Finance for Females

By Linda Leitz - Last updated: Wednesday, August 9, 2017

Laws have changed during our country’s history to have equal rights for women and men. It’s hard to believe that the right to have birth control became legal during the lifetime of baby boomers. The progress is great, but women still have financial challenges that differ from those for men.

Women are still more often the primary parent in two parent families. This can impact the ability to accumulate wealth. One influence on earnings is some time out of the workforce. For a mother who takes even a couple of months maternity leave, this time generally comes during the time in her career when she’s either building her career or possibly during her prime earning years. The lifetime earnings of most individuals are a long term trend. Having an interruption – or more than one interruption – in a career can stunt lifetime earnings growth. Some mothers choose to take off more time away from the workforce while their children are at home. Those women who stay in the workforce while being a primary parent might have a limited ability to have flexible hours and they might miss more work than co-workers who are not primary parents. These issues are compounded if a woman is the primary caregiving for aging parents, which is also common.

All these factors can impact a woman’s ability to reach her maximum earning capabilities. Earnings flow directly into the ability to save for emergencies and future goals, like retirement. Basic math will tell you that if someone has reduced her total earnings by 20% to 30% over a lifetime, that will impact how much is available for saving. If a woman is in a two income family, the ability for both incomes available to meet financial goals might be sufficient.

What about women who are single? On average, women don’t make as much as men with comparable qualifications and jobs. While this income gap is narrowing, it still exists. Any single income household doesn’t have some of the expense savings of a two income household sharing some of the big expenses. Housing, utilities, groceries, and insurance can have savings for a household with more than one adult. Having lower earnings than a male counterpart can make it difficult for a woman to save.

Planning, preferably with some professional advice, can help overcome financial limitations. Have a plan that includes budgeting, proper insurance, home ownership, and staying away from unproductive debt. Saving early puts the power of compounding on your side. Start saving – even if it’s just a little – and keep saving. Get advice that doesn’t have a sales agenda. An advisor paid only through product sales might not be the most objective to help you meet your financial goals. A good advisor will give you advice that’s in your best interest. And if your questions aren’t answered to your satisfaction, get a new advisor.

 

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Charitable Planning

By Linda Leitz - Last updated: Tuesday, July 25, 2017

Many people consider charitable donations as an important part of their regular budgets. These gifts to non-profits are sometimes very spontaneous, with a photo of a sad animal, neglected person, or inspiring social cause resulting in donations of various sizes. But some people approach their charitable giving every year with very specific intention and planning. Giving to causes that you deem worthy can hardly ever seem bad. But there might be some ways to have a greater impact on the issues you see as important. If you’d like to consider a planned approach to charitable giving, here are some steps to consider.

Decide how much you are going to give each year. This might be a dollar amount, or it might be a percentage of your income or investments. One concept is tithing, which is giving 10% of income. For many households, this is a workable charity budget since it varies with their family income each year. Another approach might be to take a percentage of investment growth each year to go to non-profits. Or you could take a percentage of your investments each year and donate that amount.

A donor advised fund is an account that allows you to fund a large amount at one time or over several years, then have those funds go to specified charities in future years. This is more complex and should probably be done with advice from a financial professional.

When planning your charitable giving, put some thought into causes you want to support. Consider writing a mission statement for your giving. It can say what you want to support and why. You may have multiple priorities – feeding hungry children, protecting animals from abuse, supporting military veterans, or whatever else is important to you. State how you’ll prioritize between the causes. Once you’ve done that, do some research on what charities support those causes. Research how much of donations received by the charity goes to the causes they support and how much goes to overhead of the organization.  You want more going to the cause than to paying for the organization’s overhead. You can look for assessments on how well charities accomplish their goals at www.charitywatch.org and www.charitynavigator.org as well as making some calls and reviewing services yourself. If you want your donation to be potentially tax deductible, it must be to an organization that the IRS deems to be a charity. This indicates at least some legitimacy of the organization and how they allocate donations received. While giving to a friend who needs help is very kind, it is probably not a charitable write off.

Your charitable priorities might change from year to year. That could be due to your changing view of society’s needs, a specific capital campaign by an organization, or because of what you see these organizations doing. Planning and intention may give your charitable efforts more impact.

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The Basics

By Linda Leitz - Last updated: Wednesday, June 21, 2017

There are some basics that will help anyone get started financially, or keep going in the right direction. The fundamentals outlined here are accredited to the Alliance of Comprehensive Planners.

Save regularly. It’s a good idea to save at least 10% of your annual gross income. Gross income is your income before any deductions, including taxes, are taken from your pay. Your savings can be into an emergency fund, or into a retirement account, or a combination of both. Even after you retire, you should have about a 10% cushion in what you spend of your income to allow for emergencies and unusual expenses.

Have enough liquidity. You should have emergency savings to pay for unexpected expenses without running up credit cards. A good initial goal is to try to accumulate 10% of your annual earnings in a savings or money market account. Eventually it’s a good idea to have three to six months of your regular expenses in this account. Once you have accumulated a good emergency fund, you can invest in some mutual funds outside your retirement accounts.

Pay off your credit cards and other consumer debts. If, when you start your emergency savings, you need to pay down the credit cards, do that while you’re building up emergency savings. Once the credit cards are paid, then don’t charge more on the cards then you can pay off each month. While car loans and 0% financing can help you acquire assets without paying too much in interest, you shouldn’t let these debts be a major part of your monthly budget. For unusual expenses that are planned, like vacations, save enough in advance rather than incurring debt for them.

Buy a home that’s the right financial size for you. You want a home that meets your needs, but doesn’t burden you financially. For most people, a home that is appropriate for them financially is 1.5 to 2.5 times their gross annual income. A household that makes $100,000 can easily afford $150,000 – $250,000 home. The mortgage on a home, ideally, is no more that 80% of the value of the home. To purchase that $250,000 home, have $50,000 for a down payment. The mortgage on the home has some tax advantages, and does not need to be paid off aggressively like credit cards and other consumer debt.

Maximize your human capital. The biggest asset you have, and the one over which you have the most control, is you. Get training and formal education to have a career that you enjoy, that supports you in a comfortable lifestyle.

If you stay on track with these basic fundamentals, the chances are good that you will progress through your financial life in a healthy manner. People who are behind in the financial life cycle often have one or more of these basic fundamentals that manage poorly.

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529 Plans

By Linda Leitz - Last updated: Friday, June 2, 2017

If you want to contribute to the higher education of a loved one, a 529 plan might be worth considering.  It can be a way to put away money for this education goal with some good tax breaks.

Money in a 529 plan can be withdrawn for qualified education expenses for the designated beneficiary from an eligible education institution. The designated beneficiary is the potential student. This is often a child or grandchild. Contributions to the account are considered completed gifts to the beneficiary, however the beneficiary can’t withdraw the money. That’s up to the custodian, which can be the contributor to the account. Qualified education expenses are tuition, fees, books, supplies, equipment, room, and board required for education for a beneficiary who is enrolled at least half time at an eligible education institution. The equipment can include a computer and peripherals for education. To find an eligible education institution, you can look at the Free Application for Federal Student Aid, FAFSA, which is available at fafsa.ed.gov. This list includes universities, colleges, and trade schools.

One of the most tax efficient uses of a 529 plan is to begin investing as soon as the student is born and issued a Social Security number, for the account application. Growth from the money you invest is not subject to income tax if withdrawals are used for qualified education expenses. For example, if you invest $1,000 a year for 16 years and get a 6% return, you’d invest $16,000 and have over $27,000. You could save that money for education outside a 529 plan, but you’d pay tax on that growth. If you are a Colorado resident and put the money in the Colorado 529 plan, you’ll also get a state income tax deduction.

What if your potential student doesn’t pursue higher education? If withdrawals are not made to cover qualified education expenses, you will pay ordinary income tax on the growth and a 10% penalty. There might be some other alternatives to paying taxes and penalties. The beneficiary can be changed to a family member of the designated beneficiary, with family including siblings, step siblings, aunts, uncles, cousins, children, parents, or in-laws. If the student receives a scholarship from an eligible education institution, a withdrawal from the 529 plan in the amount of the scholarship can be subject to income tax, but not the 10% penalty.

If paying for education for more than one student in a family is something you’re considering, a 529 plan may be a good vehicle to fund education. If the funds aren’t needed for one student, they can be transferred to a relative. If you don’t mind the money staying in the account for a while, the funds could even be used for the next generation. But if the chance of taxes and penalties on withdrawals are a big concern, be careful before contributing to a 529.

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Marital Spats in Retirement

By Linda Leitz - Last updated: Tuesday, May 9, 2017

Marriage is a financial partnership. When people are married during their working years, they each generally have their own job – whether that job is in the paid workforce or working in the home. It’s common for one spouse to make most of the money. Often the other spouse is either a secondary earner or has the demanding full time work of maintaining the household. The couples who are financially prepared for retirement have diligently spent less than their household income so they could save money for retirement. When retirement comes – whether that’s transitioning to part time work or a complete exodus from their career – there are major changes in the day to day routine and financial management. Let’s look at examples of what this looks like. For simplicity we’ll call the primary earning spouse Charlie and the secondary earner who manages the household Frankie.

Thinking about retirement, Charlie looks forward to leisure time, the ability to sleep in, pursuing hobbies, and relaxing without being tied to a daily work schedule. It might not be in Charlie’s plans to begin helping Frankie with the household duties. To Frankie, this might sound less like retirement, and more like working for Charlie. There is no change in Frankie’s major workload.

There are several potential solutions. They all begin with Charlie and Frankie discussing what their goals are for retirement. While many people plan for retirement as a goal, they don’t always set goals about what retirement will look like. And if a couple is going to spend retirement together, they should plan it together. That doesn’t mean they can’t have any separate activities. But comparing notes and discussing what is – and isn’t – in each other’s vision of retirement can be important.

For instance, if your spouse plans on golfing a lot in retirement, ask how often. Every couple of weeks? Weekly? Daily? If it’s daily, think about what you plan on doing during that time. If it’s vacuuming, you might want to discuss some sharing of chores with your spouse.

Perhaps you have been out of the workforce for years and your spouse is about to retire. What do you each think that looks like? You’ve been occupying your time all day with activities that don’t include your beloved partner. Do you drop those activities? Include your spouse in those activities? Or a mix of both?

These discussions need to include the financial management, too. People who have been good savers sometimes have trouble spending money in retirement. Regular income from work always gave a flow of money to allocate to spending, saving, and purchasing assets. Once money stops coming in from a career, spending the money can seem scary. You want to enjoy life without running out of money. Discuss what you can afford long term and get some professional input if needed. You put effort into reaching retirement together. Put intention into enjoying it together, too.

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Marital Agreements

By Linda Leitz - Last updated: Thursday, April 20, 2017

If you are going to get married and you and/or your fiancé has some financial history, a marital agreement is worth exploring. The term pre-nuptial or pre-nup generally refers to an agreement where people getting married set out how they’ll handle issues – usually financial issues – in their marriage. Colorado is one state that allows agreements after a couple is married.  A financial advisor with expertise in these matters is a great person for you and your fiancé to consult on the terms you want, but ultimately you each need to have a separate attorney for legal advice on the agreement.

One common area to address in a marital agreement is how assets and debts are allocated in the event of a divorce. In Colorado, and many other states, assets that an individual brings to the marriage, has given to them during the marriage, or inherits during the marriage is separate property – not marital, so belongs only to one spouse – as long as it’s kept in that one spouse’s name. If assets increase in value, the growth is marital. A marital agreement can address this by saying that increases in separate property and/or income from separate assets are also separate. Debt is handled the same way, but debts are also contracts. Whoever signs for the debt is liable to the lender for it.

Spousal maintenance, which is what Colorado calls alimony, is also often addressed. A few years ago a Colorado statute giving guidelines for spousal maintenance was put into place. The formula can be found at https://www.courts.state.co.us/Forms/Forms_List.cfm?Form_Type_ID=71. Most judges tend to go with the guidelines, but a judge can use discretion. This is another area where a couple can agree on spousal maintenance in a marital agreement.

Why would a couple construct a marital agreement when they’re already married? Perhaps one of them starts a business and there is concern about either the potential liability or the potential upside to the business. If a couple is arguing about money, each of them being willing to take responsibility for their own decisions – and documenting that in an agreement – might make both spouses more comfortable.

Do you think that you’ll keep things easy by just living together? Better think again. If you get married and don’t have an agreement on how to handle your finances if you divorce, there are courts and laws with some general guidelines on how to settle things. If you live together, there aren’t a lot of protocols for deciding how to legally split things up. You can – and should – have a cohabitation agreement. It would cover some of the same things as a marital agreement. You can talk about how each of you divide assets and debts you’ve acquired jointly.

Legal agreements aren’t romantic. But neither are arguments about money. Think of the agreement like home insurance – you hope you’ll never need it, but if you do, you’ll be glad it’s there.

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Financial Tips for Second Marriages

By Linda Leitz - Last updated: Tuesday, April 11, 2017

If you’re considering getting remarried, there are some financial issues to address. Whether your previous spouse predeceased you or you divorced, you’re probably bringing some assets and/or debts that predate your current relationship. You owe it to yourself and your new spouse to discuss your money situation together and agree on how to handle finances. You should seriously consider having a pre-marital agreement that details what will meet your joint needs and protect each of you. Many people feel that it’s awkward and unromantic to negotiate a financial agreement. Be aware that if you can’t discuss and agree on financial issues while you’re planning your walk down the aisle, you can rest assured that it will be more difficult to address financial disagreements if your relationship is strained.

First, you and your fiancé need to share information. There are many situations in a marriage where lack of candor can be a mistake, and this is definitely one of them. You each need to tell what your income is, what your assets are, and what your debts are. It’s fine to start with some general information, but before you tie the knot, share documents – tax returns, account statements, payment schedules. In Colorado (and many other states), what you bring to a marriage, inherit, or have gifted to you – and keep in your individual name is considered “separate property”. Your spouse doesn’t co-own separate assets or owe separate debts. There are at least two ways this can change. The growth in separate assets and debts is marital, even if it’s only in the name of one of you. Also, if you change the title of an asset or debt to joint, it’s now joint. So if you add your spouse to your investment account, you’ve made what the legal community calls a “presumptive gift to the marriage”, meaning it’s presumed you gave it to the marriage. Is there any way to change that? There are instances where the court has assumed a joint asset is separate, but you need a good attorney to have that happen.

Once information is exchanged, you and your beloved can talk in detail about how you want to handle family finances. There are basic items to discuss. What does a joint budget look like? How much do you want to put into savings each month? How do you handle your debts? It’s also good to discuss how financial decisions will be made. That’s a sweeping subject. It can include everything from whether either of you buy impulse purchases at the grocery checkout to how much research you do before buying a car.

A legal marital agreement should have all financial facts disclosed, be drawn up by an attorney, and you should each have your own attorney advise you on it. Unromantic? So is arguing about financial issues that you never discussed before getting married.

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Financial Impacts of Addiction

By Linda Leitz - Last updated: Friday, March 17, 2017

The understanding of addiction as a health care crisis is growing in society. For purposes of this article, we’ll define addiction as a compulsion to use a habit forming chemical, such as alcohol, heroin, cocaine, meth, or prescription drugs, and drugs will be considered to include alcohol. In addition to the emotional trauma that addiction can bring to an individual and family, monetary impacts can be huge.

Chemical habits can be expensive. Money intended for household expenses might be diverted to buy alcohol or drugs. With intensive drug use, assets might be sold, accounts deleted, and credit cards charged to the limit. If someone other than the addict isn’t monitoring finances, financial repercussions can be devastating. Regardless of who is in charge of day-to-day money decisions and investing, both spouses should be familiar with how to access accounts and check them regularly. Even after an addict is drug free, it’s wise to keep a close watch on accounts and potential theft. Addicts occasionally relapse – sometimes more than once.

Another potential impact of addiction or chemical abuse is poor job performance. While some addicts are relatively high functioning or don’t use drugs at work, if there is impairment that negatively effects their job, it can result in missed work, lost promotions, reduced wages, or ultimately job loss. This can impact the individual as well as the entire family.

There are various forms of treating addiction. Several twelve step programs are free, although donations are accepted. There are counselors and therapists who specialize in addiction treatment. These services, generally with appointments at least weekly to begin, can cost a few hundred to thousands of dollars per month. If inpatient treatment is appropriate, a 21 to 30 day stay is often recommended with follow up treatment after discharge. This intensive treatment may cost tens of thousands of dollars, with health insurance policies under the Affordable Care Act generally covering some of these costs.

With extreme use, an addict might resort to illegal acts to obtain drugs. Stealing from others, selling drugs, and violence to get money or drugs can result in arrest. Only individuals of limited monetary means are eligible for a public defender and legal fees to defend from charges can easily run to thousands of dollars. Any criminal record can impact future earning capacity and limit job eligibility. Some employers, through legal limitations or corporate policy, won’t hire an individual with a felony record.

Ignoring or denying a problem is one of the most expensive mistakes you can make. If you’re suffering from addiction, get help. Many people operate in our Happy Hour and Party Drug Society without drinking or using drugs. If you care about someone who is an addict who’s succumbing to the compulsion to abuse drugs or alcohol, encourage treatment. You can’t make an addict stop using, but you can set your own boundaries. And you can emotionally support your loved ones as they fight to overcome challenges.

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New Retirement

By Linda Leitz - Last updated: Friday, February 17, 2017

The definition and expectations of a working life and retirement have shifted through the years. They continue to shift, both out of our changing desires and out of necessity. When the safety net of the Social Security system was introduced in the US, unreduced benefits were available at age 65, but life expectancy was only a few years beyond that. The changes in that system, at least partially, reflect the broader shift in retirement. People are living longer, which is good. But that means that we need resources to support us for a longer period of time. That means we either need to work longer, save more, or a combination of both.

An important issue that’s related to the financial issues is what to do in retirement. If you’ve got a stressful job or work in an unpleasant environment, you’re probably saying to yourself that you’ll have no problem deciding what to do with all the time you’ll have on your hands in retirement. But, like many aspects of life, sometimes we tend to romanticize things.

Barry LaValley, founder of Retirement Lifestyle Center, has noticed some trends in the emotional reaction people have to retirement. The two or three years immediately prior to retirement are full of excitement, but often the first year of retirement is stressful. Work gives structure to our daily lives, a sense of identity and purpose, and often a social network. After the first year, people find things to do and develop new structure resulting in a honeymoon phase with retirement that lasts a few years. They’re still healthy and have found things they enjoy doing. The retirement activities become routine after a while and after a few years of the new schedule, people tend to be disenchanted.  After a few more years, people re-orient over several years, then become content.

One wild card that impacts many people is poor health. For this reason, doing many of the desired retirement activities in the early years makes sense. Travel, golfing, and being with young grandchildren might not be possible if there are health concerns. The spending patterns in retirement tend to follow these stages. The first few years tend to be big spending years. Then spending declines for several years, but increases again when the cost of declining health become an issue.

Consider a new retirement approach. Phasing out of the workforce rather than an abrupt end to working – what financial professionals sometimes call a “cliff retirement” – can be a less stressful transition and ease the financial burden. It can enhance the sense of fulfillment, keep ties with professional people, and allow a flexible schedule for travel, golf, and other retirement activities. If you’re interested in reading more about a phased retirement, look at The New Retirementality by Mitch Anthony. Open your thought to the possibilities of changing the way people retire.

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What to do?

By Linda Leitz - Last updated: Tuesday, January 10, 2017

When there is a big world event – especially one that seems to have an impact on economic markets – many people wonder what they should do in response to protect their financial well being.

The best time to protect yourself from a financial downturn isn’t when the downturn happens. It’s before it happens. If you live in the part of the country that regularly has tornadoes, you don’t start building a storm shelter when you see the sky getting dark. You build the shelter during good weather and keep it stocked with the things you’d need if a storm hits – food, water, batteries, flashlights, candles, and blankets. To prepare for financial storms, have a balanced financial situation. It’s good to have some money for long term goals invested in the stock market – in the US and abroad – and to have some money in more stable accounts like certificates of deposit, bonds, or bond mutual funds. You also need savings in something stable like a bank savings account or a money market fund. The point of the money in savings isn’t to make money, it’s to avoid losing money and to have if you need to pay for an unexpected expense or for your living expenses if your income is interrupted.

Next, recognize what impacts you and what doesn’t. A worldwide financial catastrophe impacts everyone. And some big financial events have ripples that can touch us all. But a negative event that happens thousands of miles away doesn’t necessarily impact you directly. When there are effects, go back to the planning you did ahead of time. If needed, tap into your savings. But don’t react in a panic to something that doesn’t effect you. It can have the self-fulfilling negative impact of becoming a bad incident for you if decisions are made out of emotion, instead of well thought-out conclusions.

In making short term and long term decisions about your financial situation, be realistic about what you can control and what you can’t, then plan accordingly. You can’t control the weather, but you can control if you have insurance to cover weather damage to your home or vehicle. You can’t control if your boss is always in a bad mood, hiring and firing people on a whim. But you can look for a more stable job if you find yourself with an irrational employer.

If you are surrounded by negative or uncertain news, look for stability and for opportunities. If you’re in a store with some items on sale, you don’t run from the sale items in fear. You look to see if there are some bargain items you can use. Is a slump in the stock market a bad event or an opportunity to buy good quality mutual funds at bargain prices?

You can’t always control world events, but you can control how you plan for them and how you react.

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