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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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Do you ever feel that your cash flow should be easier to get a hold of? You should be able to automate it? Not have to think about it so much? Not have to move money around with your delicate hands so often?

But, as it turns out, you just don’t find it simple. So you don’t get a handle on it. And you’re left letting your cash flow sort of happen to you instead of you managing it intentionally. And then you slosh money from account to account with the discomfiting notion that “This is stupid. I know I’m not doing this right.”

Many of my clients have just that challenge with their cash flow. And it is indeed possible to add structure, automation, and comfort to it!

In this blog post I’m going to focus on the income and savings part of your cash flow, not the spending side (which, in practice, is way way harder because it’s so tied up with our emotions and habits).

And furthermore, this is a tactical discussion, not philosophical. I’m not going to talk about the “Why” of saving and spending. As with all important decisions in life, tactics should follow your “Why.” You can optimize the tactics all you want, but without an overarching “Why,” you’ll only achieve your bliss by accident.

But because the actual implementation is what hangs people up so often, let us forge ahead!

Why Is It So Hard?

I suspect that most of us probably imprinted on our parents’ experience, which seemed simple and straightforward. And it probably was! Your parents probably had a salary…and that’s it. If you have a salary, you receive the same income in every paycheck, month after month. That makes planning pretty easy.

Your Income Streams are Multiple and Variable

So, let’s see what your income looks like. If you’re an employee in a tech company, you’ve got

  1. A salary.
  2. Maybe a bonus, once a year, maybe twice a year
  3. If you’re lucky, you get Restricted Stock Units that vest every month, quarter or year.
  4. And maybe you participate in your company’s Employee Stock Purchase Plan that gives you company stock (which, of course, you turn into cash ASAP. Riiiiight?) every 6 months.

If you have anything beyond a salary, or maaaaybe a salary + bonus, it gets a lot harder to stay on top of your cash flow. Try being a couple, where there are two sets of convoluted income streams, and at the end, 2 sets of individual spending and saving goals and one set of joint spending and saving goals.

You Can’t Automate A Lot of It

One of the biggest reasons it’s hard to get on top of your cash flow, and especially your savings, is that you simply can’t automate a lot of this.

Let’s say you want to save some money. You can easily set your paycheck to automatically contribute:

  1. to your 401(k). In fact, “from your paycheck” is the only way to save to your 401(k). And
  2. say, $200 to an investment account (which you should be doing…at some dollar level)

Set it and forget it. The eternal way.

But that works well only if your income is the same amount every time.

  • What happens when those RSUs vest, and you sell them for cash (or rarely, they’re “settled” in cash initially, not in stock)?
  • What happens when the ESPP purchase period is over, and you sell all the company stock for cash?

Now maybe you’ve got an extra $5k, $10k, $50k of cash sitting in your brokerage account (the account where your company’s stock plan is administered…a Fidelity account or E*Trade account or or or). You’ve got lots of cash above and beyond your 401(k) contribution and $200 contribution to an investment account.

You can’t automate that primarily because the value of the company stock (and therefore of your vested RSUs and ESPP shares) will continually change based on the price of the stock. So we can’t know until day-of how much cash your RSUs or ESPP shares are worth and therefore how much we can transfer to another account.

Is It Really So Bad to Not Have a Handle on My Cash Flow?

Well, as you likely already realize, it feels bad to not be in control of your money as it flows through your life.

On top of that (which is enough in itself!), I can think of two other reasons why this is, uh, less than ideal:

  1. if you can’t stay on top of it, chances are you’re spending more than you should…and more than you realize…and on things you’re not really even that aware of or that you don’t value that much. Which in turn means you’re likely not saving as much as you could (pretty effortlessly) be saving.
  2. Very likely that cash is just gonna sit around in your brokerage account, being all chill and “hey, man, I’m cash…not earning a damn thing.” instead of you investing the cash or using it in a more intentional way. Inertia is strong, my friend.
How to Get A Handle on Your Complicated Cash Flow

It’s NOT simple. It IS complicated. It IS hard.

And also, if you spend some time thinking (yes, kinda hard…but just one time) about your financial situation, you CAN set up a plan that:

  • is (largely) automated
  • gives you much easier understanding into how money is moving through your life, and
  • gives you confidence that you’re saving and spending appropriately.

Here are a couple of examples from my clients (anonymized, obvs) that demonstrate how you might analyze your cash flow situation and come up with specific tactics for yourself.

Example 1.

Client situation: Single, 20-something woman in tech. She has a salary, RSUs that vest every quarter, and an Employee Stock Purchase plan whose purchase period is 6 months long (i.e., it turns her cash contributions into company stock in her account every 6 months).

What’s the challenge? We want her to max out her 401(k) (for the tax savings and of course to get closer to financial independence) and to max out her ESPP participation (“free money”). Those have to come out of her paycheck. Take away taxes and she’s left with $5k every month take-home, in a regular month. Alas, she needs $6500 every month to cover expenses. She has a $1500 monthly shortfall.

Where will that money come from?

And what do we do with the ESPP shares (which she sells and turns into cash) she receives at the end of every 6 months?

The solution: We decided to use her quarterly RSU proceeds to subsidize her monthly spending. Every quarter, at the company stock’s current price, she should take home $30k after-tax. So, every quarter, she will move:

  1. $5k to her checking account (that she lives out of, to subsidize her monthly spending for 3 months) and
  2. $25k to an investment account.

This, alas, cannot be automated, for the reason stated above: We don’t know for sure what those vesting RSUs are going to be worth until they day they vest, because stock prices change moment to moment.

So, we put a reminder in our systems to reach out to her on the vesting day of each quarter and:

  1. Remind her to sell all the RSUs (and offer to hop on videoconference with her if she wants some company in navigating what are often stupidly confusing interfaces)
  2. Ask her how much money that is
  3. Remind her to move $5k to her bank account and the rest to her investment account

And remember she’s also got that ESPP that produces a whole bunch of company stock in her account every 6 months. This ESPP money is all “gravy” to her as we’re covering her expenses with other income. So, we want to save it all towards her glorious future (whatever it ends up being). So, every 6 months, we reach out to her and:

  1. Remind her to sell all the shares she received and pay taxes on it (are taxes auto-withheld or are estimated payments necessary?)
  2. Ask her how much money that is.
  3. Remind her to move all of it to her investment account.

You could do the same yourself, with some initial analysis, reasonable calendar rigor, and sufficient dedication to not letting this stuff slide. (And you know, a bit of rejiggering every time your income changes.)

Here’s what the initial analysis might look like:

Example 2.

Client situation: Married couple with a baby. Both working full time, with a salary, 401(k), Employee Stock Purchase Plan, and a Health Savings Account (HSA).

What’s the challenge? They can pay their “normal” monthly expenses out of their normal paycheck, even after maximizing all those paycheck contributions (401(k), HSA, ESPP).

However, they have several significant goals that they can’t save for from their regular paycheck, after all those deductions. How will they fund their kid’s college savings plan and a house upgrade, as well as the all-purpose “Opportunity Bucket.”

[Side bar: What is an “Opportunity Bucket”? It’s a concept I use with a lot of my clients to think about what life might be like in 5, 10 years. That’s certainly not “Retirement” for most of my clients, as they’re in their early to mid-careers. But most people think only about saving cash for “now” and investing for “retirement.” What happens to the 20, 30, 40 years in between? Or just the next 5 or 10 years? We want to save and invest towards that time in your life, even if you don’t know what’s going to happening then. Sure will be nice to have money sittin’ around when you do figure it out. And that bucket of money is your Opportunity Bucket.]

The solution: We set their paychecks to max out their 401(k)s, their HSAs, and their ESPP. Then we set a reminder every 6 months (when the ESPP’s purchase period ends) to sell all the company shares, pay taxes on the income, and then push a certain dollar amount into each of their goals:

    1. $x into their kid’s 529 plan
    2. $y into their house upgrade account (cash account)
    3. Whatever’s left into their Opportunity Bucket (investment account)

Again, dealing with the ESPP proceeds is not something they can automate. But having done the analysis ahead of time, it doesn’t take much time or thought process. So in a few minutes they can do the necessary (simple) arithmetic and then move the money from their brokerage account (where the ESPP proceeds are) into the various accounts listed above.

How to Apply This to Your Cash Flow

So, if we can generalize from these two examples, here’s a process you could use:

  1. Set your paycheck savings (ESPP, 401(k), HSA, etc.), which will happen automatically.
  2. Figure out how much money you need for regular, monthly living.
  3. Does your now-reduced take-home cover your regular, monthly living? If so, great!
    1. All the other forms of income (RSUs vesting, ESPPs, bonuses) can be divvied among your various goals and accounts, manually, when you actually get that income.
    2. Set a recurring calendar reminder for yourself for the days when your RSUs vest or your ESPP purchase period ends.
  4. If not, then figure out how much more income you need on top of your regular paycheck take home to cover your expenses. Let’s say your shortfall is $1k.
  5. When your get those other, irregular, unpredictable, or infrequent sources of income, put enough of it into your bank account to cover that shortfall.
    1. If your RSUs vest every 3 months, you’ll need to put $3k into your bank account every time RSUs vest. If you’re relying on your ESPP, and its Purchase Period is 6 months long, you’ll need to put $6k into your bank account every time you get your shares and sell them for cash. You get the picture.

If this seems like a lot to figure out and implement all at once, it probably is. So just try imparting a bit of structure into your cash flow at first. See how it feels. What works for you. What doesn’t. And just tweak every month for a while until it feels easy and you feel in control. At which point, VICTORY!

Do you want help figuring out how best to stay on top of your complicated cash flow? 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 Why is it so hard to get a handle on my cash flow? Surely this should be easier! appeared first on Flow Financial Planning.

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In the last month, two of my clients have looked at their paystubs and realized that their 401(k) contributions were going into Roth instead of pre-tax. This wouldn’t be a problem except for the fact that both of these clients had, months earlier, changed their 401(k) contributions away from Roth and into pre-tax. And somehow it didn’t “take.” This caused an administrative pain in the butt and higher-than-planned taxes.

I have to admit that this surprised me. But what really made my jaw drop was learning the reason the change on the 401(k) website didn’t take: the “integration” between the 401(k) website (where my clients made their changes) and the payroll service (which controls what is debited from their paychecks) is… WAIT FOR IT… an email sent from the 401(k) system to the HR person, who then has to manually key in the change to the payroll system.

Now, maybe I should have known of this possibility before.  But I didn’t. Now you may learn from my (clients’) pain. A chain is only as strong as its weakest link, as you’ve likely heard, and an email-plus-manual-data-entry integration for your 401(k) is definitely a weak link.

Both of these clients work for startups, not the Googles or Amazons of the tech world. Maybe the larger companies have a tighter set up. I sure hope they do.

In another story, a client at a startup was being paid half his salary for the first few months, for some convoluted reason. Seeing as how his paycheck was auto-deposited in his bank account (as presumably yours is, too), he didn’t notice.

Until, that is, a few months in, when his paycheck was suddenly twice as big. Whoo! The HR person explained, at that point, what had happened, and the client eventually got all his back pay. But that could have caused some unfixable problems:  your 401(k) contributions could be lower than you intended for a particular calendar year, your bank account could run dangerously low and payments out of it could bounce, etc.

Please “Trust but Verify” Your Paystub

So, what might you find when you double-check your paystub?

Note: I’m assuming you get paid twice per month because I multiply by 24 several times.

Your Pay:

  • How much did you get paid, gross? This is one of the first numbers on the paystub.  Multiply by 24. Does that equal what you think your salary is?

Your 401(k):

Lots of stuff here, reflecting the many variations 401(k) plans can offer.

  • How much money is being contributed to your 401(k)? Multiply by 24. Do you get at least $19k (the 2019 401(k) contribution maximum)?
    • If not, you won’t maximize your 401(k) this year. Maybe you have a good reason to not max out (they definitely exist), but make sure the choice is intentional.
    • If it’s way over $19k, then you’ll max out your 401(k) well before the end of the year, and you might miss out on company match. You’re safe if your company “trues up” the company match at year’s end.
  • Is your 401(k) contribution going into Roth or Pre-Tax? Is this what you want?
  • If you think you are contributing after-tax money, is that reflected properly?
  • Are you getting the right 401(k) match? (Years ago, checking a paystub is how I learned that I’d fallen victim to maxing out my 401(k) too early in the year and so I missed out on some company match.)

Employee Stock Purchase Plans:

  • How much is being directed to your Employee Stock Purchase Plan? What percentage of your salary does that represent? Is that what you thought it’d be?

Taxes:

  • In paychecks that include bonuses, how much tax was withheld? Bonuses are typically taxed as “supplemental income,” at a tax rate of 22%. But companies have the option of withholding taxes at a rate tailored to your specific circumstances. If they withheld 22% and your top tax rate is way higher than that (and if you’re a married couple both working in tech, your top federal income tax rate could easily get over 30%), you might need to pay estimated taxes.

Employee Benefits:

  • How much FSA (either healthcare or Dependent Care) is being withheld? Multiply by 24. Do you get to the amount you designated in your open enrollment? In 2019, the max healthcare FSA is $2700, max Dependent Care is $5000.
  • Commute/transit and other pre-tax benefits: How much is being withheld? Does it line up with what you chose in open enrollment?
  • How much Paid Time Off have you used? Does that seem right?
When Should You Check Your Paystub?

I would recommend you double check your paystubs at these times:

  • The first paystub of the year. All your new employee benefits kick in on January 1. You want to make sure all your open enrollment elections are being treated correctly in your paystub.
  • The first paystub after making any significant changes to your deductions. Usually this means 401(k) changes, but also if you change benefits elections because of some “qualifying event” (having a baby, getting married, etc.)
  • When you expect to be reimbursed by your company
  • When you get a bonus or RSUs vest
What Else Can You Learn From Your Paycheck?

If you’re at all interested in financial nerdery, you can discover how much you’re paying all up in taxes. In California, for example, that’s not just federal and state income tax. It’s also:

Washington state has its own bewildering variety of payroll deductions, but mostly on the employer side. (Which took me Many Months to finally suss out after becoming an employer myself. My God, bureaucracy run amok!)

You might also be able to see how much your employer is paying for your benefits. When it comes to long-term disability insurance and health insurance, especially, they are paying quite a bit!

Is this the sort of thing you know you should do but never actually do? Do you want to work with someone who can help you keep on top of all these fiddly bits of of your personal 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 Your paystub can be very informative. And also wrong. When’s the last time you double-checked yours? appeared first on Flow Financial Planning.

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Just getting on the mat is the hardest part.

Do you do yoga? Do you love yoga? I do. My yoga practices goes back 20 years (because, evidently, I’m Old), and I don’t know what I’d do without it. Over those years, I’ve accepted a lot of the lessons that yoga tries to teach you.

And recently, musing over how to most effectively communicate with clients about their finances, how to help them actually make changes to their finances, it has dawned on me just how many parallels there are between a good yoga practice and good personal financial planning.

If, like me, you love yoga, but, unlike me, don’t particularly dig financial planning, you might just find this instructive.

I follow Yoga with Adriene nowadays for my practice, and Adriene frequently says something like that opening quote. And it’s true! Getting over the mental hump of deciding to do yoga is so much harder than doing the actual poses.  

Similarly, just reaching out to a financial planner, or reading your first personal-finance book, is sometimes the hardest part. Breaking through the anxiety, the inertia is so much harder than the tasks you’ll need to do to improve your finances.

See which of these yoga lessons you might put to use in your own financial life or working with your financial planner.

Lesson #1: Breathe.

If you find yourself moving too quickly for comfort, slow down and focus on breathing deeply. This will help you focus on the here and now, tune out unhelpful distractions, calm your crazed nerves.

Lesson #2: The instructor is your guide; you are your best teacher.

Your yoga instructor went through teacher training. They’ve likely been practicing and teaching yoga for years. They know sooo much more than you do about anatomy and yoga pedagogy and sequencing of poses.  But what you know infinitely better is how your body and mind work.

And the right yoga for you is the yoga that accommodates your physical, emotional, and mental state. Whether you’re feeling down or tired today. Whether you have a bum shoulder. So, you need to take what the instructor tells you and filter it through your knowledge of yourself. Or ask the instructor how you can modify the pose for your needs.

Just replace “instructor” with “financial planner” and you’ve got a great description of a financial planner’s role in their clients’ lives: The planner is the technical expert. The client is the Client expert. And the best work comes out of a collaboration between them.

Lesson #3: Don’t pay attention to the person on the mat next to yours.

I have admired—okay, envied—many a lithe, powerful body over the years of yoga classes. I still remember the dude who could start in Dandasana, and then hoist himself up, bringing his legs back through his arms, in one smooth movement, into a handstand. Daaaaaaannnng.

But we all know, intellectually at least, that someone else’s yoga practice is irrelevant to our own. Other people have different bodies, different minds, and different lives.

In my work as a financial planner, people often ask me if their Net Worth is “good” or “bad” or how it compares to my other clients’ situations. I understand the impetus: Most people have no idea how to assess how they’re doing financially, and comparing yourself to others is an easy way to do it.

It’s just not a very healthy or helpful way of doing it. Those other people have entirely different lives than you do: different histories, different interests, different goals, different families. Why would their financial situation be at all relevant to yours? And if you’re focusing on someone else’s finances, you’re more likely to make a decision that’s not right for yours.

Lesson #4: Create a strong foundation first.

I made a video about this a while ago. A strong financial foundation has a cash cushion, the right insurance coverage, and a few other tidbits.

Lesson #5: Incremental and regular is the best approach.

It’s much better to do yoga for “only” 20 minutes a day, every day, than go to 90-minute classes each day for a week…and then nothing for another month.

Similarly, your finances—and your comfort with your finances—are going to benefit by chipping away at it a little bit a time. Don’t try to fix everything at once. In my experience with my clients, when I get All Excited about All The Stuff We’re Going To Do In Your Finances and give them a laundry list of tasks…know what gets done? Not much. And that’s a failure on my part.

But when we sprinkle out the tasks—Increase your 401(k) contribution here. Sell some company stock there. Apply for that supplemental long-term disability insurance policy after that—after a year…wow, look at all we’ve done!

Lesson #6: You don’t need fancy yoga clothes to do yoga.

I love yoga clothes. Sometimes I fantasize about a less shabby collection. I am here to attest, however, that you can do perfectly good yoga in cheap, stretched-out, 10-year-old Marika leggings and t-shirts that you got as shwag at your last professional conference. I’m pretty sure my sun salutation wouldn’t be any better were I wearing the latest Prana gear.

In the realm of personal finance, there are all sorts of special tools and geegaws that catch the eye because their interface is so slick or everyone’s talking about them. You’ve probably heard of popular services and apps for:

Maybe at the tender age of 42 I am just Old and Grumpy, but so often when I hear about this slick new solution to a personal finance challenge, I think, “You know, perfectly fine solutions already exist.”

Take Betterment, for example. Vanguard has offered target-date retirement funds or balanced funds for years now, which are “set it and forget it” like Betterment is, and much cheaper! They’re just not as sexy, and I’m guessing their marketing budget isn’t as huge.

Take the savings apps. You can simply set up your paycheck to automatically direct savings to the appropriate accounts before you ever get your grubby little mitts on your money. Or set up automatic transfers from your checking account to a savings or investment account. Anything that makes it into your hands, you’re free to spend! This capability has existed for years.

Take the spending apps. Alright, you got me here. (Does this make me a hypocrite?) I think that understanding your spending is the foundation of personal finance. Because your spending reflects your values (let that sink in for a minute!).

When I was growing up, my parents tracked their spending with a piece of paper and pencil. But I think in this modern world, we simply spend way more often than is reasonable to track with paper. Although, that does suggest that perhaps we should constrain our spending to a frequency that makes paper tracking doable! Could be an interesting experiment…

Lesson #7: Setbacks will occur. How you respond to them is everything.

Maybe you overdo it on sun salutations and strain your rotator cuff. Or you get in a car accident and now your whole body is Ow. Or life just gets in the way and you can’t practice for a while.

The glory of the yoga practice is that it can accommodate all of this. You can do different poses. You can alter the way you do a certain pose. You can just lie there on your back the whole time with your legs up the wall. You can do some deep breathing while sitting in the doctor’s office because that’s all you have time for. The only wrong way to do yoga is to give up because you can’t do it a certain way.

In your financial life, setbacks will occur. You get laid off. Your husband has an accident. Your once-trusty company stock loses half its value overnight.

The question is: How will you respond? What are the resources—financial, social, familial, personal—that you can draw on to recover for the set back? Can you reduce your expenses? Can you take a loan against your home equity? Can you ask your parents for money? Can you reach out to your professional network for leads for a new job? Can you delay buying a home for a few more years?

Maybe you could even come up with several more similarities between yoga and personal finance. In general, I find that having a different perspective on the Same Old Thing (in this case, personal finances) can really help me change my thinking or my behavior. So, if you’re a yoga devotee and have internalized these lessons from yoga, maybe you can start usefully applying these same lessons to your own finances.

Do want an “instructor” who will tailor all that technical financial knowledge to your specific situation? 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 Do you love your yoga practice? You can apply it to your finances. appeared first on Flow Financial Planning.

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You cannot cruise the internet without tripping over articles about the partial government shutdown and the increasingly horrible effects it’s having on many government workers and their finances and their psyches.

The whole situation is doing a marvelous job of illustrating that you do not want to have only a little bit of cash in the bank. You want quite a lot in order to survive the crap life can throw at you. And in the tech industry, I bet you can think of a few such pieces of crap.

Enter the Emergency Fund. If you’re working in the tech industry, how should you think about one?

Losing Your Job is the Obvious Reason to Have an Emergency Fund. But There Are So Many!

The government shutdown has made very clear one reason to have an emergency fund: you might unexpectedly lose your income. In the tech industry, “furloughs” aren’t exactly gonna happen, but layoffs do. We all know they happen during industry implosions like in the Dot Com Bust in the early 2000s, but they also happen even now, in these heady tech times (witness: Tesla, and also tiny (former) startups that some of my clients have worked at).

Basically, an emergency fund comes in handy when Bad Shit Happens that you can’t reasonably predict.

  • You get laid off. (Been there.)
  • Your pet gets sick.
  • A wind storm destroys your roof. (Ahhh, home ownership.)
  • A loved one is in a crisis and you want—need—to support them. (Also been there.)
  • Unexpected last-minute expenses when buying a home. (Yup.)
  • Damn kid breaks her arm. (And there, too.)
  • You or your spouse becomes disabled. (This happens. Oh please believe that it happens. To regular people. Like you or me.)
  • Whoops! Underpaid your taxes last year and now it’s April 15. (I’m suppressing.)

And on and on. If you’re the “expect the worst” kind of person, I’m sure you could add a few dozen more scenarios to that list.

Lest you be depressed by this whole discussion: It’s also possible to construe this in a positive light. An Emergency Fund can give you the freedom to change your life, like, now: quit a job, change your living situation, and so on.

How Big Should Your Emergency Fund Be?

I think I’m pretty “average” in recommending my clients have an Emergency Fund equal to 6 to 12 months of baseline expenses. “Baseline” meaning you’d strip out all the unnecessary expenses in your life (eating out, trips to Ulta Beauty, 3-D printer parts, etc.) and get as close as possible to just the unavoidable expenses (insurance premiums, rent or mortgage, school tuition, groceries, etc.).

You can adjust up or down depending on:

  • How risk averse you are
    • Keep more in cash if you are the anxious type! Nothing wrong with that! (Yes yes, “But you could get a bigger return if you invested the extra money instead!”…Try to comfort yourself with that when you’re lying awake at night worrying about your finances.)
  • Other sources of income in your household
    • Do you have some side hustles? Do you have a partner with income? Do you receive rental or passive income? Basically, the more “diversified” your income stream, the less you need to protect against loss of any one of them. That said, there are many reasons beside “losing your income” to have an emergency fund, so this only helps so much.
  • Other people you can rely on
    • Do you have parents or other folks whom you could rely on to help you out financially if you needed it? I have many clients who really don’t like to think about that, but know they could rely on their families if they needed to. And you know what? As systemically unfair (this has all sorts of implications for the racial wealth gap, for example) or as icky as that feels, it’s a reality for you.
How to Grow an Emergency Fund, Either Slow and Steady or Overnight

An emergency fund is a concept that applies to everyone. But how you actually create yours (or increase yours) can be very different if you work in the tech industry.

Most people simply have to save a bit out of each paycheck until they’ve built theirs up. And that’s a totally legit strategy. Biggest problem is that it takes time, and we humans are nothing if not impatient creatures.

Working in tech might give you all sorts of other ways to create one overnight:

  • RSUs and bonuses. Particularly in tech, big “lumpy” income is pretty common. If you’re accustomed to living off of your normal paycheck (and let me say, that’s a good thing to be accustomed to), you can just shovel RSUs or bonuses directly into your Emergency Fund. And judging from a lot of the RSU vests and bonuses I’ve been seeing lately, that could likely get you all the way there in one shot.  
  • Per paycheck. I already mentioned it above, but if this is the approach you’re taking, you might even consider reducing your 401(k) contribution (not below what’s necessary to get your full match, mind you) to free up some money to accelerate your savings.
  • Existing pile of cash. I can’t tell you how many women have come to me in the last year who list “What am I supposed to do with this giant pile of cash in my bank account? I know I should do something, but what?” Voila! Funding an Emergency Fund is a great first use for it.  
  • Sell some of your pile of company stock. Many of my clients come to me with a lot of company stock, usually because they simply haven’t been paying attention to their RSUs vesting every quarter for years. It’s important to reduce your concentration in company stock in order to reduce your investment risk, but selling some to fully fund your Emergency Fund might be an even better motivation.

Keep in mind that if you’ve got high-interest debt (see: Credit Cards), it’s probably best to pay those off first.

An Emergency Fund Is Only One Part of Protecting Yourself

No one part of your financial life stands on its own. It’s part of a larger picture, whether or not you recognize that, or whether or not know how to make all the pieces fit together well.

Your Emergency Fund is one part of “Risk Management,” as we’d say in the trade. When your life goes pear-shaped, I’d love for you to have many risk-management tools in place:

  • An Emergency Fund. This covers short-term needs.
  • Long-Term Disability insurance.  If you become disabled, you’re going to need to replace your income for a long time. What else are you going to live off of?
  • Life insurance. If anyone depends on you for money, you need to make sure they can still get money even if you, ahem, kick it. And if you depend on anyone for income, make sure they have life insurance. (If you have a big mortgage with someone, or kids with someone, you both probably need life insurance.)
  • Estate planning documents, like Powers of Attorney and a Living Will
  • Marketable career skills and a strong professional network. Don’t coast in your career, especially when you’re in the early or middle stages of it. And especially as a woman in the tech industry. If you get laid off or need a higher-paying job, you want to have all the professional horsepower you can.

Also, remember that Life Happens. Sometimes the best laid plans aren’t enough. We can’t plan our way around or out of all the risks in life. And that’s where a strong professional and personal community can really shine.

It doesn’t take a village just to raise a child. It takes a village to grow and protect a meaningful, healthy personal and professional life, too. And cultivating that village is an important part of your own risk management. (Which sounds incredibly callous…wow.)

But, you can start it all with an Emergency Fund. Which, thankfully, is perhaps the easiest thing I just listed.

Do you realize you need a bigger Emergency Fund but have been unable to make yourself build it? 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 Emergency funds. Yes, they’re boring. But do you actually have one that’s big enough? appeared first on Flow Financial Planning.

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You cannot cruise the internet without tripping over articles about the partial government shutdown and the increasingly horrible effects it’s having on many government workers and their finances and their psyches.

The whole situation is doing a marvelous job of illustrating that you do not want to have only a little bit of cash in the bank. You want quite a lot in order to survive the crap life can throw at you. And in the tech industry, I bet you can think of a few such pieces of crap.

Enter the Emergency Fund. If you’re working in the tech industry, how should you think about one?

Losing Your Job is the Obvious Reason to Have an Emergency Fund. But There Are So Many!

The government shutdown has made very clear one reason to have an emergency fund: you might unexpectedly lose your income. In the tech industry, “furloughs” aren’t exactly gonna happen, but layoffs do. We all know they happen during industry implosions like in the Dot Com Bust in the early 2000s, but they also happen even now, in these heady tech times (witness: Tesla, and also tiny (former) startups that some of my clients have worked at).

Basically, an emergency fund comes in handy when Bad Shit Happens that you can’t reasonably predict.

  • You get laid off. (Been there.)
  • Your pet gets sick.
  • A wind storm destroys your roof. (Ahhh, home ownership.)
  • A loved one is in a crisis and you want—need—to support them. (Also been there.)
  • Unexpected last-minute expenses when buying a home. (Yup.)
  • Damn kid breaks her arm. (And there, too.)
  • You or your spouse becomes disabled. (This happens. Oh please believe that it happens. To regular people. Like you or me.)
  • Whoops! Underpaid your taxes last year and now it’s April 15. (I’m suppressing.)

And on and on. If you’re the “expect the worst” kind of person, I’m sure you could add a few dozen more scenarios to that list.

Lest you be depressed by this whole discussion: It’s also possible to construe this in a positive light. An Emergency Fund can give you the freedom to change your life, like, now: quit a job, change your living situation, and so on.

How Big Should Your Emergency Fund Be?

I think I’m pretty “average” in recommending my clients have an Emergency Fund equal to 6 to 12 months of baseline expenses. “Baseline” meaning you’d strip out all the unnecessary expenses in your life (eating out, trips to Ulta Beauty, 3-D printer parts, etc.) and get as close as possible to just the unavoidable expenses (insurance premiums, rent or mortgage, school tuition, groceries, etc.).

You can adjust up or down depending on:

  • How risk averse you are
    • Keep more in cash if you are the anxious type! Nothing wrong with that! (Yes yes, “But you could get a bigger return if you invested the extra money instead!”…Try to comfort yourself with that when you’re lying awake at night worrying about your finances.)
  • Other sources of income in your household
    • Do you have some side hustles? Do you have a partner with income? Do you receive rental or passive income? Basically, the more “diversified” your income stream, the less you need to protect against loss of any one of them. That said, there are many reasons beside “losing your income” to have an emergency fund, so this only helps so much.
  • Other people you can rely on
    • Do you have parents or other folks whom you could rely on to help you out financially if you needed it? I have many clients who really don’t like to think about that, but know they could rely on their families if they needed to. And you know what? As systemically unfair (this has all sorts of implications for the racial wealth gap, for example) or as icky as that feels, it’s a reality for you.
How to Grow an Emergency Fund, Either Slow and Steady or Overnight

An emergency fund is a concept that applies to everyone. But how you actually create yours (or increase yours) can be very different if you work in the tech industry.

Most people simply have to save a bit out of each paycheck until they’ve built theirs up. And that’s a totally legit strategy. Biggest problem is that it takes time, and we humans are nothing if not impatient creatures.

Working in tech might give you all sorts of other ways to create one overnight:

  • RSUs and bonuses. Particularly in tech, big “lumpy” income is pretty common. If you’re accustomed to living off of your normal paycheck (and let me say, that’s a good thing to be accustomed to), you can just shovel RSUs or bonuses directly into your Emergency Fund. And judging from a lot of the RSU vests and bonuses I’ve been seeing lately, that could likely get you all the way there in one shot.  
  • Per paycheck. I already mentioned it above, but if this is the approach you’re taking, you might even consider reducing your 401(k) contribution (not below what’s necessary to get your full match, mind you) to free up some money to accelerate your savings.
  • Existing pile of cash. I can’t tell you how many women have come to me in the last year who list “What am I supposed to do with this giant pile of cash in my bank account? I know I should do something, but what?” Voila! Funding an Emergency Fund is a great first use for it.  
  • Sell some of your pile of company stock. Many of my clients come to me with a lot of company stock, usually because they simply haven’t been paying attention to their RSUs vesting every quarter for years. It’s important to reduce your concentration in company stock in order to reduce your investment risk, but selling some to fully fund your Emergency Fund might be an even better motivation.

Keep in mind that if you’ve got high-interest debt (see: Credit Cards), it’s probably best to pay those off first.

An Emergency Fund Is Only One Part of Protecting Yourself

No one part of your financial life stands on its own. It’s part of a larger picture, whether or not you recognize that, or whether or not know how to make all the pieces fit together well.

Your Emergency Fund is one part of “Risk Management,” as we’d say in the trade. When your life goes pear-shaped, I’d love for you to have many risk-management tools in place:

  • An Emergency Fund. This covers short-term needs.
  • Long-Term Disability insurance.  If you become disabled, you’re going to need to replace your income for a long time. What else are you going to live off of?
  • Life insurance. If anyone depends on you for money, you need to make sure they can still get money even if you, ahem, kick it. And if you depend on anyone for income, make sure they have life insurance. (If you have a big mortgage with someone, or kids with someone, you both probably need life insurance.)
  • Estate planning documents, like Powers of Attorney and a Living Will
  • Marketable career skills and a strong professional network. Don’t coast in your career, especially when you’re in the early or middle stages of it. And especially as a woman in the tech industry. If you get laid off or need a higher-paying job, you want to have all the professional horsepower you can.

Also, remember that Life Happens. Sometimes the best laid plans aren’t enough. We can’t plan our way around or out of all the risks in life. And that’s where a strong professional and personal community can really shine.

It doesn’t take a village just to raise a child. It takes a village to grow and protect a meaningful, healthy personal and professional life, too. And cultivating that village is an important part of your own risk management. (Which sounds incredibly callous…wow.)

But, you can start it all with an Emergency Fund. Which, thankfully, is perhaps the easiest thing I just listed.

Do you realize you need a bigger Emergency Fund but have been unable to make yourself build it? 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 You Think Government Workers Have It Rough, Try Working in Tech appeared first on Flow Financial Planning.

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How long have you been paying attention to your investments, or to the stock market? Has it been only for the last few years, or, maybe only since 2009?

2009, by the way, is otherwise known as the bottom of the market during the Great Recession. Also otherwise known as the beginning of one of the greatest bull markets (that is, markets that go up) in US stock market history.

And if you have only tuned in to investing and the stock market in the last few years, this is the kind of result you’re accustomed to:

(Source: https://finance.yahoo.com)

Look at that lovely, pretty uninterrupted upwards trajectory! (Green thrown in just for emotional manipulation.) This is the performance of Vanguard’s Total Stock Market Index fund, a good representation of “the general stock market.”

It’s understandable, then, if you’ve felt pretty sanguine, pretty comfortable with the whole investing thing. After all, it only ever really goes up, right?

And then, in the last few months of 2018, we all got a rather unpleasant surprise:

How are you even supposed to react to this unpleasant and very unusual (at least, for the last 10 years) change of fortunes?

Your 401(k) Has Betrayed You

Most of my clients have 401(k)s that they’ve been blindly saving to for years now. (When I say “blindly,” I don’t mean that in a negative way…I actually think it’s very very good to simply shovel money into your various savings buckets without it being a big thing.)

It’s been reeeeall easy to get my clients to follow my advice to continue to max out their 401(k)s (or even more, if they can make after-tax contributions) and invest in target-date retirement funds, which are heavily invested in stocks if your retirement date is decades out.

Why has it been so easy? Well, first reason is my superior persuasion skills. Obvs. Second is that it’s comfortable to invest in stocks when stocks Only Go Up.

But let’s take the Vanguard Target Retirement 2040 fund as an example. From early September to early January, it looked like this:

Damn you, 401(k)! Why hast thou forsaken me?!

How’s Your Company Stock Faring?

Even if your 401(k) has been a bit disappointing of late, maybe your company stock has been a shining beacon of investment awesomeness. Orrrr, of course, it might be making things even worse for you.

My clients at Facebook certainly had a rather crappy second half of 2018 (compared to the general US stock market, in the blue line):

If you’ve got Facebook stock, you could probably be easily persuaded by my typical advice to clients who own company stock: “sell most of your company stock ASAP.”

But my clients holding Etsy stock in the 2nd half of the year:

or Amazon stock for all of 2018:

…are feeling Pretty Smug right now. And also perhaps questioning my judgment: “You want me to sell my company stock? But, but…it’s kicking butt!”

So, it turns out that some tech companies and their stock are cushioning the investment blow for some of my clients and maybe for you, too. It might therefore be confusing the matter of “How should I approach my investments?”

(To be clear, I’m Very Happy for my clients who had, for whatever reason, large holdings in Amazon or Etsy or Twilio, etc. during 2018.)

But what I’d love for you to take away from this (and what I hope my clients do, too) is that

This changes nothing about how you should treat your company stock.

Holding company stock is incredibly risky:

  • Concentrated holdings in any single stock is risky, as you can’t smear your risk out over a bunch of companies, some of which might go up, some of which might go down. If your company stock goes down, ain’t nothin’ offsetting that fall.
  • Concentrated holdings in the same company that pays you your salary (and possibly that affects the value of your home, as might be the case if you live in Seattle and work for Amazon) is extra de-duperty risky, as any faltering in company performance might simultaneously pummel your investment portfolio, the value of your home, and your ability to earn money.

So, you need to think about how holding company stock will affect your finances and your life. Sometimes it’s perfectly fine to hold significant amounts of company stock…as long as you understand what can happen. That is, that you can lose much, most, or all of that money…and are you okay with how that will affect your finances and your life?

The fact that some tech-company stocks have done particularly well or particularly poorly in the last year doesn’t affect that fact or that strategy at all.

[Note: Now, I know I’m committing felony-level #chartcrimes here by having different time frames for most of these charts. I simply want to illustrate the perspective that many of my clients (and many of you!) might have on your company stock versus the stock market in general.]

What You Should Do at This Point

You’ve probably read all the Very Reasonable and Prudent advice about “Don’t do anything. Don’t wig out and sell all your stock. Don’t go to cash.” So, I won’t belabor that point because, well, it’s been thoroughly belabored already.

What I’d like to present to you is simply a different perspective on the losses in the stock market. And hopefully that new perspective will encourage the right behavior. Now, I didn’t come up with this perspective, it’s just one of my favorite ones.

After the stock market falls in value, it’s as if stocks are on sale. It’s the best time to buy.

A share of Vanguard’s Total Stock Market Index Fund, for example, cost about $149 in early September. Now it costs (as of January 14, 2019) about $132. It’s as if it’s been marked down by 11%.

You’d rather buy a shirt when it’s on sale, right? So, you’re better off buying stocks when they’re on sale. You get the very same thing, but at a lower price. If you were buying stocks in September (and, if you have a 401(k), you almost certainly were), why oh why would you stop buying them now, when they’re cheaper?

So, to keep it short and sweet:

Keep saving and investing in your 401(k) and other investment accounts, just as you were 6 months ago or a year ago.

There are some things you can do to “optimize” your investments:

  1. You can “rebalance.” If you’re in a target-date retirement fund, surprise! You’re already rebalancing. Those funds do it automatically for you.
  2. You can intentionally sell investments at a loss to reduce your taxes, a.k.a. “tax-loss harvesting.”

Keep in mind, though, that tactics such as these are simply a thin layer of icing on the Cook’s Illustrated Sour Cream Chocolate Bundt Cake of continuing to save and invest and otherwise not touching your investing. Also, I must note, that while the stock market has fallen in value, it has had far larger losses in the past, so you’ll eventually have to deal with one of those “far larger losses” yourself.

As I finish this writing this, Jack Bogle has just died. The founder of Vanguard. The creator of the first index fund. And a man with a mission to improve the financial industry for regular investors, like you and me. His last book was called Stay the Course, and that is the simple, if not easy, message I leave you with here.

Is your first true taste of stock market losses making you think that maybe working with a financial professional is a good idea? 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 What? You mean my 401(k) can go DOWN? Well, I never… appeared first on Flow Financial Planning.

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Do you have a Big Idea for your life? Quit your job and start your own business! Take a sabbatical! Buy an expensive home! Go back to school! And is it So Big that it’s Too Scary to contemplate doing on your own? One of my favorite things to do with my clients is to say “Yes, you can.” Are you simply waiting for someone to give you permission?

What’s the Thing YOU really want to do?

You really really want to do [fill in Your Thing here]. Are you simply waiting for permission? - 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 You really really want to do [fill in Your Thing here]. Are you simply waiting for permission? (Video) appeared first on Flow Financial Planning.

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Recently a few of my clients at major tech companies (to remain nameless!) have forwarded to me company emails proclaiming the latest improvements in their 401(k) offering. These improvements have included a “true up” of matching contributions and dead-easy-to-use after-tax-401(k) contributions.

Despite being a little leery of “Are you sure the IRS is cool with this?” I am really happy for my clients, because these changes make their 401(k) even More Awesome-er than it was before: making it even more easy to save even more money in an even more tax-savvy way for their eventual financial independence.

I have previously written about what makes a 401(k) crappy.  But these emails from clients got me to thinking: If I could construct the best 401(k) out there, based on elements that I actually see in existence at tech companies right now (this is not pie in the sky, this is based on reality), what would it look like?

[Side note: if you ever get a chance to participate in the 401(k) committee at your company, here’s a great template to start with! You could join me in thanking my many colleagues in the XY Planning Network community, who helped me flesh out this list.]

As I was discussing this blog post with colleagues, I realized that features could be good in two ways: good for the employee, or good for the financial planner the employee is working with. Oftentimes, I‘d say, features are both: that which is good for the employee is also good for the planner, assuming the planner is a true fiduciary and puts their clients’ best interests first. Regardless, this blog post focuses exclusively on features good for the employee (that is, you) regardless of whether you work with a financial planner.

High-Level Awesomeness

You might be a bit surprised (and overwhelmed) by the number of features that I include below. So, if you do get overwhelmed, keep just this short list of features in mind. A really good 401(k) provides:

  1. Simplicity
    1. It’s easy to understand how it works, how to enroll, how to contribute, how to manage the account.
    2. The list of investment options is short.
    3. The website interface is easy to use.
  2. Low cost investments and plan fees
  3. A good match.
    1. I’d say an all-up 4% match is base level good. I’d love to see higher.
Let’s Make it Awesome-Er.

All the things I list below I’ve either seen in my clients’ 401(k)s or seen at play in other 401(k)s. Which is to say, this is all very reality-centric. I’m not just making sh*t up.

A Good Match
  • A match above 4% total (companies might define this in different ways)
  • Matches are “trued up” at year end. That is, you don’t have to contribute in every paycheck in order to get the full match.
  • Immediate (or fast) vesting. I cannot remember seeing a tech-company 401(k) that didn’t provide immediate vesting, but my husband swears they exist.
  • You receive a 401(k) match not because you contributed, but because you’re paying back student loans. (“Whaaaat?” you say. “I know,” I say.)
You Can Contribute in Many Different Ways

You can:

  • Contribute to a Roth account, not just a pre-tax account.
  • Make after-tax contributions
    • Even better, you can do “in-service distributions” to roll that after-tax money into a Roth IRA every year.
    • Even better-er, the plan will immediately and automatically convert after-tax contributions to your Roth 401(k).
  • Roll former 401(k)s into it (“rollover contributions”).
  • Contribute to your 401(k) from bonuses, not just from salary.
A Short List of Good Investment Choices

“Good investment choices,” to me, means:

  • Low-cost: ideally well under 0.50% expense ratio
  • Set-it-and-forget-it: usually this means either target-date retirement funds or “balanced” funds. Broad-market index funds (either stock or bond) are good, too…you just have to figure out the right balance for yourself.

And, perhaps counter-intuitively, you want a short list of investment options. Behavioral finance research has shown us that more choices makes us unhappy and less likely to take action (in this case, choose an investment in your 401(k)). Many 401(k)s have a bewilderingly long list of investment options; this is not actually doing you a service.

(Having a “brokerage window” into the broader universe of investment options at Fidelity or Vanguard or whoever manages your 401(k) plan is only useful if your 401(k)’s investment options aren’t good. If they are good enough, the brokerage window just confuses things unnecessarily.)

Low, Transparent Fees

Fees live in two places in your 401(k) plan:

  1. The fees needed to run the plan
  2. Fees associated with the individual investment options

Sometimes these fees are kept separate, and sometimes the plan is “free” because the investment expenses are raised to cover plan fees. I don’t have a horse in this race: it legit takes money to administer a 401(k) plan like this. That money’s gotta come from somewhere.

In any case, ideally the 401(k) plan documentation makes clear what fees you’re paying and what these fees are for. So, I suppose that’s one knock against the “free” plan…because the fees for investments are muddled up with the fees for running the plan. In some cases, your company pays the plan fees and you only owe the investment fees.

Easy-to-Use, Informative Interface

Honestly, this is a little hard to come by. I’m no UX designer (though I have several clients who play one on TV), but the web interfaces for 401(k)s are often overly complicated and difficult to intuit.

  • If you switch jobs mid-year, I really appreciate the feature that allows you to record  contributions to the previous 401(k) so that you don’t have to worry about over-contributing to this 401(k).
  • Plan documents and important information are easily accessible through the interface.
  • The website (and statements) tell you how much income, in retirement, your current account balance would translate into in terms of monthly income. If you’re young or new to the 401(k), this is probably a depressingly low number. But it’s good for perspective and combatting Wishful Thinking.
  • Easy-to-understand statements
The Plan Makes Good Decisions on Your Behalf

Thanks to work in Behavioral Finance, notably Nobel Prize Winner Richard Thaler, many 401(k)s have implemented automatic actions that save you from your inertia or other self-sabotaging behaviors. Just goin’ on the record here: These are good. They include automatic:

  1. Enrollment. You have to opt out of participating in your 401(k). 401(k) participation typically goes through the roof when this is implemented.
  2. Investment selection. Instead of your contributions just sittin’ there like a dolt in cash, they are automatically invested, typically in a target-date fund with an appropriate year given your age. Obviously, depending on your personal circumstances, this might not be ideal. But in general, it’s hell of a lot better than the usual “cash” default.
  3. Contribution percentage. Now, The usual default contribution percentage is usually around 3%, which is still waaaay too low for all of my clients. But it’s sure better than the 0% you’d get otherwise if you neglected to set it yourself.
  4. Escalation. Let’s say you should be saving more to your 401(k). It’s really hard to proactively cut your spending in order to save more. So, some plans allow you to automatically increase your contribution a certain percentage every year or every time you get a raise. ‘Cause, as we all know, it’s easier to “Save More Tomorrow” than it is to save more today.

If your 401(k) offers all of these features, please let me know so I can send a bouquet to your HR department.

Do you want to make the most of your 401(k), or perhaps even lobby your company to improve it? 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 Anatomy of an Awesome 401(k). How Does Yours Compare? appeared first on Flow Financial Planning.

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Perhaps by now you’ve settled down after reading the news of the Uber IPO filing a few days ago. My clients who used to work at Uber are, of course, Pretty Darn Excited about the announcement that Uber has filed for IPO, likely in Q1 of 2019.

Most people have never been through an IPO before. Or if they’ve gone through it, only once before. I say this to emphasize that this is Entirely New Territory for most people. So, excitement, anxiety, uncertainty…totally understandable!

A while ago I wrote a blog post about what you should do if your company’s going IPO. I checked…it’s still good. All its general commentary applies to this Uber IPO.

But now, NOW, the difference is that you’re actually going to go through an IPO. Paperwork is filed. It’s happening. To you. With implications for your money and your life and your career. And you have to make some decisions. Makes it much more exciting and nerve-racking than simply thinking about it academically, no?

If you currently work at Uber, or if you used to work at Uber, you likely have Uber stock in some form:

  1. RSUs (vested or not)
  2. stock options (vested or not)
  3. actual Uber stock from exercised options

Each one of those forms of stock/stock compensation will operate differently when Uber actually goes public. More accurately, you need to think differently about each type in anticipation of Uber going public.

And more broadly, regardless of the technical form of your stock ownership in Uber, you need to think about how this financial change—potentially a very large financial change—is going to affect your life, and how you want to respond to it.

Consider This Before the IPO

Most of you can’t do much before the IPO—and the lockup period—are over. You just have to sit tight and wait for the magic (we hope!!) to happen. There are a few things, however, that you might want to do, so let’s think about them pronto.

Make a Plan for After the IPO

I’m guessing for most of you, however, the planning for after the IPO is where the real value is at this point.

Please, start making a plan now.

Before the IPO happens and the lock-up period is over is the perfect time to think more rationally about what you’ll do at that point.

Do not wait until Uber goes public. Do not wait until you suddenly become the owner of (perhaps lots and lots of) stock in a public company that you can now sell on the stock market for dollah dollah bills, y’all. You’re going to be too emotionally wrapped up in the excitement, in the stock market gyrations, and in whatever all your Uber co-workers (or former co-workers) are doing to make good, thoughtful decisions.

Do You Have RSUs?

If you have RSUs, you can’t manipulate those much. It’s mostly just a matter of waiting until they vest, but then you’ll own Uber stock! Right now you should be sure to understand:

  • How does the vesting of RSUs at Uber (a private company) work? Vesting in public companies is usually straightforward: You just wait until the vesting date, and voila, the stock is yours. But if it’s a private company, it can work differently. Ultimately, it’s your RSU grant document that will answer all these questions.
  • How much will you owe in taxes upon vesting, and how will you pay it? The standard tax withholding on vesting RSUs is 22%…but quite likely your income-tax rate is higher than that. So, how much extra do you need to pay, and how are you going to pay it?
Do You Own Uber Stock (Or Will You Right After the IPO)?

If you own Uber stock, or you will by the end of the lockup period, what are you going to do with the stock? Donate it? Keep it? Sell it?

If you plan to donate it, please don’t sell it first. It really is better to donate stock (as long as it hasn’t lost value below what you effectively paid for it) than sell it and donate cash.

If you plan to sell it, what will you do with the money? Do you have a plan for your future, so you can intentionally allocate your newfound money towards your goals and vision of a good life? How much will you owe in taxes, and how will you pay those taxes?

If you plan to keep it, understand the risk you’re taking by keeping a lot of stock in a single company, especially if that single company is also your employer!  (This is less of a risk if you no longer work at Uber…but you still have the single-company-stock concentration to deal with.)

Also think about why you’re keeping it. Are you certain Uber is going to grow in value? If you have that confidence, be aware of the horrible track record of stock market predictions, even (or especially?) by the experts. I think this quote sums up nicely the difficulty of correctly, reliably predicting how a company’s stock will perform:

“Predicting short-term movement of any stock or the market in general, not only calls for an ability to correctly predict all these parameters [political and geopolitical events, natural disasters, news reports, legal decisions, etc.] but also an ability to predict how the majority of investors would react to each of these events. It is beyond the scope of almost all investors to correctly and consistently predict these things.” [source]

Could this IPO give you F-U money?

What does that mean for your life? Will you still want to work at Uber? In tech? At all?

Professionals Who Can Help Prepare You

All those considerations—and more!—go into determining the best plan for you. I know some of you are savvy and interested in personal finance and all that sort of rot and can make a reasonable plan on your own.

Judging by the people I talk to, I know there are also plenty of you out there whose brains stop at “Uber’s going IPO! This could be big! Um…<kersplat>!”  For you? Please consult a professional. 

Talk with a CPA at the very least to make sure you don’t screw up your taxes. And ideally to optimize the tax situation (minimize the amount of taxes you owe over time). A few hundred dollars of consultation with a CPA can save you far more than that in taxes over the long-term and also prevent any nasty surprises. (I’ve got a good one, if you want a referral.)

Talk with a financial planner (I happen to know a great one!) to help you make financial decisions that are appropriate for The Whole You. To help you understand what’s happening, and to feel more comfortable and confident in the decisions you make. To help you take best advantage of this amazing  opportunity!

So Many Considerations!

As I looked at a draft for this blog post, I realized that I basically just vomited questions and ideas and things to consider onto the page. That irked me and I tried to make it more of a “if this then do that” kind of actionable post. And I failed. The problem is: I don’t know what your situation is! Do you have RSUs? Do you have stock? Options?  Are you a current employee or former? Did you already participate in the tender offers? How much stock do you have left from your original holdings? How old are you? What are your career aspirations? How much money do you have outside of Uber stock?

If Uber’s IPO happens, say, March 1, then the lockup period will likely end 6 months later, on Sept 1. So, if you own a bunch of Uber stock, Sept. 1 will be your Day of Reckoning.  You have to sit on your hands for 6 months, starting March 1, watching the market do….whatever the market will do to Uber stock. If you had some sort of superhuman self-control, you’d simply forget about it all for those 6 months, ‘cause it’s not like you can do anything about it if the market soars or tanks during that time. Good luck with that…

The most useful thing you can do, starting now and through that lockup period, is to to create a plan. Because when Sept. 1 comes (or whenever the lockup period ends), you might get a gigantic bucket of money in your lap. And that can go great if you deal with it intentionally. And it can go, uh, less great if you go bonkers.

Do you work at Uber or did you used to, and you know this could be Big and you’d really like to figure out how it’ll work 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 Uber’s Going IPO! What Do I Do?! Will I Be Rich? Ahhhh! appeared first on Flow Financial Planning.

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