Everyone will agree that the COVID-19 pandemic has wreaked havoc on people’s budgets. Even financially disciplined individuals experienced a blow on their finances. You may have good plans and intentions for maintaining your wealth standards, but in the end there is nothing you can do when such an event happens. The catastrophe might have impacted your savings because of a decrease or loss of salary and income, or you may have had to overspend toward necessities during the pandemic when the prices of essential commodities shot up.
Sometimes low motivation and failure to hit the target can be the cause of wealth depreciation. However, as businesses reopen and people engage in their routine life activities, you might wonder what to do to regain your previous wealth status.
1. Cut on expenses
With low income due to the pandemic’s global impact, it is crucial to understand how you spend your money. Once you know where and how you spend your money, you can quickly determine what is essential spending and what is extra. You can sell or cut expenses with those things that you can survive without, like that other car, the vacation home, the RV—and even in a worst-case scenario, your home.
It might sound like an extreme tactic, but the benefits are immense. First, it will lower your necessary living expenses. Also, if one of these properties was attached to a loan, it will eliminate the debt. Lastly, when you sell—for example, that extra car or vacation home—you will have the much-needed cash to increase your savings.
What you need to understand is that selling or cutting expenses back will not happen forever. When you stabilize, it is easy to buy them back or even get better than what you sold. The aim here is to avoid going deep into financial depression by getting rid of expenses that are not essential.
2. Pay your debt in style
Be very strategic when it comes to paying off your debt, especially your credit card debt. Choose whatever model you think will work better for your situation, as no two financial cases are the same. In the first model, you can go the avalanche way. With this method, you focus on paying off the credit card with the highest interest rates first. Pay as much as you can toward that debt, but also pay at least the minimum amount toward the other accounts. This method will help you have the least interest in paying off your debt.
The snowball method, on the other hand, focuses on clearing the cards with the lowest debt first. In this method, once you clear one card, roll over to the next card with a minimal debt balance. Again, as before, as you clear the minimal debts first, pay at least the minimum amount toward the other cards, too. This will help you to have fewer loans to pay.
3. Continue saving despite the financial crisis
However hard it might be, especially when trying to pay off your debt, maintain a positive savings balance. With savings, the money can comfortably cushion you in case of an emergency. It can also help you achieve your financial freedom faster. Don’t strain too much, though; save as much as your budget allows to maintain a good saving habit.
4. If possible, take a side gig
If your current source of income does not generate enough wealth to return you to your previous state, consider adding another hustle. Is it possible to take up another job? Can you invest in a part-time business? A part-time business, dog walking, or freelance working will see your income grow faster.
5. Be patient
Though you are anxious to restore your finances, understand that this might not happen overnight. You should be prepared mentally and emotionally for the effort. Set up plans and specific goals to achieve, devoting time and focusing on effort toward achieving those goals. With sound steps and strategies, your financial situation will eventually get back to normal. Just remember that it will take some time.
Abby Drexler is a contributing writer and media specialist on behalf of Evolve Bank & Trust. She regularly produces content for a variety of finance blogs.
I work with clients to create plans for spending, saving, investment, taxes, insurance, estate, and all the other items that, if managed, can lead to financial security and peace of mind. Often, after all the planning, I get the question: What else can I do to help my financial situation? While a good plan can help mitigate the ups and downs of the markets and the economy, it still can lead many to feel like they have little control over their situation. This question often stems from a sense of not feeling totally in control of your financial situation because of volatile markets, the economy—and recently, a global pandemic.
One area I have started to introduce to my clients as a financial strategy is to consider doing an evaluation and plan for their physical and mental health. The estimated average healthcare costs for a couple in retirement is $285,000. This figure can include Medicare supplement premiums, deductibles, drugs, co-pays, dental, vision, counseling, and other care services. Over the past 30+ years as I have been working with clients, I have seen firsthand how these costs are becoming an increasing burden to retirees as inflation in the healthcare industry is very much outpacing increases in incomes.
For many, chronic conditions like high blood pressure, high cholesterol, diabetes, obesity, heart disease, and auto-immune diseases are a big burden physically, mentally, and financially. My story was typical of a lot of people I see. Busy family life, high pressure jobs, and the stresses of life slowly add up. Late in my 40’s, I was diagnosed with high blood pressure and started taking medication. I thought I was in pretty good shape and didn’t give it much thought as my mom had high blood pressure all her adult life, and I thought it was hereditary. As I got into my 50’s, my cholesterol and triglycerides started steadily increasing to unhealthy levels. Like many, I ignored the slow decay of my physical and mental health. Denial was strong. I would get flashes of trying to stem the aging “tide” but would eventually fall back to poor exercise and eating habits. There were always more important things to do than focusing on my health. Between feeling the aches and pains of nearing 60 years old and waking up to the knowledge of the effect my health would have on my retirement finances, I became acutely aware that I needed to seriously focus on my health. My motivation of wanting to feel better physically and mentally was boosted by the fact that I wanted to use my retirement savings for better things than healthcare costs.
In late 2018, I got to work. First, I did an inventory of my state of health. To do this, I consulted with professionals, gathered tools and health data, and did a deep dive into educating myself about nutrition and mental wellness. I also examined my consumption of food and alcohol, my utilization of exercise, and my stress levels and other facets of improving my emotional health. Second, I set aside feelings of ego, guilt, and pride to create a realistic road map to improving my health. One of the main things I learned right away is that there is no quick fix. To reverse years of poor habits and choices, it takes a long period of time. It definitely is a marathon and not a sprint, as to do it the right way involves lifestyle changes and not diets or boot camps.
I’m eating less with mostly plant-based meals, exercising consistently, and addressing the stresses I face on many fronts. It has been fabulous! My energy levels are much higher, and I have a much more positive attitude about life in general. For many years, I felt anxious about the state of my physical and mental health and that I couldn’t get the motivation to execute a good personal healthcare plan with consistency. I’m glad the added boost of seeing improved health as a financial strategy has motivated me to create and execute the beginnings of a sound personal health plan.
We all live with the genetic lottery, and predicting our future health is difficult, but it would be ridiculous for me not to do everything in my power to live healthily and potentially not spend my hard-earned money on healthcare. I encourage everyone to create and execute a health and wellness plan to feel great physically and mentally. It also is a good financial strategy.
I want to acknowledge that all women are wonderfully unique individuals and therefore these tips will not be applicable to all of us equally and may be very helpful to some men and nonbinary individuals. This is written in an effort to support women, not to exclude, generalize, or stereotype any group.
I was recently reminded of a troubling statistic: Two-thirds of women do not trust their advisors. Having worked in the financial services industry for nearly two decades, this is unfortunately not surprising to me. But it is troubling, largely because it’s so preventable.
Whether you have a long-standing relationship with an advisor, are just starting to consider working with a financial planner, or are considering making a change, there are some simple tips all women should be aware of to improve this relationship and strengthen their financial futures.
Tip #1 – Work with an Advisor You Like
You may think this is obvious or that this shouldn’t matter. Unfortunately, it isn’t obvious to many people, and I would argue that it may be the most important factor. If you don’t like someone, you are unlikely to trust them; and if you don’t trust them, you are unlikely to take their advice, even when it’s advice you should be taking. You’re also more likely to cut your meetings short or avoid them altogether. Chatting with my clients is one of my favorite parts of my job, and it’s also when I usually find out about the important changes in their life that they might not even realize impact their financial plan. It’s an advisor’s job to identify the financial impacts of your life changes, and your advisor can’t help if they are not aware of the changes. The better your relationship with your advisor, the more likely you will keep them updated—and the more likely they can help you make smart financial decisions.
Take some time to consider what’s most important to you when building a trusting relationship, and don’t be afraid to ask an advisor about their personality traits or communication style. You may need someone who is approachable and compassionate, or it may be more important to you that they are straightforward and detailed. I’ve worked with enough advisors to know we come in every shape and size you can imagine, so don’t settle for someone who isn’t a good fit.
This chart can be an extremely helpful tool for identifying your preferred communication style(s). Once you’ve identified your preferred style, you should be able to easily tell whether your advisor is communicating effectively according to your personality. If they aren’t, send them the chart! Strong communication skills are essential in financial planning, so they should be able to adapt to fit your preferences.
Aside from communication style, it may be important to you that you work with an advisor who shares certain values that you hold dear. I recently met with some new clients who I could tell were not completely at ease even though I thought we had hit it off. They were squirming in their seats when they finally got up the courage to ask me about my political leanings. When they learned that we felt the same way, they were visibly relieved. It was important enough to them that I don’t think they could have had a trusting relationship without this information. If you feel this strongly about anything, ask about it when interviewing advisors.
If you find you are having a hard time getting to know your advisor, ask to go to lunch. Once you get away from the office and their financial charts, it will likely be easier to build a connection. You may even get a free lunch out of it!
There are many different considerations when hiring an advisor: Are they a fiduciary? Do they practice comprehensive planning? How are they compensated? What is their investment philosophy? They may check off all your other boxes, but if you don’t like them, you are unlikely to get all you need out of the relationship. If you’re looking for an advisor you’re compatible with, consider perusing our advisor bios.
Be sure to read our upcoming blog posts for additional tips women need to know in order to get the most out of working with a financial advisor. You’ll notice that all of the other tips are much easier to follow when you work with an advisor you like!
One of the most noted and real impacts of the coronavirus is that employees are working from home. While it has been a huge shift, four plus months in, the results have been positive for many, and headlines in business publications are examining whether a substantial fraction of these employees may never return to the office. There is solid debate about how big the impact will ultimately be, but there is no doubt that companies will be revisiting their spaces.
This trend might lead one to worry that real estate values will plummet as demand falls and supply stays constant. To this I would offer two counter points. First and foremost, commercial real estate encompasses a wide range of investments. The pie chart below shows the sub-sector breakdown of the holdings of our most widely recommended real estate investment, the Dimensional Global Real Estate Fund (DFGEX).
REITs that focus on office properties as of June 30th, 2020, made up just 12% of the fund’s allocation. Office REITs do not just own high-rise commercial office buildings in downtown cores. Much of the space they own is in suburban office parks and includes space leased by dentists, hairstylists, lawyers, and small research and engineering firms. While many more things can be done virtually, there are still many businesses, such as orthodontists and spas, that will always require an in-person experience.
While demand for some types of office space may be dropping, demand for other types of real estate in the fund is growing. As of June 30th, the top three holdings in the Dimensional fund were American Tower Corporation, Crown Castle International Corporation, and Prologis Inc. American Tower and Crown Castle are owners and providers of infrastructure for wireless communication and fall into the Specialized category. Prologis is in the logistics real estate business, leasing distribution facilities to support direct fulfillment to customers. All three of the companies are poised to see substantial growth from increasing demand. The fund owns many other businesses, from cold storage warehouses to multi-family apartments to medical facilities, where demand remains high.
The second point is that changes always follow any societal upheaval. There is no doubt that COVID will have an impact on our world. However, it is unclear that the shifts will be as radical as some are predicting or that COVID alone will cause the demise of industries or institutions. Large scale change rarely happens that quickly or dramatically.
For example, the idea that demand for office real estate will suddenly drop 60–70% seems overblown. IBM was an early proponent of telecommuting. In a 2009 report, they boasted that “40 percent of IBM’s some 386,000 employees in 173 countries have no office at all.” According to an Atlantic article from 2017, they unloaded 58 million square feet of office space at a gain of nearly $2 billion. By all accounts, it sounded like a winning strategy. Only, it did not work out, and in March of 2017, IBM decided to move thousands of its workers back to physical company offices.
The problem was likely a drop in what the Atlantic terms “collaborative efficiency”—or the speed at which a group successfully solves a problem. Physical distance still mattered when it came to team creativity, and remaining competitive in a rapidly changing landscape more and more requires novel solutions to complex problems. Offices may look different, but I believe that more than ever people and employees will need places to gather and connect.
The future trajectory is never clear even to the greatest minds. What is clear is that people will always need spaces to live, work, and conduct business. What those spaces look like will evolve, but companies are motivated to adapt. And historically, they have changed industrial warehouses and former malls into Amazon fulfillment centers and multi-family apartment complexes. Despite the recent drawdowns and changing landscape, we believe that investing in a diversified real estate portfolio continues to offer the potential for equity-like returns, current income, and solid inflation protection, all important elements of a well-balanced portfolio.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in late 2019, creating significant retirement and tax reforms with the goal of making retirement savings accessible to more Americans. We wrote a blog article detailing the major changes from this piece of legislation.
We’re going to dive deeper into some of the questions we’ve been receiving from our clients to shed more light on topics raised by the new legislation. We have divided these questions into six major themes; charitable giving, estate planning, Roth conversions, taxes, stretching IRA distributions, and trusts as beneficiaries. Here is our sixth of six installments on inherited IRAs.
I’m about to inherit an IRA. Will these changes mean I pay more taxes?
Before the SECURE Act was signed into law, non-spouse IRA beneficiaries were able to stretch RMDs over their lifetime with annual RMD calculations based on their life expectancy. However, the implementation of the SECURE Act requires non-spouse beneficiaries to distribute an inherited IRA within 10 years following the death of the original owner. Inherited IRAs left to minor children must also be fully distributed within 10 years of the beneficiary reaching the age of majority.
Distributing your inherited IRA balance over 10 years instead of over your lifetime will accelerate your receipt of income. If you inherit a large Traditional IRA, income from your inherited IRA could push you into a higher tax bracket and increase your tax rate. We can help you plan the best way to distribute income from your inherited IRA within 10 years relative to your income and tax situation each year to minimize additional taxes.
For example, an individual who is earning a gross income of $150k per year would fall in the 24% marginal tax bracket after claiming the standard deduction. However, adding annual $100k+ distributions from a $1.0 million inherited IRA balance that must be distributed over 10 years will push that person into the 35% tax bracket. If income fluctuates over that period, there may be opportunities to take additional distributions in lower income years to minimize overall taxes on the inherited IRA.
We can help you avoid running afoul of the new SECURE Act requirements by evaluating your income and taxes to develop the best strategy for adhering to the latest rules for your inherited IRA.
As with all new legislation, we will continue to track the changes as they unfold and notify you of any pertinent developments that may affect your financial plan. If you have further questions, please reach out to us.
Disclosure: The material provided is current as of the date presented, and is for informational purposes only, and does not intend to address the financial objectives, situation, or specific needs of any individual investor. Any information is for illustrative purposes only, and is not intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Investors should consult with a financial professional to discuss the appropriateness of the strategies discussed.
At Merriman Wealth Management, there’s nothing we love more than taking on the burden of financial planning so our clients can get back to spending their time and energy doing the things they love.
Over the past few years, we’ve been asking our clients—to hear it in their own words—about the value they gain from working with us. We’ve compiled the top ten reasons why clients hire us and showcased the responses in a ten-part blog installment. Here is a recap of the ten reasons why clients choose to hire us.
Reason #1: We Help You Weigh Your Options
Today, almost everyone has an iPhone in their pocket and a search engine, like Google, at the ready. Google is great for things like looking up baking recipes and movie trivia, but when it comes to personalized financial advice, Google isn’t great. Google won’t be able to formulate a financial strategy for you. At Merriman, we can. Read more…
Reason #2: We Cut Through The Noise
Financial planning comes with a myriad of components and sometimes we all need a fresh perspective to help make sense of what looks just like chaos to us.
When people don’t know where to start because there is simply too much to analyze, we call this “analysis paralysis.” Oftentimes, it’s not getting started at all that is the biggest hindrance to financial progress. Read more…
Reason #3: We Help You Get Your Time Back
If you could adequately choose investments, decide on a savings plan, and develop a strategy for your family, would you be able to make these hard decisions without ever second guessing yourself? How much research would it take to feel confident you are making the right choice? The amount of research you’d need to do in order to make a single financial decision could eat into the time you spend with your family or traveling the world. Read more…
Reason #4: We Provide Validation
In the grand scheme of wealth management and investment policy, you may already have a sense of what you’d like to build and which direction you want to go. There may be certain investments you’d like to make or strategies that match your lifestyle. Even if you are someone who has an innate sense of financial strategy, teaming up with an advisor gives you a certain confidence that you’re on the right track and making the best decisions. Read more…
Reason #5: We Increase Confidence
If there is only thing you could do right now to feel more confident in your financial future, sitting down with a professional to develop a financial plan is it. Determining goals, setting priorities, and deciding on a course of action for reaching those goals provides a sense of clarity. There’s also an increased sense of confidence. Read more…
Reason #6: We Offload the Tougher Tasks
If you’re not someone who lives and breathes number crunching and financial planning like us, there are probably things you don’t want to spend your time doing. Read more…
Reason #7 Why Clients Hire Merriman: We’re Encouraging
In the same way a personal trainer helps you get into shape, a financial advisor encourages and motivates you towards financial health. If you’re looking for a little encouragement, we’re here to help you find just that. Read more…
Reason #8: We Hold You Accountable
Staying accountable is a powerful tactic that works well whether you’re trying to eat more vegetables, show up to 52 yoga classes per year, or finish the first draft of your novel. The same applies in financial planning. You’re much more likely to stay on track when you’re regularly checking in with someone. Read more…
Reason #9: Family Continuity
Life is about living! At Merriman, we get that. We’re here to help you gain control of your finances and get your money to work for you and your family, while you’re here and even after you’re gone. We find having a plan in place and knowing that everything is under control makes things crystal clear. It’s like preparing for the worst. When there’s a plan in place, there’s less room for stress. There’s more freedom. Read more…
Reason #10: Someone Else to Blame
No matter their knowledge, years of expertise, or well-advised insight, there’s no advisor who can single-handedly control market movements. Markets fluctuate. They always will. If, or when, a market is down, it’s easier for you or your partner to blame an advisor than each other. What we’ve heard from our clients is that ability to lay blame on a third-party eases relationship tension that could surface during those stressful times. We find this “safeguard feature” means a lot to our clients. Read more…
If you’d like to feel more confident about your financial future, leverage one of our financial advisors as a resource. We’ll get to know you, your goals, and your values, and then devise a plan. To learn more about how we can help, reach out to us. There’s nothing we love more than helping people get back to living their lives fully!