play an important role in many estate plans. Philanthropy cannot only give you great personal satisfaction, it can also give you a current income tax deduction, let you avoid capital gains tax, and reduce the amount of taxes your estate may owe when you die.
There are many ways to give to charity. You can make gifts during your lifetime or at your death. You can make gifts outright or use a trust. You can name a charity as a beneficiary in your will, or designate a charity as a beneficiary of your retirement plan or life insurance policy. Or, if your gift is substantial, you can establish a private foundation, community foundation, or donor-advised fund.
Making outright gifts
An outright gift is one that benefits the charity immediately and exclusively. With an outright gift, you get an immediate income and gift tax deduction.
Make sure the charity is a qualified charity according to the IRS. Get a written receipt or keep a bank record for any cash donations, and get a written receipt for any property other than money.
Will or trust bequests and beneficiary designations
These gifts are made by including a provision in your will or trust document, or by using a beneficiary designation form. The charity receives the gift at your death, at which time your estate can take the income and estate tax deductions.
Charitable trusts
Another way for you to make charitable gifts is to create a charitable trust. You can name the charity as the sole beneficiary, or you can name a non-charitable beneficiary as well, splitting the beneficial interest (this is referred to as making a partial charitable gift). The most common types of trusts used to make partial gifts to charity are the charitable lead trust (CLT) and the charitable remainder trust (CRT).
Charitable trusts generally make sense when your total estate value is near or exceeds the federal estate tax exemption amount of $11.58 million for individuals and $23.16 million for married couples.
Private family foundation
A private family foundation is a separate legal entity that can endure for many generations after your death. You create the foundation, then transfer assets to the foundation, which in turn makes grants to public charities. You and your descendants have complete control over which charities receive grants. But, unless you can contribute enough capital to generate funds for grants, the costs and complexities of a private foundation may not be worth it.
A general guideline is that you should be able to donate enough assets to generate at least $25,000 a year for grants.
Community foundation
If you want your dollars to be spent on improving the quality of life in a particular community, consider giving to a community foundation. Similar to a private foundation, a community foundation accepts donations from many sources, and is overseen by individuals familiar with the community’s particular needs, and professionals skilled at running a charitable organization.
Donor-advised fund
Similar in some respects to a private foundation, a donor-advised fund offers an easier way for you to make a significant gift to charity over a long period of time. A donor-advised fund actually refers to an account that is held within a charitable organization. The charitable organization is a separate legal entity, but your account is not — it is merely a component of the charitable organization that holds the account. Once you transfer assets to the account, the charitable organization becomes the legal owner of the assets and has ultimate control over them. You can only advise — not direct — the charitable organization on how your contributions will be distributed to other charities.
Changes to note
The 2017 TCJA also modified many provisions, generally for 2018 to 2025.
- Personal exemptions were eliminated.
- Standard deductions have been substantially increased to $12,400 in 2020 ($24,800 if married filing jointly, $18,650 if head of household).
- The overall limitation on itemized deductions based on the amount of adjusted gross income (AGI) was eliminated.
The AGI threshold for deducting unreimbursed medical expenses is 7.5% in 2020, it returns to 10% in 2021. - The deduction for state and local taxes has been limited to $10,000 ($5,000 if married filing separately).
- Individuals can deduct mortgage interest on no more than $750,000 ($375,000 for married filing separately) of qualifying mortgage debt. For mortgage debt incurred before December 16, 2017, the prior $1,000,000 ($500,000 for married filing separately) limit will continue to apply. A deduction is no longer allowed for interest on home equity indebtedness. Home equity used to substantially improve your home is not treated as home equity indebtedness and can still qualify for the interest deduction.
- The top percentage limit for deducting charitable contributions was increased from 60% of AGI to 100% of AGI for certain direct cash gifts to public charities for 2020.
- The deduction for personal casualty and theft losses was eliminated, except for casualty losses attributable to a federally declared disaster.
- Previously deductible miscellaneous expenses subject to the 2% floor, including tax-preparation expenses and unreimbursed employee business expenses, are no longer deductible.
Extended provisions
A number of provisions are extended periodically. The following provisions have been extended through 2020 and are not available for 2021 unless extended by Congress.
- Above-the-line deduction for qualified higher-education expenses.
- Ability to deduct qualified mortgage insurance premiums as deductible interest on Schedule A of IRS Form 1040.
- Ability to exclude from income amounts resulting from the forgiveness of debt on a qualified principal residence.
- Nonbusiness energy property credit, which allowed individuals to offset some of the cost of energy-efficient qualified home improvements (subject to a $500 lifetime cap).
Talk to a professional for guidance
When it comes to year-end tax planning, there’s always a lot to think about. A tax professional or financial planning professional can help you evaluate your situation, keep you apprised of any legislative changes, and determine whether any year-end moves make sense for you.
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.
STEPHEN LAFRANCE, CFP®, MBA is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. 336-885-2530.
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.
Prepared by Broadridge Advisor Solutions