Responding to COVID-19

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As much has changed since our last newsletter out, we are deviating from our typical format to bring some tips in how to respond financially to our current state of affairs with regard to covid-19. We all need to take this one day at a time and handle the ebbs and flows as they come.

  • How is the rebate (aka stimulus money) going to get processed?: The rebate from the CARES Act will be is estimated on 2018/2019 tax filing but the final tally will be decided when taxes are filed in 2020. So if a taxpayer has a child in 2020, there is no immediate benefit from the stimulus but the taxpayer will eventually receive a rebate for the child when they file their taxes in 2021, presuming all other conditions are met. If the taxpayer’s 2020 income would be too high to qualify for the stimulus otherwise, no clawback is noted in the bill. The taxpayer is able to keep the money even though their 2020 income would have disqualified them. 
  • How should I use the rebate?:
    • If you have no savings, save it.
    • If you have some savings but have good reason to think you may lose work soon, save it.
    • If you have plenty of savings and reasonable job security, plan to spend the money or invest it back in the market.
    • If you spend it, try to patronize businesses that have been hard-hit has they will appreciate any business they can get right now.
    • Otherwise, take this as an opportunity to buy some stuff you’ve been putting off for a while, like home projects, new appliances, a car, etc., or give the money to institutions, charities, or churches that have been affected.
  • What’s happening with student loans?: Student loan interest and payments are waived until September 30, 2020. No action is needed on the part of the borrower to get this benefit. This will happen automatically by all of the loan servicers for Federal loans. The $0 payments will count towards PSLF. This is all fluid, however, so keep up to date with the most recent developments. What may have been correct a week ago (or even yesterday) may have changed.
  • Additional benefits from the stimulus bill:
    • Pre-mature distribution penalty of 10% is waived if pulling money out of retirement accounts in response to the impact of the Coronavirus. The money taken out can be contributed back to the account over the next three years, something not usually allowed.
    • Unemployment benefits have been expanded. You can file immediately with eligibility starting the very first week you are unemployed. The benefit can be as high as $600 per week for the first four months.
    • Michael Kitces put together a very helpful article that dives into specific examples for understanding the implementation and implications of the CARES Act. You can read more here.
  • Continue to do your part to minimize the spread of covid-19: Live life as you’re able to, as much as it was before this all happened. Support those on the “front lines” and thank them for what they’re doing. Many are putting themselves in harm’s way and are going unrecognized. Our life is a whirlwind like many others and we’re taking it one day at a time. “It is what it is” has become a mantra of sorts as we navigate these waters alongside you.

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Refinancing Your Debt

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Interest rates are at historic lows right now, due to two factors that have not happened at the same time in the past: low interest rates and low credit risk. This combination (see more in “watch” below) is enough to encourage you to consider refinancing whatever debt you may have, be it a mortgage, student loans, or other consumer debt. Check out the following resources:

  • Read: This article from Bankrate informs the reader the impact the coronavirus has had on rates and treasury yield in the United States. 
  • Listen: Refinancing your home mortgage could save you thousands, especially if you can get a shorter term note without increasing your payment much. However, you need to take a close look at the fees from different offers you consider, i.e. “closing costs.” Just because the interest rate is lower doesn’t mean a refinance is good for you. If you plan to move before you recoup the costs of the refinance, then it might not be a good option. Listen to more considerations on this ChooseFI podcast. 
  • Watch: Travis Hornsby from Student Loan Planner details how super low interest rates and super low credit risk have not happened to this level at the same time ever. If you have student loans and are not working towards PSLF or IDR, check out the rates and consider refinancing your student loans for a lower interest rate.

If you find the information provided valuable, please pass this email along to your family and friends! Better yet, recommend them to subscribe to this monthly newsletter by signing up on our website!

You can click on the links below to access this month’s resources. Thanks for reading, listening, and watching!

Accessing Retirement Funds Early

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Retirement saving and planning: If you have made prudent financial choices that will allow you to retire early (early meaning before age 59 1/2), what sort of plan should you employ for taking advantage of those retirement accounts without losing some of the valuable money you’ve set aside? See below for some well-thought-out perspectives:

  • Read: Mad Fientist has written a lot about the benefits of tax-advantaged accounts and why they are especially beneficial for people planning on retiring early. He’s even created a real-time experiment to prove that utilizing tax-advantaged accounts is the best way to speed up your journey to financial independence. In this post How to Access Retirement Funds Early he writes about all the ways you can access the money in retirement accounts prior to standard retirement age.
  • Listen: Have you ever wanted to invest through an IRA or 401(k) for the purpose of early retirement but found yourself stymied by the thought of paying a 10% penalty tax to gain access to your money? Listen to Joshua Sheats’ approach in this podcast, How You Can Get More Money For Early Retirement.
  • Watch: This article and short video detail how dividends on IRAs are taxed. An IRA is a great option to save for retirement. The key is to know the rules for withdrawals before you invest, so you do not face any tax surprises at retirement.

If you find the information provided valuable, please pass this email along to your family and friends! Better yet, recommend them to subscribe to this monthly newsletter by signing up on our website!

You can click on the links below to access this month’s resources. Thanks for reading, listening, and watching!

Avoiding Financial Mistakes and Reaching your Goals

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Happy New Year! Instead of a newsletter highlighting all.the.new.year’s.resolutions, I’d rather like to highlight the following three resources, focused on avoiding bad financial mistakes:

  • Read: NerdWallet co-founder and CEO Tim Chen details The Three Most Common Financial Mistakes Young People Make: 1) Forgetting to rollover your 401(k); 2) Not refinancing loan(s); and 3) Bad budgeting.
  • Listen: In The 10 Best Ways to Ruin Your Financial Future, Dr. Daniel Crosby (a psychologist and behavioral finance expert) discusses in a very tongue-in-cheek way, the ways in which you can ruin your financial future. This 8 minute podcast is worth the listen, especially for #6!
  • Watch: Dr. Crosby makes mention of the movie The Big Short in #7 of ways in which to ruin your future; I highly recommend watching this film (available to rent on Amazon Prime for $2.99). Besides retelling the financial underpinnings to the Great Financial Crisis, the movie highlights the fickleness of a few investors who profited abundantly on the meltdown, shedding light on how difficult it is to stay the course to one’s investment strategy.

If you find the information provided valuable, please pass this email along to your family and friends! Better yet, recommend them to subscribe to this monthly newsletter by signing up on our website!

You can click on the links below to access this month’s resources. Thanks for reading, listening, and watching!

Buying a Car

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Purchasing a car, buying a house, and funding college are three of life’s great expenses. In this month’s newsletter I want to focus on the financial aspects of your automobile and what you should consider when making that purchase. Enjoy these four resources:

  • Read: A sunk cost is a past cost that you cannot recover. The sunk cost fallacy is convincing you that you can’t give up because of all the time and money you’ve already spent. This fallacy has relevance for vehicular cost, maintenance, and replacement. Read more here in Economics 101: Sunk Cost Fallacy.
    Additional Read: Financial Mentor has a great article and calculating tool to figure out how much your car is actually costing you.
  • Listen: Should you fix the car or buy a new one? In this podcast, White Coat Investor discusses the best responses to your current car situation. For example: if it’s going to cost more to fix it than the car is worth, get whatever you can for it and consider it totaled. 
  • Watch: When is buying a car better than leasing? Almost always! This brief video explains why and includes examples in the written article.

If you find the information provided valuable, please pass this email along to your family and friends! Better yet, recommend them to subscribe to this monthly newsletter by signing up on our website!

You can click on the links below to access this month’s resources. Thanks for reading, listening, and watching!

When Should I Hire a Financial Advisor?

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Talking about money and finances can be vulnerable. In a 2017 study, nearly 2/3 of Americans stated they would rather talk about their weight than their finances. But finances and its planning does not have to be hard–working with a financial planner can provide the peace of mind that you doing the right things with the money you make and that you can achieve the goals you have set out for yourself. The following three resources focus on the circumstances in which you may find yourself needing financial advice and where best to find it:

  • Read: James Dahle, MD, serves as a practicing emergency room physician. Midway through residency he taught himself financial literacy to avoid being the target of unethical financial professionals who were ripping him off. The result is White Coat Investor. While he tailors his information to those in the medical field, everyone can benefit from this podcast transcript, when to hire a financial planner.
  • Listen: Daniel Crosby is a psychologist and behavioral finance expert. In this very brief podcast episode, he discusses the 10 questions for your financial advisor, including “Are you a fiduciary?” and “How are you going to help me make smart decisions?”
  • Watch: We had this short video made that highlights Bona Fide Finance as a fee-only, fiduciary, and independent financial planning firm, three of the qualities recommended above!

If you find the information provided valuable, please pass this email along to your family and friends! Better yet, recommend them to subscribe to this monthly newsletter by signing up on our website!

You can click on the links below to access this month’s resources. Thanks for reading, listening, and watching!

The Value of Education

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As we approach the back-to-school frenzy that is typical in the month of August, I am focusing on the value of education for this newsletter. As we work with young professionals with growing families, we always want to implement a great plan that will help them reach their financial goals. As part of that plan, we want to assess the value of investing in your children’s education. Please consider the following three resources, which provide an alternative look at the commonly-understood educational system employed in the United States. This helps to flesh out, I think, what Benjamin Franklin meant in his quote, “An investment in knowledge pays the best interest.”

  • Read: Peter Adeney of Mr. Money Mustache writes of his and his wife’s experience with their son’s education in a standard schooling environment and how they used their FIRE status to begin homeschooling him instead. Their conclusion? Homeschooling turned out to be packed with freedom, requiring high effort in exchange for high reward, delivering a truly excellent education.
  • Listen: Joshua Sheats of Radical Personal Finance has a great listen in this podcast: he urges you to carefully consider the return on investment (ROI) you are getting on the money and time you and your children are investing in their education. Is it paying off? Are you getting a good deal?
  • Watch: The educational philosophy of Maria Montessori (1870-1952, Italy) is world-renowned in its application to the formation of children, which fully respects their dignity and allows their curiosity to be fostered in carefully designed environments. You can learn more in this 18-minute video summarizing What is Montessori?. I should note here that we feel very fortunate to be able to send our four-year-old daughter to a local Montessori school!

If you find the information provided valuable, please pass this email along to your family and friends! Better yet, recommend them to subscribe to this monthly newsletter by signing up on our website!

You can click on the links below to access this month’s resources. Thanks for reading, listening, and watching!

Debt Repayment

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Firstly, thank you everyone for your prayers, patience, and understanding as we navigated the death of my father in June. It was a beautiful time to spend with family as we remembered the life and love of Jerry Martinek.

Secondly, I am focusing on debt repayment for this month’s newsletter. Let’s say you owe $50K and you happen to have $50K in the bank. Should you pay off the debt? That depends on the interest rate: how expensive is it to finance the debt? Many people turn to the total amount paid in interest as their guide, but most of that interest is overly-inflated with future value dollars.

Instead, use a time value of money (TVM) calculation on the future payments to determine what the net present value (NPV) is as a better guide of assessing the expense of financing the debt. I regularly run this calculation for my clients.

In short, the real cost to debt depends on the inflation rate which is an unknown variable. Given the latest interest rates, I consider debt with less than a 5% interest rate to be relatively inexpensive. Anything less than 3% is down right cheap! Debt in excess of 5% should be paid off in earnest.

  • Read: This is something that is not often considered, but is truly the right way to analyze what debt you may have: the time value of money (or TVM). Read more here from Investopedia.
  • Read: This  article from Financial Mentor provides a deeper understanding on net present value (or NPV), as well as an NPV calculator.
  • Watch: While this brief video from Harvard Business Review focuses on the net present value (NPV) for investments, the same principle can be applied for debt repayment.

If you find the information provided valuable, please pass this email along to your family and friends! Better yet, recommend them to subscribe to this monthly newsletter by signing up on our website!

You can click on the links below to access this month’s resources. Thanks for reading, listening, and watching!

Protect Your Assets

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This month I want to focus on asset protection, the exploitation of the legal system as a means to sue and seize your assets. The following three resources introduce this often-overlooked aspect of your financial plan.

  • Read: Michele Williams, author and Certified Financial Education Instructor, wrote a brief book titled Asset Protection for the Rest of Us, priced at $2.99 for Kindle readers. It is an easy-to-read layman’s guide for any individual, family or small business owner who is interested in protecting their assets from lawsuits. The book introduces the concept of asset protection and was written specifically for those who may not have a net worth in the millions; however, they aspire to keep and protect what they have earned.
  • Listen: In this first of a series of ten podcasts, Joshua Sheats discusses the various ways in which you should consider the term “asset protection planning.” Specifically, he asks two questions: 1) What assets do I have that I care about? and 2) From what risks should I protect those assets? If you think about those questions carefully, you will be able to coach yourself to the right solutions, solutions that may vary considerably. If you broaden the scope of the term “asset” and then apply yourself to imagining the various risks those assets face, you can come up with ways to protect yourself and your assets, no lawyers needed.
    *Note, the content is quite good but the first ten minutes are a ramble of political views that are not necessarily endorsed by us.
  • Watch: An undervalued policy that everyone should have is a Personal Umbrella Policy (PUP). A PUP supplements other forms of insurance with extended coverage limits that start at $1 million. In addition, personal umbrella insurance covers other forms of liability, such as libel and slander, that policies like homeowners or auto insurance do not. Watch here to further your understanding.

If you find the information provided valuable, please pass this email along to your family and friends! Better yet, recommend them to subscribe to this monthly newsletter by signing up on our website!

You can click on the links below to access this month’s resources. Thanks for reading, listening, and watching!

Millenials

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Millennials (typically defined as those who were born between 1981 and 1997) make up a population of roughly 80 million people in the United States. With that amount of marketing, workforce, and cultural influence, there has been a shift in understanding this most bounteous generation since the Boomers. See the resources below for a few highlights:

  • Read: This recent article from Wallet Hub ranks the Best & Worst States for Millennials based on affordability, education and health, quality of life, economic health, and civic engagement. I am partial to its findings as it ranks the state of North Dakota as 7th best in the nation overall (and 1st for affordability!). There are lots of data present but it is worth it to read the article in its entirety to understand better this generation (of which I belong as well as do 90% of my clients), especially when it comes to their financial savviness versus other generations.
  • Listen: In this podcast (Millennial Money Minutes–podcast tidbits in 5 minutes or less!), Grant Sabatier and Matt Zubricki discuss how it is easy to go out and buy short-term happiness, but long-term happiness needs to be cultivated. As humans, we all essentially seek and require the same things to live a happy life – community, loyalty, love, excitement, curiosity, passion, and peace.
  • Watch: No matter your generation, you will find this TED Talk presentation by Dan Gilbert (Harvard psychologist) enlightening on the topic of happiness. He states our beliefs on what will make us happy are often wrong, a premise he supports with intriguing research and comic relief. 

For those interested, here is the Quarterly Market Review for the first quarter of 2019 from Dimensional. I am also including this Economic and Market Update from J.P. Morgan Asset Management.

If you find the information provided valuable, please pass this email along to your family and friends! Better yet, recommend them to subscribe to this monthly newsletter by signing up on our website!

You can click on the links below to access this month’s resources. Thanks for reading, listening, and watching!