@blankerwahnsinn

Your team at Human Investing is here to serve you. Though our physical workplace has changed for the short-term, our company’s missions remain as strong as ever: to faithfully serve the financial pursuit of all people.  

We are entering a financially burdensome time. Many individuals and businesses are projected to suffer financially. The impact will look different for everyone.  

If you are seeking ways to change your spending habits, something you will certainly need is time.  Said differently, cash outflow is unlikely to change unless we take the time to research, contemplate, and change current routines. 

Here is a list of ten ways you can help cushion financial burdens that have either occurred already or are expected in the future:  

1. Check your credit card points.  

   When is the last time you used credit card points? If you are in a financial crunch, now might be a wise time to cash out your credit card points. Not all credit cards include cashback rewards, but examples of companies that offer cash back cards include Chase, CapitalOne, and Discover.  

   Regardless of the cashback options available to you now, take the time to review whether you utilize the benefits of your existing credit cards. While you are reviewing your credit cards, this site is a helpful tool to figure out which credit card fits best with your lifestyle and spending habits: Nerdwallet - Credit Card Comparison  

2. Eat the food you buy for quarantine.  

   This sounds obvious. But for some households, this will be challenging since we have purchased an allotment of random items. Was the store sold out of spaghetti?  Did you instinctively grab the only noodles left? If so, make it a fun activity for your family to express some creativity or try new recipes in the kitchen.  

3. Consider refinancing your mortgage.  

   Do you have a mortgage? Rates have come down considerably this year and refinancing your mortgage is worth a looking into. Refinancing your mortgage can lower your monthly mortgage payments, offering both short-term and long-term savings. If you are interested in learning more about refinancing your home, see our recent post by Will Kellar: “How to refinance your home.”

4. Save the money you would be spending.  

   We all have had to cancel upcoming plans. In many cases, that means extra savings. Put aside those dollars and use the money as needed. 

5. Create or monitor your emergency fund.

   We realize many people do not have an emergency reserve. Traditionally a family should have three-to-six months of expenses saved in an emergency fund (three months for dual-income families and six months for single-income families). We encourage individuals to create an emergency reserve regardless of the economic forecast, but it becomes especially important during turbulence.  If you do have an emergency fund and are experiencing financial hardship, now is an appropriate time to use it. 

6. Shop and spend mindfully.  

   Personally, I love the 24-hour rule. It’s a practice of self-restraint. If you feel the urge to purchase something (new shoes, a different laundry basket, extra-spicy BBQ sauce), wait 24 hours before you make the purchase. The time-lapse often mitigates a compulsive purchase.  

   Due to the economic uncertainty of tomorrow, we must be willing to make drastic changes to our spending habits. We are all compromising our normal routine in some way, shape, or form. With that said, it’s important to be cognizant of how these changes are impacting our cash outflows.

7. Consider selling unnecessary household items.  

   I predict that people will spend more time selling their unused or unwanted household items. Take some time to go through your storage or extra items. Craigslist, Facebook Market, Poshmark, and Nextdoor are all great resources for buying and selling things second-hand. One man’s trash is another one’s treasure. 

8. Create a budget.  

   A budget can provide financial awareness and reassurance. Now is a great time to revisit your budget or create one if you have yet to do that. Here is a budget template to get you started - Budget Template There are also online budgeting tools available such as mint.com, YNAB.com, or everydollar.com.

9. Unsubscribe.  

   Out of sight, out of mind. Take this time to unsubscribe to unnecessary social media accounts that tempt you to splurge or spend extra money. To minimize your current expenses, it may also be worthwhile to unsubscribe from unused memberships like online streaming services or gyms.

10. Create ‘no-spend days’.  

    Since many Americans are working from home, ‘no-spend days’ are a good family challenge. It’s important to vocalize the game to your family so everyone can participate and be mindful of not spending money.  

Please feel free to share with others and let our team know if you have other examples of financially savvy savings that we can add to this list. We are open to new ideas and challenges!   

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@scottwebb

Is it time to refinance your home? To make sure this is a prudent decision for your family we want to share some considerations and outline the process.  

What is a Mortgage Refinance?

A mortgage refinance replaces your current home loan mortgage with a new one. Homeowners will typically look to refinance when there has been a drop in interest rates.  That said, a drop in interest rates is just one of many reasons someone would refinance their home.

Why is refinancing your home worth your time and focus? Because a mortgage is often one of the biggest expenses in a lifetime, it’s an important expenditure to get right.  According to the US Bureau of Labor Statistics, Americans spend almost 32% of their income just on housing compared to the 0.71% spent on all nonalcoholic beverages (i.e. coffee). With regards to personal finance, it can be easy to blame our financial situation on the little things like the cost of your morning coffee. Rather than worrying about the little things like a cup of coffee, overextending ourselves financially with housing costs can hurt cash flow and diminish financial flexibility. A mortgage refinance can help adjust how much is spent on housing to provide a net positive impact on households both short term and long term.

Make a Plan

Set clear financial goals regarding your mortgage refinance. Here are a few reasons why someone would consider refinancing their mortgage:

1. Lower Your Monthly Payment – Refinancing your home can reduce your monthly mortgage payment, providing more financial flexibility for years to come. There can be many advantages to extra money each month retirement savings, college savings, using monthly savings to pay more to the principal each month.

2. Reduce Your Loan Term – This may be an opportunity to shift from your 30-year mortgage to a 15-year mortgage. Reducing the term of your loan can be advantageous for those who would like to be debt-free sooner. A reduced mortgage term means you are likely to pay less interest over the term of the loan. Rates for 15-year mortgages are typically lower than those for 30-year mortgages.

3. Tap into Your Equity – Do you need to consolidate debt or take out equity for home improvement? Refinancing can free up your home equity for these needs.

Do Your Homework

It is important to “Know Before You Owe.” - Consumer Financial Protection Bureau (CFPB). The CFPB was established to protect and educate consumers in response to the Financial Crisis of 2007-08.

 As you educate yourself, here are a few factors worth your consideration as you apply to refinance your mortgage:

1. Determine How Much Home Equity You Have - Refinancing a home can be more advantageous depending on how much equity you have. Your equity is determined by your home’s value in excess of the remaining balance of your mortgage. To assess your home’s value, utilize an online valuation tool or ask your real estate agent since they may have better tools and knowledge of your neighborhood. Additionally, a refinance can be a great opportunity to get out from under the monthly cost of PMI; to do this 20% of home equity is needed.

2. Know your Credit Score - Your credit score measures your creditworthiness to lenders. An ideal credit score is greater than 760, the higher the credit score the better rate you will qualify for. Similar to your initial home loan application, your credit score will be reviewed during the refinance process. Make sure that if you have previously frozen your credit that you unfreeze it by contacting all three credit bureaus, Experian, Trans Union, and Equifax. – To learn more about freezing your credit see our post on How to Prevent Identity Theft.

3. Understand your Debt to Income Ratio - Lenders use the following ratios to measure your ability to manage the monthly payments.

   • Monthly housing payments should not exceed 28% of gross income.

   • Monthly overall debt payments should not exceed 36% of gross income.

4. Shop Around - Shop around with multiple lenders to find the best refinance rates and request loan estimates for comparison. It helps to speak with several lenders on the same day as rates can/will change daily. Requesting a loan estimate will allow you to compare rates, total loan costs, and mortgage features. Be prepared to share the following documents with the lenders: Paystubs, W-2s last two years, Recent Bank Statements, List of debts and amounts, Current Mortgage Statement, Declaration page of homeowner’s insurance policy, Name and Phone of Insurance Agent, and Proof of other income. (Submit Loan applications, within a few weeks as not negatively impact your credit score.)

5. Understand your Break-Even Point – Once you know what types of rates are available to you, use a mortgage calculator to assess your break-even point. When deciding to refinance, it is important to know the point at which the cost of refinancing will be covered by your monthly savings. This break-even point will help decide whether the refinance process is worth it based on how long you expect to stay in your home.

   Example: If your refinance costs you $3,000 and your saving $200/month over your new loan, it will take 1 year and 3 months to recoup your costs.

6. Will Your Taxes Be Impacted - Mortgage interest can be deducted on a tax return to help reduce income taxes owed. Since refinancing a mortgage often results in lower interest, your tax deduction may also be lower. This can also move a taxpayer from itemizing their taxes to taking the Standard Deduction. Consult your CPA or tax professional to discuss how refinancing could impact your tax situation.

Move Forward (Duration: Can take up to 45 days)

1. Decide on a Lender – Let your loan officer know of your intent to proceed with the mortgage application.

2. Lock-in Rate – Let your lender know that you would like to lock in your new mortgage rate. Rates will be locked for a fixed period, typically 30, 45, or 60 days. This protects you from rates increasing while you are waiting for the loan approval, processing, underwriting and loan closing.

3. Prepare for Appraisal (Duration: 2-3 weeks) – This can mean taking care of quick fixes, doing a deep clean and sprucing up the landscape. Spend your time and resources on things that NEED attention. Let the appraiser know if you have made any changes to the property.

4. Underwriting (Duration: 3 Days) – The mortgage company will verify that all information is correct. During this period you may receive additional questions or requests.

5. Review Closing Disclosure - At least three days before your closing you should receive a Closing Disclosure, which includes the details about your loan. Review and make sure this matches your loan estimate previously provided.

6. Prepare for Closing Costs – Be prepared to bring the full “Cash to Close” amount with you to your closing.

7. Sign and Close – This is the final step; go to the title and escrow office to sign all final loan documents for your refinance.

Conclusion

For many homeowners, a refinance can make sense at some point during their lifetime. When refinancing your mortgage it is important to set clear financial goals, do your homework and understand the process to help avoid pitfalls. We hope these considerations and outline can be a guide to you as you decipher whether a refinance is right for you. As always feel free to call or email at any time, let us know how Human Investing can help.

SOURCES:

https://www.consumerfinance.gov/know-before-you-owe/

https://www.myfico.com/loancenter/mortgage/step1/getthescores.aspx

https://www.bls.gov/cex/2018/standard/multiyr.pdf

https://www.zillow.com/mortgage-calculator/refinance-calculator/

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2020 has put a wrench in most plans. As a recent graduate, you were likely excited to make career moves, grow your friend circle, move somewhere new, and maybe even get your own pots, pans, and plants. Instead, you are living at home with your parents.

According to 2015 data from the Census Bureau, some 82 percent of American adults think that moving out of their parents’ house is a “somewhat,” “quite,” or “extremely” important component to enter adulthood. For those of you currently living at home with your parents, hopefully this post resonates with you.

Some of you may be choosing to live at home, but many of you have no other option. Do you find yourself vacillating about moving back home? Or maybe you are considering spending your savings just to get some space from your family? Regardless of the specifics, have you thought about the impact that saving money on rent can have on your future? Maybe this is a great opportunity for you to start saving money like a millionaire.

For illustrative purposes let’s consider Sophia, a fictitious 23-year-old. She had other plans for herself, but she is living at home for a variety of reasons. She wakes up grateful for safety and shelter, but she is also human and feels a little nostalgia for what this year could have been. Let’s run some numbers on the potential financial benefit of living at home to make her day a little brighter.

Doodle credit: Rachelle Locey

Let the savings begin

If Sophia were not living at home, she would be spending $1,100 a month in housing expenses. After 12 months of living at home, she could save $13,200 that would have ‘normally’ been spent on her rent/wifi/utilities/parking.

Please note: It’s understandable if you’re not able to save $13,200 while living at home. Whether living at home allows you to save $13,200 or $3,000, the benefit is huge for your future financial wellbeing.

Sophia is comforted by these additional savings in her bank account today. She remembers someone (like Uncle Mike or her economics teacher Ms. Anderson) explain inflation, the stock market, and compounding interest. Now what is a girl to do?

Because Sophia is living with her parents, she saved $13,200 of extra cash that she can invest in the stock market.

here’s her 5 step game plan

One year of savings, Thirty years later

**This chart assumes a 7% annualized growth for her investment over time. The 7% is based on historical data of S&P500 returns. **

By living at home, Sofia has safety, shelter, and savings. She also has significant savings for not only today, but also for the future. If you are living at home, please be thankful for your dishwasher and applaud your future self because the financial trade-off is immense.

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@franckinjapan

There is something intriguing about having a domesticated robot like C-3PO (Star Wars), Number 5 (Short Circuit), or Wall-E (Wall-E) to help with everyday tasks that while important are hard to find time to complete. Today our cell phones notify us with the time it will take to get home, refrigerators send us shopping lists (that is if no one is shopping for you) vacuums clean our homes, cars park themselves and it seems as though one day they will all drive themselves. In this day of helpful technology here are three simple tools to automate your finance.

Auto Increase: Auto Increase can help you reach your retirement savings goals without breaking the bank. It’s essential for most people to save at least 15% of their gross income for retirement, however, this can be difficult. If saving 15% is inconceivable, start small and use automation to help. Some retirement plans allow you to set up an annual increase of your contribution percentage. Increasing your savings rate by just 1 percent each year can have a powerful impact on your retirement balance.

Example: A 35yr old with an annual income of $50k begins saving 5% into her 401k by age 65 she can expect to have a balance of $335k. Now if she were to set up an annual auto increase of 1% she could increase her retirement balance to over $825k.

A 1% auto increase can add almost $490k to your retirement balance!!!

Source: dinkytown.net

Hint: Set up your auto-escalation to coincide with the time period you typically get a pay increase. This strategy will help decrease the impact on your bank account.

Auto Rebalance: Setting up auto rebalance can help you avoid unnecessary risk in changing markets. With stocks up 13.57% and bonds up 2.59% annualized over the last 5 years (see graph), you could be taking on some additional risk with an out of balance retirement account. Automating your account or taking the time once a year to rebalance your portfolio can help disperse some of this risk.

Example: Say five years ago an individual had $20,000 in their retirement plan and purposely invested 50% of their portfolio in stocks and the other 50% in bonds, a 50/50 ratio. Over the last 5 years, this account would have grown by 51% to over $30k. In the short period, the purposeful 50/50 portfolio would now be a 62/38 ratio of stock to bonds. This change in the stock/bond ratio can alter the individual’s portfolio and add additional risk.

The graph below highlights the growth of $10,000 invested in the Vanguard Total Stock Market Index Fund Admiral (VTSAX) compared to the growth of the Vanguard Total Bond Market Index Fund Admiral (VBTLX) from August 2013 until August 2018. $10,000 invested in stocks (VTSAX) would have grown to almost $19,000 while $10,000 in a bond fund (VBTLX) would have grown to just over $11,000.

Source: Morningstar.com

Automate your Emergency Reserve: American’s now have more credit-card debt than ever, passing the $1 Trillion mark, paying an average of 17.03% interest. To help avoid being stifled by such expensive debt it is important to build an emergency reserve. Building an emergency reserve of at least 6 months of your income can help keep you on track when unexpected expenses come up. Banks’ digital presence makes it easier than ever to automate saving. Rather than waiting to the end of each month to see what’s left over, if you know you get paid on the 1st of the month set up an automatic transfer to your emergency reserve on the 2nd day of the month. Setting up the automatic transfer helps force yourself to be more strategic with your dollars.

Conclusion: Whether you are wary of robots taking over or are excited to pawn off the mundane (like these robots that open doors), taking a few minutes to set yourself up for success can point you and your family in the direction of financial wellness.  

And while Artificial Intelligence can help with much, it can never replace the value of a face-to-face interaction. At Human Investing, our team of world-class humans aim to serve your pursuit of a fuller life with tailored financial planning and advice. This goes beyond the “nuts and bolts” of investing and financial planning and into the heart of why we do what we do.

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Highway 212 by Matt Duncan

While working with employees at retirement plans over the years, one thing I’ve realized is that being disciplined to save for retirement is challenging and there are many obstacles to doing it successfully. For those living the northwest, saving for retirement can be particularly hard due to the average wage vs. the cost of housing.

Income vs cost of living

When thinking about specific clients that truly save well, regardless of income, a theme that I see is all of these people have a specific mindset towards saving and understand how to achieve short term and long term goals. Over the past month I’ve had a few things cross my life about perspective and goal setting that I wanted to pass along:

First order vs. Second order consequences

A book that I’m in the middle of listening to is by a famous investor Ray Dalio who is the founder of Bridgewater Investments, the largest hedge fund in the world at 160 billion. Dalio, is one of the most successful investors of our time and has some truly unique ways of managing his team and thinking through problems. One passage that really stuck out to me is:

“I’ve come to see that people who overweight the first order consequence of their decisions and ignore the effects of second-and-subsequent-order consequences rarely reach their goals. This is because first-order consequences often have opposite desirability’s from second order consequences resulting in big mistakes in decision making. For example, the first order consequence from an exercise plan (pain and time spent) are commonly considered undesirable, while the second-order consequences (better health and more attractive appearance) are desirable.”

This principle holds true for investing towards retirement as well. By saving a $100/month for their future, a person is giving up something today (coffee, vacation, entertainment) in order to have a more desirable retirement. In other words, this is a first-order consequence and second order consequence type of decision. While this concept is not a unique one, I’d never heard it explained this way and it resonated with how I view decision making.

What’s your “This” in order to get “That”

A friend of mine made the comment a few weeks back “Has your company done the whole let’s set goals for 2018 and never check back in on them again movement?” Unfortunately, corporate goal setting has that stereotype. Often, because it’s true. Luckily our company has Jill, a mother of four and a low tolerance for time wasting activities. She recently implemented a quarterly system for goal setting and tracking. Our team has high hopes for this new system and we’ll ultimately see how it goes. My big takeaway from our time talking about goals was the video she presented by Dr. Henry Cloud called “Start Small”. In this video he speaks to how we all want to get to the big goal but have a hard time setting and sticking to smaller goals.

For some of the guys in our office this meant going on the TB12 diet plan to prepare for our upcoming middle aged athletic endeavors (for me my city league basketball team starting in late January. Wish me luck!).

For you, similar to the Dalio piece, maybe this means looking at what your long term goals is (i.e. having X amount of money at retirement) and shrinking that down to what do I need to do this month/this week in order to get a little closer to that goal.

At the end of the day, the phrases “mindset” and “goal setting” can sound really cheesy, and when done poorly can lead to nothing. However, when we look at our collective social circles and see people who have reached their goals (whether those be physical, business or relationships) often times they are using mindsets like the ones Dalio and Cloud are talking about. Hopefully these can be somewhat inspirational when it comes to putting away additional funds towards your savings goal.

If you have questions or would like to have a conversation about your retirement plan, please don’t hesitate to email or call our team!

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  #1: Know Where You Stand Financially

Whether because of singleness, divorce or death of a spouse over 90% of women will be managing their money alone at some point in their future. Because women tend to save less and live longer, it is critical that women start looking out for themselves financially!  The good news is there is always time for course correction. Below are a few tips to help you know where you stand financially.

1. Get involved in your household finances. Don’t be afraid to have the hard conversation with your significant other - your future may depend on it. Some couples find it helpful to set up a financial date night. Set some guidelines for the conversation. It can be an emotional topic so try and keep it light and educational.

2. Make sure you and your significant other are fully maximizing employee benefits, especially any employee match to a retirement plan, life insurance, and disability benefits.

3. If eligible contribute to IRAs; learn about and take advantage of the spousal IRA.

4. Have jointly owned as well as individual bank and credit card accounts. Speak with your trusted advisor about how you can protect one another in the event of a death or disability - you want to have access to accounts if you need them.

5. Most importantly, know where all the money is and keep log-in credentials for all accounts stored safely.

#2: Have a Plan

Envision retirement! Whether it is around the corner or 30 years away it is important to envision what you would like your future to look like and then plan for it. Whatever your income may be, it is never too early or too late to create a plan.  In our experience clients that have gone through the planning process tend to have more contentment, assurance of their future and unity with their partners.

A financial plan can help answer questions such as:

1. Are you saving enough?

2. Are your assets allocated properly?

3. Are you properly insured?

4. What will happen to your assets when you die?

5. How will you know if you have saved enough and can retire?

#3: Don’t Forget to Budget!

In our experience clients that budget tend to have a high rate of success at reaching their financial goals. When we take stock of what we are spending it is amazing to discover how trivial things may be eroding our wealth accumulation day by day. And you don’t need to re-create the wheel: there are some great budgeting tools out there that can help. One tool we like to refer clients to is YNAB (You Need a Budget). You can do research and find all kinds of tools and apps.  Many are quite user friendly and have apps that you and your significant other can both use.

#4: Put Your Money to Work and Ask for More!

1. Part of any good investing strategy is putting your money to work for you. If you are afraid to invest talk to your financial advisor about your fears and how you feel about taking risk. There are many different strategies to accomplish your goals. By expressing your fears, exploring the options and educating yourself you will be equipped to face your fears and overcome them or at least minimize them. The sooner you address your fears around investing the quicker you can put your money to work.

2. Ask for a raise! Although the gender pay gap is closing there are still many women that are not making as much as their male counterparts. One reason for this is that women are less likely to ask for a raise and advocate for themselves. Equip yourselves by working to achieve job goals, deepen your level of expertise and research what others are making in similar positions. At your next review present your findings and then be prepared to ask for that raise. You might be pleasantly surprised by the response you receive. Commit a portion of those new dollars towards your long-term goals and get them invested.

#5: Consult with Your Trusted Advisor

Having an advisor to assist and guide you on your journey can be a game changer.  Don’t be afraid to ask your advisor the simple and complex questions so you can be involved in the conversation.  If your advisor is not a good fit, look for someone you feel comfortable with, can trust and can easily talk with.  An advisor can provide you with accountability, a roadmap for retirement, counsel in turbulent times and help with financial discipline.  They can also be a huge asset in the event of a death or family emergency.  We have helped many families navigate these difficult situations as an added support.

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As a parent of a five year-old, my wife and I cherish our occasional date nights together. For some reason, serious topics and concerns about our family seem to come up during those times. One evening we found ourselves discussing our out-of-date Will that we completed before my son was born. We both agreed that the decisions we made back then needed to be updated. We revisited questions like, “If both of us were to pass away, who is the right person to take care of our son? How much money would he get from us? Would he be responsible enough to handle that money when he turns 18?” For most of us, conversations like these tend to go nowhere and we move on with our busy lives. This task then falls into the dreaded pile of “things we need to do.”

As human beings, we are experts at procrastinating, which is evidenced by a recent survey that showed that 72% of adults either had no estate plan or their plan is out-of-date1. I have experienced many people admitting that they need to create/update their estate plan but never take the action needed to complete it. Common reasons I have heard over the years include:

• “I’m really busy right now and I will do it later”

• “I’m not sure if I need it”

• “I don’t know where to go to get it done”

• “I am concerned about the cost”

SO HOW CAN WE REMOVE THE BARRIERS THAT PREVENT US FROM DOING WHAT WE KNOW IS IMPORTANT? 

In my experience advising clients on estate planning, I have found the following tips help remove these barriers:

• GET A “WORKOUT” PARTNER - Similar to exercising with a partner, finding a partner to keep you accountable can greatly increase your odds of success. Tell your advisor that this is an important goal for you and ask them to make it part of their follow-up service. If you don’t have an advisor, ask a friend or family member.

• GET EDUCATED - Becoming informed and taking the time to understand why removes much of the uncertainty, helping you feel comfortable and motivated to take the first step. Ask your advisor for an education session. If you know an estate planning attorney, you can check to see if they will provide a complimentary first meeting where you can ask questions. Another option is to do your own research on websites like the Oregon State Bar Association http://www.osbar.org/public/legalinfo/wills.html

• GET PREPARED - Establishing your goals and making a handful of key decisions ahead of time makes your meeting with the estate attorney more productive and can save you money if they charge by the hour. In addition, it helps create progress and momentum so that the process does not stall. Ask your advisor or an estate attorney if they can provide you with a questionnaire to help you prepare. Then carve out about an hour with your spouse/partner to write down information and discuss key decisions that require thought and debate. Examples of these preparation items include:

• Decide who will be the guardians of your minor children.

• Decide who do you want to be the beneficiary(s) of your assets and how would you like them to be distributed.

• Decide who will be in-charge of managing and carrying out your plan after you pass away.

• Determine your view of the probate process.

• Prepare a list of your assets, debts and any life insurance.

• Prepare a list of your personal information – names, dates of birth, contact information for yourselves, children, beneficiaries, etc.

• GET A REFERRAL – Ask your advisor, friend or family member for a referral to an attorney who specializes in estate planning AND SCHEDULE A MEETING. Scheduling a meeting creates a deadline that will help you to move forward with the process. At Human Investing, we will often facilitate the first step by scheduling the meeting for our clients. Ask your advisor to help you take this first step for you.

• LASTLY, REMEMBER WHY THIS IS IMPORTANT - An estate plan protects the people and causes you care about the most in life. Keeping this in mind can provide the motivation you need to see it through.

CONCLUDING THOUGHTS

With just a little focus and help, you can “check the box” on completing/updating your estate plan. My wife and I did end up turning that date night conversation into a new, updated estate plan by following the above tips. Now we have peace of mind and can have more enjoyable, light-hearted conversations going forward.

 1The USLegalWills.com survey conducted by Google Consumer Surveys, June 2016.

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5 Ways to Leverage a Volatile Market for Tax Savings

When the market is volatile it can make investors feel uneasy. In a perfect world the market would never be down, but unfortunately ebbs and flows come with the territory. When the market does slow down, here are a few tax saving strategies that may be worth taking advantage of:

1. Sell the Losers – Investors who have assets in a taxable account might consider selling the assets on which they have unrealized losses. Capital losses generated can offset capital gains or up to $3,000 can be deducted against ordinary income. Additional losses can be carried forward indefinitely.

2. Contribute to a Retirement Plan – Contributions to IRAs, 401(k)s, and Roth 401(k)s are capped at specific amounts. Taxpayers can invest in their retirement accounts while values are lower and realize the benefits when the market recovers.

3. Convert to a Roth – Roth retirement accounts offer significant potential tax savings. IRA owners are allowed to convert to Roth IRAs but income tax would be due upon conversion. One strategy is to convert while the value of the assets are down in order to minimize the tax bill.

4. Exercise Employee Stock Options – Workers who received “non- qualified” options usually owe taxes on the difference between the grant price and the current value of the shares. Exercising stock options in a down market will lower the tax cost for the employee.

5. Make Gifts of Assets - If you are looking to gift stock to family or to a trust, you are limited to tax free gifts of $16,000 per year or $32,000 for married couples in 2022. A market when the cost per share has declined allows you to transfer more shares. When the value of shares rebound down the road, the IRS doesn’t assess gift tax on the increased value of the gift.

If you have questions on these strategies feel free to email or call and we would be happy to walk you through this blog post in more detail.

*Please note that Human Investing does not provide tax advice/guidance and you should contact your CPA with specific tax related questions.

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Retirement Savings Contribution Credit (Savers Credit)

For anyone who has made a contribution to a retirement account in 2015 or is considering contributing in 2016, you might be eligible for an additional tax credit. The Retirement Savings Contribution Credit, also known as the Savers Credit, is a special tax break to low and moderate income taxpayers who are saving for retirement. This credit, in addition to other tax benefits for saving for retirement, can reduce or even eliminate your tax bill if you qualify.

Interestingly enough, a recent survey showed that only 12% of American workers with annual incomes of less than $50,000 are aware of the Savers Credit. In other words, the population that should know about this Savers Credit the most is under-informed. With hopes of raising awareness and equipping savers on how they could potentially pay less in taxes, see below for a brief Q&A on the Savers Credit on how it works and what you should know.

How much could the Savers Credit cut from my tax bill?

You can claim the credit for the 50%, 20%, or 10% of the first $2,000 you contribute to a retirement account depending on your adjusted gross income and tax filing status. Note that the largest credit amount a married couple filing jointly can claim together is $2,000 and the credit is a “non-refundable” credit. This means that the credit can reduce the taxes you owe down to zero, but it can’t provide you with a tax refund.

What retirement accounts qualify?

The Savers Credit can be claimed for your contributions to a 401(k), 403(b), and 457 plan, Simple IRA, Traditional IRA, and ROTH IRA. Note that you cannot claim any employer contributions to employer sponsored retirement accounts.

Am I eligible?

In order to claim a Savers Credit you must be:

• Age 18 or older

• Not a full-time student

• Not claimed as a dependent on another person’s return

Additionally you must meet the necessary income requirements. In 2015 the maximum adjusted gross income for the Savers Credit is $61,000 for a married couple filing jointly, $45,750 for head of household, and $30,000 for all other filers. The maximum credit you can claim phases out as your income increases. See the below table that outlines how much you can claim and at what income levels:

2015 Saver's Credit Credit Rate Married Filing Jointly Head of Household All Other Filers 50% of your contribution AGI not more than $36,500 AGI not more than $27,375 AGI not more than $18,250 20% of your contribution $36,501 - $39,500 $27,376 - $29,625 $18,251 - $19,750 10% of your contribution $39,501 - $61,000 $29,626 - $45,750 $19,751 - $30,500 0% of your contribution more than $61,000 more than $45,750 more than $30,500

This information can also be seen at on the IRS website. If you are eligible use the Form 8880 to claim your credit and other best practices.

Example:

Dan and Kailey are married and file jointly. He contributed $1,000 to his 401(k) and she contributed $500 to an IRA. Their 2015 combined AGI is $35,000. Therefore, each of them is eligible to claim a 50% credit for their contributions and together their credits are worth $750.

If you have questions on if you are eligible for the Savers Credit feel free to email or call us and we would be happy to walk you through this blog post in more detail and how you can best take advantage of this credit.

*Please note that Human Investing does not provide tax advice/guidance and you should contact your CPA with specific tax related questions.

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401k’s are purposed for long-term retirement savings; for what comes after the working years. They are arguably our best means of influencing our financial futures – through diligent, faithful saving. Still, life happens. And what’s ideal doesn’t always copy and paste perfectly onto each of our own realities. Thus, there are sometimes¹ allowances that permit 401k participants to borrow dollars from their current accounts in the form of a loan. Though borrowing from a 401k is not the intended use of the account, we aren’t saying they’re always the worst option. What we are saying is that 401k loans are worth thinking twice about. And in my experience, there are a few points that consistently surprise people.

For example, do you know what would happen if you stopped working with a company while you had an outstanding 401k loan? In many cases, you’re left with two options:

1. Pay back the loan in cash within approximately 60 days

2. Default on the loan, and pay taxes and any applicable penalties on what’s owed

So, especially if you’re considering taking out a larger sum, it’s important to know the implications of what taking a loan means for both the short and the long term. See below for some more thoughts…

¹401k loans are not available through all 401k Plans, and the logistics of how they work and when they’re allowed can differ between Plans. With questions, call Human Investing at 503-905-3100 or email 401k@humaninvesting.com.

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During my time leading our participant education efforts for the retirement plans we manage, I’ve received all kinds of questions. Questions ranging from, “How do I start a 401k?” to “What’s the best way to consolidate my student loans?” However, a question I’ve gotten more frequently is:

“If I have the ability to save more, should I pay off my mortgage or should I put more towards retirement saving?”

I feel like this question has been on people’s minds as our economy has made a nice recovery since 2008. For people I’ve talked with, the question has come up due to a change in financial circumstances such as; an inheritance or some form of windfall, the sale of a home, or a recent bonus. Regardless of the circumstances, these individuals have been sitting on this money in low interest rate saving accounts and are looking for ways to have their money work harder for them. While there is no all-inclusive answer, I’ll do my best to outline some of the pros and cons of paying off your mortgage/making additional payments or saving more toward your retirement account.

Your home.

You will not change the value of your home by contributing more to the mortgage, or even paying it off. If your house is worth $350k, it’s always going to be worth $350k until the market determines otherwise. When you put more money into paying off your house, it’s not doing anything to change the value of the house…you’re basically putting money into an illiquid asset that you can only access when you sell the home or take a HELOC.

Additionally, your house is most likely financed at a low/tax-deductible interest rate. Your interest rate might be in the 4.5% ballpark. With your tax deduction, you’re most likely paying a real interest rate of 3% to 3.5%. That’s pretty cheap money. If interest rates were much higher (like in the 8% to 9% range), then it would be a different story and paying off your mortgage might make more sense.

Investing.

When putting money into a long-term retirement account and investing appropriately, you’re building an asset that can grow at 9% per year, using the S&P 500 as a benchmark, over a long period of time. By putting money in, you’re actually giving those dollars the ability to grow over the years. Unlike putting money into your mortgage, your deferrals will directly affect the type of return and the growth of that account over time. So, the more you put in, the more you will get out in the end.

Example: Keep in mind that nothing you do, except making updates to your home, will increase the value of it. Compare that with an investment/retirement account. Let’s assume there are two different people…one has been putting a fair amount of savings in their retirement account, the other has contributed a much smaller amount. For the sake of the example, let’s call them Kelly and Chip.

Kelly has a $110k account. Chip has a $10k account. It’s 2014 and they are both invested in the Vanguard Target Retirement 2040 fund. The return on that fund in 2014 was 7.15%.

So, to start 2015 and without additional savings, Kelly now has an account worth $117,865 and has gained $7,865 just on return alone. Chip now has an account worth $10,715 and has gained $715 on return alone. Both are good, but Kelly is setting herself up to have a suitable retirement account. By the way, if we assume that neither Kelly or Chip contribute another dollar to this account forever, in the year 2040 (assuming an average 7% rate of return per year) Kelly will have an account value of about $640k, while Chip will have an account worth about $58k. That’s a huge difference! Personally, I’ll take the investment accounts over paying off my mortgage a few years earlier.

Regardless of your views on this specific question, know that if you’re wrestling with anything retirement account related feel free to reach out by phone at 503.905.3100 or email 401k@humaninvesting.com anytime. We would love to connect with you!

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Chances are you drink coffee. I know I do...almost every day. It’s a habit that gets a hold of us somewhere early in our careers and it’s a hard one to kick. In fact, according to the Harvard School of Public Health, 54% of Americans over the age of 18 are coffee drinkers…that’s about 131 million people. According to the same study, Americans spend about $40 billion a year on coffee. That’ll wake you up! (horrible pun, I know). And I bet that if you’re reading this blog article, that means that you most likely fall into the demographic of “coffee drinker”…responsible, working, informed adult…those characteristics generally equal “coffee drinker”.

The Cost Today

So what does our coffee habit cost us? For this exercise, let’s assume that we buy one cup of coffee per working day and that (coffee/americano/latte/mocha [insert drink of choice here]) costs us $2.50, but really it’s $3 because we tip the friendly barista who conveniently works somewhere along the path of our morning commute. Let’s also throw in one weekend coffee for good measure. Do the math and that’s $18 per week, roughly $78 per month and $936 a year. So to answer the question “how much does our coffee habit cost us?”… on average about $1,000 per year.

The Real Cost

But if we dive a little deeper, how much is our coffee habit really costing us? To answer this, we need to think more long-term beyond our initial caffeine cravings. There’s a term we use in finance called “Opportunity Cost” that refers to the potential value of our money if we use it in a different way. So instead of buying coffee, what if we took that $1,000 per year and applied it to our long-term retirement savings? Exciting, I know.

Investing your coffee money for retirement: Let’s assume we’re 40 years old and will work until we're 65 years old, in other words, we have 25 years left until retirement. Let’s also assume that the $1,000 per year of forgone coffee is invested in our 401k account in a way that averages an annual growth rate of 9% per year. That 9% rate of return per year is an average of course, since the stock market is variable from year-to-year and is certainly unpredictable in the short-term. With that being said 9% per year is a fair average if you’re invested in stocks for 25 years.

Summary: 25 years, $1,000 per year, invested in a way to receive 9% per year (primarily US stocks)

At 65, our coffee money will be worth about $85,000. That means that our coffee habit is really costing us about $60,000 ($85,000 minus $25,000). To make it more impactful, the actual cost of a cup of coffee today is not $3…it’s almost $11 ($85,000 divided by 312 cups per year). That means that every cup of coffee you buy today could cost you almost 3 times what you think it does. That better be a good cup of coffee.

Lastly, factor in a matching contribution from your company and your $85,000 could be worth up to $130,000. Still using a cup of coffee as our currency, that is $16 per cup!

How to Respond

Since we now know our coffee is really costing us $11 or $16 per cup, we’re giving up a lot down the road to feed our habit today. I’m not suggesting to change a coffee habit, but rather a spending habit

The video below outlines a few tips I’ve learned over the years to make a great cup of coffee at home and still capture the morning glory that a cup of coffee brings without the cost of a coffee shop.

Disclaimer: I’m neither a barista nor an actor so bear with me and enjoy!

https://www.youtube.com/watch?v=i7Dsy4-ZqZk

French Press instructions:

1. Find a local coffee brewer and buy a 16oz bag of their coffee beans pre-ground to French Press (coarse grind)

2. Make sure you have a french press maker on hand. If you love coffee, this should be a mainstay in your morning routine.

3. Put about a half of an inch to an inch high's worth of your local course ground coffee into the bottom of the french press beacon

4. Using your tea pot, bring about 30 ounces or more of water to a boil on your stove top

5. Once the water has come to a boil, remove the tea pot from the oven burner and let it rest for about 30 seconds

6. Once the water has rested and come down from the boil, pour it into the French Press beacon making sure you douse all of the coffee grounds as you pour it in. Pour the water to the top of the French Press, or the desired amount of coffee.

7. Stir (aggravate) the grounds/water with a spoon

8. Put the French Press Plunger on top to hold in heat and let it sit for 4 to 5 minutes

9. Once 4 or 5 minutes have passed, slowly press the Plunger to the bottom of the French Press Beacon.

10. Pour into your favorite coffee mug and enjoy the amazing flavors that you won't get from Starbucks.

11. Insert $16 into your 401k account and invest accordingly.

Contact Human Investing with any questions about your investments or savings rates. Or how to make a great cup of coffee.

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