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It depends.

Thank you. Thank you. I’m here all week.

Of all the parts of our financial lives—savings rates, long-term disability insurance, career planning, powers of attorney, thinking through what actually matters to you, and so on—investing is the one that most easily captures our imagination and stresses us out. And for that, a big sarcastic thank you to financial news coverage and dedicated Slack channels at work.

Because it’s quite possible investing is simply Not That Important for your finances and that it’s a waste of your precious time and mental energy to work on it.

But how do you know? How do you know what part of your financial life you should be focused on? How central is investing to your particular financial situation?

How Do You Figure It Out?

Especially because I’m talking about investing here, I feel the CYA need to say explicitly that I am not providing an algorithm that will give you a specific answer to this question. I want to give you some questions to think about, so you can arrive at the right answer for you. In fact, there are two big ones that I think dominate this conversation.

How Early Are You in Your Career?

If you’re 25 years old and plan to work for many more years, earning and ideally saving an income along the way, there are maaaany things more important for you than investing.

Protecting your ability to earn (and then save) that income comes first to mind. And for that, you want long-term disability insurance.

Ideally, in fact, you want a private policy to supplement your employer-provided group policy. I love employer-provided policies because they make it dead easy for you to have insurance coverage. And most people won’t seek it out on their own.

On the other hand, there are inadequacies to employer-provided coverage: if you leave that job, <poof!> that policy usually goes away. The income-replacement rate is too low. They won’t give you benefits in as many situations as a private policy might. Etc.

But what if you’re nearing the end of your career? Your ability to earn money (and add to your investment portfolio by saving it) is drawing to a close, so yes, investing becomes Much More Important.

And as you progress from early career to end of career, investing gets increasingly important. Note I’m focused on your career stage, not your age. If you’re planning on retiring early—or late!—then it’s the career stage that matters, not the calendar.

How Much Money Do You Have Invested?

The bigger your investment portfolio, the more attentive you want to be to it. And this is for two reasons:

  1. The smaller your portfolio, the more important your savings rate is.
  2. Mistakes are simply more costly in a larger portfolio, so you need to focus more on investing when you have more money.
  Smaller Portfolio = How Much You Save Has A Bigger Impact

Consider this example: you have a $10k portfolio and are able to save $1k/mo ($12k/year). You are saving more in one year than your portfolio is worth. By saving alone, you can grow your portfolio by 120%.

With that big of an impact, I care much less at this point about how that $10k is invested than I do about your savings rate. There just ain’t No Reasonable Investment out there that’ll return 120% per year.

Now consider this other example: you have a $1M portfolio and you’re saving $1k/mo ($12k/year). You are growing your portfolio by only 1.2% per year by saving. Investing can get you a much higher rate of return (over the long run).

Lesson here? If the amount of money you save is or could be large compared to your existing investment portfolio, I’d focus much more on that than on how you invest your money.

Larger Portfolio = Mistakes Cost More Money

Again with the arithmetic.

Let’s continue with the two portfolio examples above.

If you have a $10k portfolio, and you make a 1%, 5%, or 50% mistake, you’re going to lose $100, $500, or $5k.

By contrast, if you have a $1M portfolio, you’d lose $10k, $50k, or $500k. Much bigger ouch.

A bigger portfolio simply means you can lose (or make!) more dollars than you can with a smaller portfolio.

What kind of “mistakes” am I talking about? Well, two come to mind (but there’s really an endless list of investing mistakes we can make):

401(k) fees. Let’s start with the assumption that high fees are bad for investing. High fees are that mistake you’re trying to avoid.

Look at the investment fees in your 401(k). Let’s say the investments cost 1%/year, instead of closer to 0.1%/year. (Usually these higher fees happens with smaller tech companies. The likes of Amazon, Facebook, Google, and recently Airbnb, have gotten the memo about keeping investments inexpensive.)

If you’ve got $10k in your 401k, that’s an extra $100/year you’re paying that ideally you shouldn’t be. Yes, that sucks, but many of my clients could save an extra $200/mo without really feeling it. How about you?

That extra 1%, if your 401(k) held $1M, is $10k/year. That starts to be more painful.

So, if your 401(k) fees are high, you can worry less about them the smaller your 401(k) balance (or if you anticipate leaving the company and taking your money out of the 401(k) soon).

I often recommend to my clients to use the more-expensive target-date fund in their 401(k) than the cheaper-but-more-complicated collection of individual funds…because I know the dollar amount they’ll pay in fees is low and that saving that isn’t worth the additional complexity and stress of having a more-complicated 401(k).

Investing as if you can beat the market. Some of us go through a phase where we think we can outsmart the market. Pick individual companies to invest in, or get in and out of the market because we think we know when a drop is coming, instead of buying and holding the entire market. Empirically and mathematically, this is a loser’s game.

But if you play this game while you’re in your 20s, say, and you’ve got $10k that you’re trading the hell out of…and you lose half of it, well then you’ve just lost $5k. Again, not fun, but it’s a lot better than playing that same game with a $1M portfolio and losing $500k.

So, if you want to play this game, if you want to scratch that itch, play it with a smaller portfolio. Either because your portfolio is small, or because you carve out a small piece of a bigger portfolio.

You’ve Determined Investing Is Very Important. What Do You Do About It?

Again with the “depends” answer.

I certainly can’t give you any specific advice here. But keep in mind that just because investing is important to you, or you have a large portfolio, or you’re actually living on some of the money from your portfolio…none of this means your investing has to be complicated.

In fact,

instead of justifying that your investing should be simple, I encourage you to challenge anyone to prove why it needs to be complicated.

Why do you need, for example, anything more than some total market index funds?

The “3-fund portfolio” is a thing. I didn’t make this up. Lots of coverage out there. Hell, there’s an entire book dedicated to it. (Which is ironic…I mean, how many words do you need to talk about 3 funds? I assume much of it is debunking investment hoo ha that most of the investing industry pushes.)

The 3-fund portfolio owns most of the known investing universe simply and at very low cost:

  1. Total US Stock Market
  2. Total International Stock Market
  3. Total US Bond Market

This should be the baseline. Any variation from it needs to have a damn fine reason.

Don’t Forget the Other Important Things

Whether or not investing is an important, influential part of your finances, you need to protect yourself and the money you do have. And you can do that in two major categories:

Insurance. Just as long-term disability insurance protects your ability to earn income, you need liability insurance, home or renter’s insurance, health insurance, life insurance, and auto insurance to protect the money you have now and in the future.

Estate Planning. Being sure to set your beneficiary designations correctly on your retirement accounts and life insurance policies, and having the right documents (wills, trusts, powers of attorney, etc.)…both of these are essential to protecting both yourself, your money, and your loved ones.

Do you want to work with a financial planner who can help identify the most important parts of your financial life? Reach out to me at meg@flowfp.com or schedule a free consultation.

Sign up for Flow’s weekly-ish blog email to stay on top of my blog posts and videos, and also receive my guide How to Start a New Job (and Impress Yourself and Everyone Else).

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

The post How Focused Should I Be on Investing? There Are So Many Other Pieces of My Financial Puzzle. appeared first on Flow Financial Planning.

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Specifically, hiring an Associate Advisor. 

I’d love to have a diverse set of candidates so I can be sure to hire the person who will best round out the business and our work with clients. If you know of anyone, please point them Flow’s way! Here is the job description.

Do you want to work with a planning firm that is growing quickly because it knows just how to serve women in tech? Reach out to me at meg@flowfp.com or schedule a free consultation.

Sign up for Flow’s weekly-ish blog email to stay on top of my blog posts and videos, and also receive my guide How to Start a New Job (and Impress Yourself and Everyone Else).

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

The post Flow Is Hiring! appeared first on Flow Financial Planning.

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It’s easy to think that if you make a lot of money, your financial life should be easy. But if you’re anxious, you have every reason to be! Finances in tech are straight up complicated. And the risks of loss or lost opportunity are real.

I Make So Much Money. This Should Be Easy. Why Am I So Stressed Out? - YouTube

Do you want a partner and guide through all your financial decisions? Reach out to me at meg@flowfp.com or schedule a free consultation.

Sign up for Flow’s weekly-ish blog email to stay on top of my blog posts and videos, and also receive my guide How to Start a New Job (and Impress Yourself and Everyone Else).

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

The post I Make So Much Money. This Should Be Easy. Why Am I So Stressed Out? (Video) appeared first on Flow Financial Planning.

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A curious thing is happening when big tech companies, like Lyft and Uber, go IPO nowadays. I mean, aside from the fact that their stock immediately starts losing value…although that figures into my point, which is:

Your RSUs might be vesting on Day 1, not after lockup expiration. And that creates a tax hassle and possibly a big investment risk for you.

That’s my gentle description. To my colleagues, I’ve been describing these companies’ decisions around RSU taxation as “a real d*ck move.”

You can’t change how your RSUs work. But you can at least make sure you don’t get tripped up by your tax obligation.

How Private Company RSUs Should Work During an IPO (in my opinion)

In my previous blog post about RSUs in private companies, I talked about the idea of double-trigger vesting:

the shares aren’t really truly yours until[…]:

    1. The vesting date arrives, and
    2. The company goes public (or some other liquidity event that would enable you to turn these shares into money)

Why is double-trigger vesting important? Because “If your RSUs vest when your company is still private [aka, single-trigger vesting], you’ll owe taxes but not be able to sell the shares for the money you’ll need to pay the taxes.”

So, nicely enough, companies like Uber and Lyft included double-trigger vesting in their RSUs. According to those rules:

  1. When you passed the vesting date but the companies were still private, you pretty much “owned” the RSUs and could leave the company, but the shares weren’t yours yet for tax purposes.
  2. You waited until the company went IPO and until the lockup period expires, and then the shares were yours for tax purposes. You could also now, because the lockup period expired, sell your shares to cover the full tax liability.

And then.

How Uber and Lyft’s IPOs Actually Worked for RSUs

Both companies changed the rules about RSUs in their IPO filings.

The second trigger was no longer “the lockup period is over.” It was “IPO Day.” When, let’s review, you are not allowed to sell your shares. Yet, all the RSUs are “released” fully on that day and you owe taxes. That day.

Now, companies do usually withhold the statutory 22% tax rate, usually by withholding shares from your total RSU grant. So, if you had 10,000 RSUs, you’d actually receive only 7,800.

But if you’re about to come in to a Whole Lot of Money in 2019 thanks to the IPO (or any other source of income, like a generous salary), your tax rate is waaaaay higher than that.

Let’s say your top/marginal tax rate is 35%. Sure, the company withheld 22%…but you still owe 13% on the value of those RSUs. 13% that you’re gonna have to come up with out of your own pocket because you can’t sell the shares to come up with the money. Thanks. Thanks a lot.

A chart to illustrate said craziness, for those of you so inclined. (Do note I’m talking only about federal taxes. States might want their piece, too.)

You need to pay the IRS that $58k at some point. Maybe you can delay until you file taxes next year. But in many cases, you should pay estimated taxes—in Uber’s case, it’ll be by June 15; in Lyft’s, it was April 15—so you don’t get penalized for underpayment of taxes during the year.

So, I encourage you to work with an accountant or financial planner to:

  1. Calculate your remaining tax liability
  2. Figure out whether you need to pay it now via estimated taxes or you can wait until Tax Day next year
  3. Figure out how to come up with the cash to pay estimated taxes, if that’s the right solution
Why This Is So Risky for You

Now, there’s a not entirely unreasonable song and dance about the benefits of doing it this way. Benefits definitely for the company and investment banks that brokered the deal, but also possibly for you, the RSU holder.

If the Uber stock price, for example, which “premiered” at $45/share on IPO day, rises to $60 by the time the lockup expires, then you will owe income taxes on $45/share instead of $60/share. Which is to say, you will owe taxes on A Smaller Amount, which means Lower Taxes…which I think we can all agree is often a good thing.

BUT, and this is where my knickers get a’twisted, by arranging it this way, the company has imposed a possibly big investment risk on you. A risk you cannot get out from under. (Well, you could by doing something more complicated like buying put options, but for “normal” people, simpler is better.)

What is this investment risk? The fact that you owe taxes on that full $45/share regardless of what the stock price does in the next 6 months. Regardless of where it ends up by the time you can actually sell it.

If the stock price ends up lower, say, $35/share, then you will have paid taxes on income of $45/share for something that, in every real way, is only worth $35/share to you.

Now, you’ll still most likely end up with more money than you started with, even if the stock does fall in value. I ran a calculation for an Uber client the other day to see just how much the price of Uber stock would have to fall before her RSUs actually lost her money. Uber would have to lose a lot of value. Probably not gonna happen. But it could.

Continuing from the example above:

If Uber shares end up lower than $8 by the time this fictitious person sells her RSU shares, she will have paid more in taxes than she recoups by selling the shares.

Remember! In public companies, the nice thing about RSUs is that, as long as the company doesn’t go bankrupt or cease to exist, they’re guaranteed money! It might be more or less money, but it’s real money for you regardless of what the stock price does.

So, the idea that you could actually lose money on RSUs because of this change to the second vesting trigger…well, it sticks in my craw.

In the end, who knows what the stock price is going to do. Personally, I have my fingers crossed So Hard for my clients. This might all turn out gloriously for Lyft and Uber shareholders who had RSUs. If the stock price rises above IPO price, you will have benefited from this change to the vesting rules. And at the very least, as long as the stock price doesn’t drop below some pretty low threshold (specific to your personal tax rate), you will make some money off the RSUs.

I’m just annoyed that by changing the rules, these companies imposed a lot of unnecessary stress on their RSU holders:

  • “Where am I going to come up with the extra cash to pay the full tax liability?”
  • Investment risk of holding shares that you’ve been forced to pay taxes on, but that you cannot sell

So, please make sure you understand how your RSUs actually worked if you had RSUs in a company that recently went IPO. Figure out if you owe taxes now. Be aware of how much investment risk these shares are creating for you.

And if you have RSUs in a company that hasn’t yet gone IPO but intends to (<cough> lookin’ at you, Airbnb), understand how your RSUs work currently, yes, but also know that the rules can change.

Do you have RSUs in a private company (or one that recently IPOed) and now I’ve scared the bejeezus out of you? Reach out to me at meg@flowfp.com or schedule a free consultation.

Sign up for Flow’s weekly-ish blog email to stay on top of my blog posts and videos, and also receive my guide How to Start a New Job (and Impress Yourself and Everyone Else).

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

The post If you have RSUs and your company just went public, miiiight want to check the tax situation. appeared first on Flow Financial Planning.

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Today is Flow’s third anniversary. Hallelujah.

I am occasionally the introspective sort. And occasionally others benefit from those introspections, so I thought I’d publish said introspections on the last three years. Here’s my two-year retrospective.

First, Some Context.

Flow is a virtual, fee-only financial-planning firm that specializes in women in their early-to-mid-career in tech. By all measures, it’s doing well. Not, I might point out, hitting-it-out-of-the-park/rockstar/ninja/superstar/pick-your-unhelpful-idiom success. To wit:

  • I did not have $250k in revenue in year 1 (or 2…or 3).
  • I do not have a battalion of other advisors under me.
  • I have not been featured on the cover of industry publications
  • My number of social media followers (pick your platform!) are all sub-1000.
  • Newsletter subscribers only just passed 500

But I am:

  • Paying all my family’s bills, even saving a bit again
  • Working only 40 hours/week (thinking about it more like 60)
  • Doing things the way I think they should be done and connecting with people I want to connect with
  • Learning a hell of a lot
  • Working in a career I’m actually passionate about
  • Helping people along the way. Clients, other women in tech, and fellow or aspiring financial planners
  • Wearing jeans and fleece to the office every day
  • Cursing more than I’d otherwise be permitted to
The One Thing That Hasn’t Changed: I Still Need A Lot of Support and Replenishment.

I still have all the support people in my life that I had at last year’s anniversary, but now I’ve added a personal therapist! So, now I have:

  • A supportive husband and helpfully distracting daughters
  • A marriage counselor
  • A business coach
  • A personal therapist
  • Not to mention study groups of various sorts

I’ve also been putting in more effort to get together regularly with girlfriends who, frankly, don’t really give a rip about financial planning. It’s a good, healthy challenge to have to talk about something other than finances or running my firm.

I still exercise almost every morning and take the dog on a glorious and/or very soggy hike most weekends.

Full disclosure: I still have days (once a month? I assume it’s at least part thanks to these damned female hormones) when everything feels hopeless and overwhelming and oh-my-god what am I doing.

What I Need from My Professional Community Evidently Does Change.

Three years is enough time to gain some amount of 10,000-foot perspective. And from that perspective, I observe that what I need from my professional community evolves.

Three years ago, I started out with a “launcher group” with other planners also launching their firms. After 6 months or so, that no longer gave me what I needed, and it disbanded. A while later, I joined a study group of other advisors who were about to hire their first employee. That gave me what I needed for about a year. And then it didn’t.

Now I’m in a few groups:

  • A technical study group. I formed a study group around stock compensation last summer, and we meet weekly to grow our knowledge of All Things Stock Compensation.
  • A business study group. Earlier this year I joined a group of advisors, all at the same stage in business growth, being led by J.D. Bruce of Abacus Wealth Partners. I hope this will help turn me into a crack business owner.
  • My tribe. After cycling through a few peer groups, I realized that, as much as I liked all the people in those groups, I hadn’t yet found my “tribe.” I was really craving communion with other planners who were intellectually, culturally, values-wise, and hell, maybe even humor-wise aligned with me. I like to observe that, together, we’re a classic joke: “So, a Jewish guy, a black man, and a middle-aged woman walk into a bar…” You make me better, Zach and Brian.
My Clients Are My Best Teachers.

How should I structure my processes?

What should my meetings look like?

What deliverables should I have?

What’s the next step in my education as a financial planner?

When I first began my firm, I didn’t know the answer to most of these questions. I have learned to change things or take on new projects only when I could clearly see that it would improve how I worked with my clients.

This is liberating. I’m not wasting nearly as much time (note I didn’t say “I’m no longer wasting any time”) obsessing over processes, deliverables, tech tools, continuing education, study groups, yada yada yada.

I Became an Employer. And That is Surprisingly Important to Me.

I hired some part-time, 1099 work (wassup, Sarah) starting about 1.5 years in. Then in March 2018, Janice started working with me, part-time, to help with administrative stuff. And one year later, more or less as planned, I asked her to become a full-time salaried Client Services Associate. She accepted.

I am the first to admit (and beat you over the head with the fact that) I’m new at being an employer and manager, and I’m sure I’m making mistakes left and right. But I’m trying to err on the side of openness about pretty much everything.

Doing right by Janice in terms of honoring her needs and compensating her fairly is very high on my list of priorities.

People Appreciate (like, Really Appreciate) Honesty.

The sub-heading to this is not “Don’t lie to people.” I don’t think we tend to just lie to people. But we often don’t come right out and say what’s on our mind, which would ultimately be helpful to the other person in the conversation. Maybe this is equivalent to saying, be authentic, or be true to yourself. (Except that I am dreadfully sick of this push for “authenticity.”)

Many members of my professional community have expressed appreciation for my openness about how damn hard this entrepreneurial journey is. All my emotional face plants.

I’ve helped many a prospective client by telling them straight up that I don’t have the knowledge that would benefit them or that my fee is likely too high for them. And then I point them at a planner or service that would be more appropriate. Insta-gratitude.

Good Writing is Rare, and Thankfully Still Well Rewarded.

Liberal arts education for the win! I’m sure my first career as a technical writer contributes something, too.

I often think of a quip from the late Dick Wagner’s last book, Financial Planning 3.0, in which he calls financial planning the “ultimate liberal arts profession.” You need all the analytical stuff, sure, but also history and good writing and public speaking and psychology and all that other rot.

I have found it so gratifying to be able to engage people—be they prospective clients, clients, or colleagues—in the message I want to share. People like reading my writing. I like writing the writing. And it has helped me indescribably in building this business, especially a virtual business that relies entirely on content marketing to fill its prospect funnel.

I am additionally gratified that my experience can help put to bed any mistaken stereotypes about how all you need is technical or analytical skills to succeed in this profession. Good communication is essential.

Turns Out, I’m Really Good At This.

Sure, imposter syndrome never goes away (and if you don’t suffer from it to some extent, I am Immediately Suspicious of you). But after three years of working specifically with women in tech, I realize, “Hey, I’m damn good at this job. Look at me! I know shit!”

I can understand a new client’s RSU agreement in just a few minutes. I can hook a client up with an estate planning attorney or insurance broker or career coach whether they live in the Bay Area, Seattle, or New York. I know to ask about career paths, performance-review cycles, trading windows, and 401(k) matching policies. And it almost always gives a client an ah-ha! moment.

I’m not only good at serving women in tech, but I’m also good at marketing and sales. Coulda blown me over when I realized that. I’m good at writing blogs and connecting with my target market and giving them value and developing trust. And my prospect funnel is evidence of that.

At the same time, I’m well aware of just how much more I have to learn. I’d love to become a Registered Life Planner some day. I’d love to get more nerdy on taxes. It just doesn’t make me feel all that bad anymore that I don’t already know everything. In time, sweet child. In time.

I Have Yet to Take a Real Vacation.

This is maybe the most disappointing part of my journey: I cannot leave the work behind. Sometimes I end up doing significant work while “on vacation.” Sometimes it’s uselessly checking email or social media.

This summer my family and I are spending one week in a lake cabin with my dad in Wolfeboro, NH, a town my family has been visiting since the 1930s. That place means a lot to me.

So perhaps this summer, this trip, more than three years after launching my business, I will somehow be able to check my phone only once a day to see if anything caught on fire, and if not, turn it back off and let Janice and the universe take care of everything else.

I think that’s the closest we get to “real vacation” in these modern times, no?

Growth is Hard.

I am both delighted and stressed out to report that I could probably grow arbitrarily quickly at this point given the amount of demand from women in tech. Currently, my firm limits growth to one new client per month. I just don’t see how I can grow more quickly than that, keep my 40 hours/week, and provide the kind of service I want to for existing and new clients.

I have this itch to grow faster. And from a demand perspective, I could. But how? Partner with someone? Hire another advisor? Just cap out at 50 or so clients for me and Janice and spend the rest of my time doing something larger for the women-in-tech community, like speaking or writing a book or or or?

It’s something I’m struggling with mightily Right Now. And frankly, all the possibilities of growing beyond Just Me And Janice terrify me.

That said, a bit from Manisha Thakor’s (shout out to my Wellesley sisters) interview on Michael Kitces podcast stuck with me: she talked about an intimidating task as something she “can’t not do.” [my emphasis] And I feel that way about growing my business.

Onward!

Want a guide on your crazy financial journey? Reach out to me at meg@flowfp.com or schedule a free consultation.

Sign up for Flow’s weekly-ish blog email to stay on top of my blog posts and videos, and also receive my guide How to Start a New Job (and Impress Yourself and Everyone Else).

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

The post Flow Turns 3 appeared first on Flow Financial Planning.

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Have you started to hear rumblings from your friends, colleagues, family, or the media that a recession is probably coming soon? Are you nursing a fair bit of anxiety about it?

Let me assure you: a recession IS coming. Honestly, it’s built right into capitalism by way of the business cycle. What we can’t know, now or ever, is when it’s coming. In fact, strictly from an academic perspective, we only know that a recession has hit 6 months after it starts

But that doesn’t mean we can’t prepare for one.

In fact, “Preparing for a recession” could otherwise be called “prudent personal financial planning.”

It’s what we should be doing all the time, not just when a recession is looming, or we fear it is.

You Can’t Control When the Recession Hits. Nor A Lot of Other Things.

A recession is a great example of “Things We Can’t Control.” Also in its illustrious company are:

  • How the stock market performs
  • How your company stock performs
  • How the real estate market performs
  • What your own home could sell for (to a large extent, at least)
  • Whether your startup goes IPO and when (ignoring those of you who actually make that decision at your company)
  • Tax rates
  • Whether or not you’ll get laid off
You Can Still Prepare to Better Survive a Recession

You’ve probably heard that you shouldn’t focus on the thing you can’t control (because it’s useless). You should instead focus on things you can control. When it comes to preparing for a recession, what can you control?

The size your emergency fund

The bigger, the better. I mean, within limits, but I’d say that if you work in tech, own a home in a tech-heavy area, are married to someone in tech, and own company stock…an emergency fund equal to 12 months of living expenses isn’t at all unreasonable.

How expensive a house you buy

Are you considering buying a home? Can you afford the mortgage only if you keep on receiving those sweet sweet $50k or $100k of RSUs each year? Or you can juuuuust afford it based on your current (let’s face it, possibly inflated) income? Don’t. Do. It. In a recession, you might lose your job (and therefore all your income), or the stock price might plummet, or your company might scale way back on stock compensation, or you have to take a lower paying job.  Don’t leave yourself with no wiggle room.

How much you spend (and therefore how much you save)

Watching how much you spend has two benefits:

  1. You develop the habit of spending less (or, at least, a reasonable amount for your income), and that habit will come in super handy if your income disappears.
  2. You are able to save more, and having savings helps you get through a recession

The most important expenses to focus on are your fixed expenses, the ones you can’t quickly get out from under if you needed to, like a mortgage or a car loan.

The effort you’re putting into creating a robust professional network

Maybe you’ll lose your job (in fact, you’re practically certain to at some point). The important thing at that point is your resilience. What people can you rely on to help you get another job?

The effort (and money) you’re putting into developing the skills that will make you a desirable employee.

I know there are some useless shmucks out there who can get a job on schmoozing alone. (Schmucks and schmoozing…there’s gotta be some sort of “sch” hat trick somewhere.) But for many of us, having in-demand skills is also going to be necessary.

How aggressive your investment portfolio is

In general, the longer the time frame until you need the money (retirement is 30 years off!), the more aggressively you should invest your money. But if watching your investments lose half their value in just a few months (as they did—and more!—in the Great Recession) is going to drive you batty, then you need to invest more conservatively. The best “asset allocation” (basically, balance of stocks and bonds) is the one you can actually stick to in the long run.

And especially if you think you might need the money in the next, say, 3-10-ish years, you should definitely be thinking about how much money your portfolio could lose, and how that loss could directly impact your ability to do the things in your life you want to do.

How much company stock you keep

Kind of like an extreme version of the previous bit on aggressive investing. Keeping company stock is about the most risky investment you can make: not only is it a bet on a single company, it’s also the company that pays your salary. In a recession, you could easily lose your job (income) and most of your investments, too, if it’s heavily in company stock. Yeowch.

Your Insurance Coverage

I’m talking about three things here:

  1. What kind of insurance you have: disability, life, homeowner’s or renter’s, auto, liability
  2. If you have enough dollar-amount coverage for those things
  3. Whether or not the protection is tied to your job. Life insurance is often tied to our job (we get it through employee benefits), and long-term disability insurance is almost always tied to our jobs. Ideally, we have private policies that survive the loss of our jobs.

This is a pretty big list of things to take care of. But thankfully they’re pretty much all part of a comprehensive financial planning process, whether you do it with a planner or DIY. Even if a generalized recession doesn’t happen, your own personal recession could.

So, don’t fret about a recession, please. Instead, start checking off the list of the things above to make yourself as “recession-proof” as possible.

Does a “recession protection” checklist sound good to you? But you don’t want to figure out what specifics to put on the checklist? Reach out to me at meg@flowfp.com or schedule a free consultation.

Sign up for Flow’s weekly-ish blog email to stay on top of my blog posts and videos, and also receive my guide How to Start a New Job (and Impress Yourself and Everyone Else).

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

The post Do you fear a recession might be around the corner? What can you do to prepare? appeared first on Flow Financial Planning.

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When you look forward 5, maybe 10 years, do you see yourself not in the tech industry anymore? Lots of women leave tech, for good reasons and bad. If it’s a possibility for you, what are you doing now to prepare for it?

Do you see yourself NOT in tech in 10 years? - YouTube

Do you want a partner and guide through all your financial decisions? Reach out to me at meg@flowfp.com or schedule a free consultation.

Sign up for Flow’s weekly-ish blog email to stay on top of my blog posts and videos, and also receive my guide How to Start a New Job (and Impress Yourself and Everyone Else).

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

The post Do you see yourself NOT in tech in 10 years? appeared first on Flow Financial Planning.

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Welp, you’ve done your taxes. At least, I sure hope you have. 

In this here blog post, I wish not to look backwards and cast aspersions at the IRS or the Trump Administration or your company’s HR department (although lord knows, at times they’ve all deserved it…some more than others). Instead I want to show how you might use your 2018 tax return to make your ongoing finances better.

My firm doesn’t prepare taxes. But I have reviewed a lot of tax returns in the last two weeks (hats off to actual tax preparers…how do they do this?) I review them not to catch a mistake that the accountant made (although that’d be a bonus), but to get a better view into the state of my client’s total financial life…and to see how we can use that information to plan more effectively for them in 2019 and beyond.

I thought I’d share a bit of what I’ve been noticing in my clients’ tax returns. Almost all of my clients are in the tech industry, so to first order, their tax returns are kinda the same, for a few reasons:

    1. They make high incomes.
    2. Large dollar amounts of RSUs vested in 2018.
    3. They live in high-income-tax states.
    4. They give to charity.

See yourself in any part of that description? Maybe you’ll benefit from some of the advice I give to my clients in that situation, too. Read on, I implore you…

The Two Biggest Recurring “Gotchas”

Everyone’s tax situation is different, but I am seeing two big things over and over.

You Don’t Have a Mortgage. You Don’t Itemize. You Don’t Get a Tax Break for Charitable Donations.

If you live in California or New York or Oregon or other high-income-tax states, you are likely accustomed to itemizing the hell out of your deductions. Now, however, you’re capped at a $10k deduction for state income tax+property tax combined, thanks to the 2017 tax law changes. For many people, that is a huuuuge haircut.

[For those of us in Washington state, we never had the state income tax to deduct in the first place, so the 2017 changes don’t affect us as much…in this way.]

At the same time as your itemized deductions have been constrained by that $10k, the standard deduction is much higher: now $12k for a single person, $24k for a couple. Your itemized deductions have to be higher than those numbers to make itemizing worthwhile. And without you owning a home (or, more specifically, paying a mortgage), I just haven’t seen anyone itemize.

Of course, it can happen. Most likely route: your charitable contributions are really high. But for most people, you itemize because of two things:

    1. State and local income taxes (and property tax to a lesser extent)
    2. Mortgage interest

#1 is now limited. And if you don’t have #2, well…standard deduction it is.

There’s no inherent problem with taking the standard over the itemized deduction. One place where it screws people up, though, is that they’re not getting a benefit for their cash donations to charity.

Going forward? There are a few things to consider here:

    1. The point of charitable donations isn’t a tax benefit. It’s to help. So, even if my other suggestions aren’t reasonable for you, please, carry on.
    2. If you have company stock that has grown in value (and if you’ve kept your vested RSUs, then it likely has because the last few years have been very kind to many tech stocks), donate stock instead of cash. Even if you don’t itemize, you still get a tax benefit of not having to pay the taxes when you sell that stock, at a gain.
    3. “Bunch” your contributions into every 2 or 3 years. Donate 3 years’ worth of donations in 1 year, and then don’t donate again for another 3 years.  This makes you more likely to get into itemizing territory every 3rd year, getting the full tax benefit of a donation, and the other years you can take the standard deduction. Over the course of 3 years, this maximizes your total deductions.
    4. Financially support causes that aren’t charities. If you don’t itemize, you don’t get a tax benefit from charitable donations anyways, so you might as well consider donating to causes that aren’t charities. My family hasn’t itemized in the last few years, because we live in Washington state (no income tax to deduct) and have a very low-interest-rate mortgage.

      So we have shifted from giving money to 501(c)3 charities to other causes that aren’t charities. For example, you can give to the Sierra Club Foundation (a 501(c)3) and be eligible to itemize that donation. But if you give to the Sierra Club (a 501(c)4)), that donation isn’t eligible. But the Sierra Club uses that money to do lobbying and other political activities I’d like to support. Same thing with the ACLU. We very much support the ACLU’s mission, and we can support it with cash without giving up any tax benefits (because we wouldn’t have had them anyways).

Taxes for Vested RSUs Were Way Under-Withheld So You Owe A Lot.

This is the biggest thing that’s kicking my clients in the gut this tax season. They paid way too little in taxes on their vesting Restricted Stock Units. This happened for a couple of reasons:

    1. When your RSUs vest, companies are required only to withhold the statutory 22% taxes on the RSU income. But if your top/marginal tax rate is higher (which it often is for my clients and maybe you, too), then you still owe more tax.
    2. 2018 saw a lot of tech stocks go up up up. (Hello, Twillio and Etsy and Atlassian and Tableau!) So, maybe your RSU income was a lot higher than you thought it was going to be, early in 2018. [Of course, many tech stocks were middling (Adobe, Amazon) and some just straight up lost value over 2018 (sorry, Facebook and Google).]

So, you’ve got more RSU income than expected, on which taxes are being under-withheld. You now owe a lot of tax, and possibly a penalty, too. Ouch.

Going forward? Start paying estimated taxes. You can do it online! It’s easy to pay! (Don’t forget your state income taxes, too.) Harder part is figuring out how much to pay. I don’t have shortcuts for that. Best advice is to work with a CPA who understands RSUs.

You can’t easily handle these extra taxes by increasing your normal paycheck tax withholding because these RSUs vest in “lumps” (technical term, I assure you). The money doesn’t come every paycheck. It comes every month, or every quarter. And those paycheck settings are, well, per paycheck.

Two More Things

Aaaand, a couple more things I find myself pointing out to clients that I bet apply to a lot of you, too, if not now, then soon, as you keep cultivating your career.

The Net Investment Income Tax. Learn It. Live It. Loving Optional.

Do you have investment income (interest, dividends, gains from the sale of company stock, and so on)? I’m assuming you have at least interest income.  

If you have investment income, and your total income is over $200k (single) or $250k (couple), then that investment income gets an extra tax added on top of its “normal tax” (my words). Without NII, investment income is taxed thusly:

    1. Interest and non-qualified dividends and short-term capital gains are taxed at the same rate as your ordinary income (like your salary)
    2. Qualified dividends and long-term capital gains are taxed at the long-term capital gains rate (usually 15%).

But if any of this income exceeds that threshold, you will also pay the Net Investment Income Tax, another 3.8% on top, for a total of 18.8%.

And remember, it’s not just your salary that counts towards that threshold. If you have RSUs, sometimes when those vest, it pushes your total income over that NII threshold.

Going forward? So, if you’re subject to the NII, you want to be extra attentive when you sell investments. This includes your regular ol’ investments (in Vanguard or Robinhood or Betterment), but also, notably, your company stock.

Of course, don’t let the tax tail wag the investment dog. I encourage people all the time to sell company stock, taxes be damned! (kinda sorta), because the investment risk of keeping it is too high. But it’s something to be aware of:

  • you’re paying not 15%, but 18.8% on the gains in your company stock, or
  • that wicked good 2.5% interest rate on that high yield online bank is more like 1.5% after you take taxes into consideration.
High Marginal Tax Rate? Look Around for Some More Pre-Tax Opportunities for Your Income

What is your marginal tax rate? I mean your specific number, not the definition. The definition is, more or less, the tax rate you’ll pay on your very next dollar of income. And, I already know that. What we’re concerned with here is, what’s the number for you?

For example, if you’re single, and your income is:

You should ideally be able to find this number on your tax return paperwork, either through software like TurboTax or from your tax preparer. The higher the marginal rate, the more you’ll benefit from getting any sort of pre-tax benefit:

  • Putting money into your 401(k) pre-tax (not Roth)
  • HSA
  • FSA (dependent care of health care)
  • Transit/commuter benefits
  • Deferred compensation plans

Going forward? So, hunt around in your employee benefits program for ways you can pay for things with pre-tax dollars.

(I feel compelled to down a rat hole here and carve out an exception for paying for long-term disability insurance. If you have the opportunity at your company to pay for this insurance with pre-tax dollars please do it. Because that means, if you ever claim benefits, all the benefits will be tax-free. That could be huge.)

Here’s hoping you can find one way to improve your finances based on what you find in your 2018 tax returns.

Would you rather have someone else find these tax opportunities for you? Reach out to me at meg@flowfp.com or schedule a free consultation.

Sign up for Flow’s weekly-ish blog email to stay on top of my blog posts and videos, and also receive our guide How to Start a New Job (and Impress Yourself and Everyone Else) for free!

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

The post Don’t Put Your Tax Return Away Yet! Look for a Few Bits to Improve Your Finances Going Forward. appeared first on Flow Financial Planning.

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Every month or every quarter, your Restricted Stock Units vest and now you own (more) company stock. Are you keeping the company stock…just because you don’t know what you’d do with the money from selling it? There is a solution!

Are you letting your vested RSUs just sit there, for lack of a better idea? - YouTube

Do you want a partner and guide through all your financial decisions? Reach out to me at meg@flowfp.com or schedule a free consultation.

Sign up for Flow’s weekly-ish blog email to stay on top of my blog posts and videos, and also receive my guide How to Start a New Job (and Impress Yourself and Everyone Else).

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

The post Are you letting your vested RSUs just sit there, for lack of a better idea? (Video) appeared first on Flow Financial Planning.

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Let’s just get this out of the way at the beginning: There is no one right way to combine finances with your romantic partner. The “right” way differs from couple to couple…and over time for the same couple!

I get asked this question a lot by my clients. Maybe they were single when they started working with me and became a couple afterwards. Or they were already in a couple but hadn’t yet reached the stage where they thought about combining finances. Or they did have some version of combined finances (Splitwise, anyone?) and feel it’s no longer working for them. I think I have learned more from my clients about how to combine finances than I ever had to offer them, and I will pass that learned wisdom on to you.

In the tech industry, especially, your finances can get complicated real quick. Multiple by two, and yowsahs:

  • all the different sources of income each person has and
  • the various ways you each have to save (401(k) before-tax or Roth or after-tax, HSA, FSA, brokerage account, bank accounts, deferred compensation plans) and
  • the relatively high-spending lifestyles that most people in tech (whom I know, at least) have.

Today I’m going to keep it pretty simple and just focus on one issue of joint finances: spending (and the bank accounts and credit cards it involves).

There’s plenty of other stuff to consider. Eventually. Saving for future goals. What to do with investment and retirement accounts. But that’s for another day.

Different Approaches You Can Choose From

You can imagine that there’s an infinity of possibilities, starting from “We don’t share finances at all” to “Everything is joint and we think only of Ours.” Let’s explore some of the possibilities between those two extremes (acknowledging that the variations are probably endless).

Most Separate: Keep All Accounts Separate and Just “Trust” That It’ll be Even Enough

This is how it started with me and my husband.

  • Pros: You don’t have to change a damn thing about how you currently manage your finances. You don’t have to track anything.
  • Cons: You might feel as if you’re shouldering an unfair burden. And because you’re not tracking, that could be true…or not.

Keep All Accounts Separate and Reimburse Each Other for Joint Expenses

Use either a tool like Splitwise or a note-taking app or good ol’ pencil and paper to keep track of what joint expenses which one of you has incurred, and one person simply reimburses the other for half (or maybe pro rata based on your respective incomes?) of the shared expense.

  • Pros: You get to be exquisitely clear and confident that you’re equitably sharing joint expenses. And you don’t need to feel any weirdness about how much you spend on personal things.
  • Cons: Takes some amount of effort to track and reimburse expenses.

Maintain separate accounts for most stuff but add a joint checking account that covers joint expenses, and you both fund it.

Otherwise known as “his, hers, and ours” or “hers hers and ours” or “theirs theirs and ours”…you get the picture. You set up a joint checking account with your partner and then either do direct deposit from your paycheck or set up transfers from your separate bank accounts to fund it.

  • Pros: All the above benefits plus you have the convenience of having that joint account so you don’t have to fuss around with reimbursing one another. Your “liability” for your partner’s behavior is limited to the money in the checking account.
  • Cons: You still have to decide how much of your respective money to put into the checking account, and you’re still incurring expenses separately (you still have separate credit cards), so paying off a portion of your individual credit cards from this joint account could be hairy.

Maintain separate accounts but add a joint checking account and a joint credit card for joint expenses, and you both fund the checking account.

You have to set up a joint checking account, as above, and now you also also apply for a joint credit card. [Whether or not the credit card can be truly jointly held or whether one of you will be primary and the other an “authorized user” depends on the issuer.]

  • Pros: You have the convenience of having that joint account so you don’t have to fuss around with reimbursing one another, plus there’s an obvious match up between joint expenses (on the card) and joint payment (from the checking account).
  • Cons: Having a joint account with someone (or having them be an authorized user on your credit card) means you’re responsible for their behavior. If you have a credit card with your partner, and your partner runs up a $10k bill, that is your $10k bill. Also, you still have to decide how much of your respective money to put into the checking account.

Most Joint: All accounts are joint.

All bank accounts (checking, saving, money market) and credit cards are all jointly owned (or as close as possible for the credit cards).

  • Pros: Convenience is the name of the game here. Nothing is hidden from view or access. Either person can pay all the bills, withdraw or deposit money, incur expenses, etc.
  • Cons: All money in joint accounts and all expenses on a joint credit card are the responsibility of each person. If your partner ends up being a sociopath and runs off with all the money from your joint account, or runs up a $50k credit card bill, you have no recourse. That credit card liability is yours, and that money from the joint account is just gone. Even if they’re not a sociopath, if they have different money attitudes and behaviors, they can use “your” money in a way you don’t agree with.

Any accounts that remain separate create some level of inconvenience because only one of you has access to it. You can often provide “view only” access to your partner through various online financial tools, like mint.com or some of the tools I use in my practice, such as RightCapital (a financial planning tool) and Capitect (a portfolio management tool).

Different Stages of Life/Coupledom

I think it’s fairly obvious that different approaches are appropriate for different stages of a relationship. If you’re just dating, not livin’ in sin, then “keep it separate and maybe reimburse” is likely the way to go. If you’re married with kids and own a house together, then it’s reasonable to go all-in on the joint thang.

My Story

When my husband and I were dating, we kept everything separate, didn’t track joint expenses, and kinda just “took turns” paying for things. To be fair to him, he shouldered the majority of the expenses, due to a variety of factors: he was a man in this patriarchal culture, he has his own attitudes towards money and generosity, and he made notably more money than I did (quelle surprise!).

Eventually we moved in together, and we set up joint bank accounts, motivated by convenience…and supported by a more-or-less shared attitude towards money, and his profound desire to not have to think about this shit anymore and my isn’t it convenient that my fiancée is an aspiring financial planner and totally digs this stuff.  

I admit that I kept a separate “bug out” bank account for myself for years…with maybe $5k in it.  I did this less because I had any suspicions about my husband or our relationship and more as a nod to the reality that women are often trapped inside shitty relationships because they don’t have the money to get out.

Once we were married, we (okay, I) tallied our respective monies to see how even we were. He had a higher net worth than me, by a notable amount, but not by an order of magnitude. Maybe he had 1.5 times the money I had?

We decided to combine everything we could, even mushing all our investment monies into a “joint tenants with rights of survivorship” (JTWROS) investment account and moving everything to joint bank accounts. I think he kept his San Francisco Credit Union account for years…to pay his individual Discover Card bill (which he’d set up to auto-contribute to some international children’s charities years prior)…but after a decade or so of no longer living in San Francisco, he made the effort to just consolidate that, too, into our joint accounts.

We could have reasonably kept things separate while we were both still working, but fairly soon after we got married, I quit my full-time job, worked freelance for a while (way less income than I had been making), went back to school for a master’s, switched careers, and then had me some babies while working part-time in my new field. We were most certainly “all in” at this point.

Fast forward 5 or 6 years, and my husband quit his job to become a stay-at-home dad and I launched my own financial planning firm (becoming the sole breadwinner…a purely theoretical title for at least the first year or two). “Separateness” was a laughable notion throughout all of this.

Just Try Something and Iterate

As I mentioned above, different approaches are going to be better for different couples (different relationship to money? vastly different incomes or assets?) and for the same couple at different stages of their relationship. Witness how my husband and I evolved from “completely separate” to “completely joint.” You could reasonable choose to maintain some separateness forever in your relationship, and if it works for you, both logistically and emotionally, that’s the right solution for you.

So, if you’re struggling with the idea of what to do with your finances, just pick an approach, use it for a while, and see what works for you, what doesn’t, and tweak what doesn’t. Nothing is forever.

Be a Bit Cautious in Joining Finances

Having said “just try something and iterate!” there are some things that aren’t so easy to undo, In particular, changing ownership of an existing account from separate to joint. This needs to be one of the last things you do. And, in fact, many of my long-married couple clients still have accounts of various sorts in their individual names. You can much more easily and with less risk create new joint accounts and seed it with new money.

Ownership is a huge part of estate planning (you might encounter the concept of how an account is “titled”…which mostly boils down to who owns it). So especially when you’re taking money that has been yours and only yours and you decide to own it jointly, that has estate-planning implications. If you’re talking significant (to you) money, you’ll likely want to consult with an estate planning attorney before doing it. Of course, becoming legally married has its own rules about ownership, depending on the state you live in.

Take time to see how the relationship evolves. Looking back at what my husband and I did, frankly, is a little scary. I was very confident in our relationship and his trustworthiness…just like millions of women have been and then been totally screwed over by their partners. Thankfully, it has worked out well, but statistically speaking, it wouldn’t have been a shocker if it hadn’t.

Consider a pre-marital agreement, or at least the conversation leading up to it.

Joining finances is more than just whose name is on which account and where does my direct deposit go. It involves attitudes towards money, money habits and behaviors (and neuroses), and your goals for yourself and the couple. So, don’t be surprised it’s a thorny issue!

Do you want someone to guide you and your partner through uncovering your respective relationships to money and identifying the next, best step to take in joining your finances? Reach out to me at meg@flowfp.com or schedule a free consultation.

Sign up for Flow’s weekly-ish blog email to stay on top of my blog posts and videos, and also receive our guide How to Start a New Job (and Impress Yourself and Everyone Else) for free!

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

The post How Do I Combine Finances with My Partner? appeared first on Flow Financial Planning.

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