Author Archives: Nancy Hecht

It’s time for a Q & A!

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Q: I have $10,000 sitting in a 401(K) that is not earning much and I owe $20,000 on a credit card with 9.5% interest. Should I take some out of the 401(k) to pay off this debt? I am under 59.5 years old.

A: Generally, this is not a good idea. Firs,t whatever you withdraw from the 401(k) will be added to your income and taxed. This could put you into a higher tax bracket. Next, you will have to pay an additional 10% early withdrawal penalty due to you age. These two taxes could reduce your withdrawal amount by 25% turning your $10,000 into a spendable amount of only $7,500.
This would leave you with the remaining credit card balance and no retirement fund. If we look at the loss of compounding tax deferred dollars, for every $1000 withdrawn, you will be losing $7,686 in future spending dollars.

Here is what I recommend: reduce the amount that you are contributing to your 401(k) and apply the difference to the credit card debt. Contact the credit card company to see if you can get the interest rate lowered. You do not know if this is possible if you do not ask. Put together a budget and track where your income goes. Look for areas where you can spend less to reduce the debt, and you will have more money for short and long term savings.

Budgets are Sexy?

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I recently ran across this title while doing some research. Yes, I do think budgets are sexy. They are also a lot of work and are the path to freedom.

Let’s look at your budget as your new exercise program. It is summer after all and you want to look good on the beach. Nothing makes you look better than confidence and being fit. Financial fitness is just as important as physical fitness. So you are ready to walk into the gym for this first time in a long time. This decision takes commitment and planning but you know that the end result will be worth it. This first step is just that. You will be on a long road to fitness and it will require maintenance.

Planning and sticking to your budget requires the same commitment and maintenance. You need to look at all of your regular monthly expenses such as mortgage, power, internet, food, and transportation costs. Next, you need to look at the periodic expenses such as insurance premiums for your home and life as well as items such as property taxes. Don’t forget your regular savings. We look at savings as an expense whether it is long term savings to a retirement plan or short term savings into an emergency fund. I think it is important to add charitable gifting into the budget. Giving to your community is a wonderful way to spend money.

So stretch your muscles, sharpen your pencils, and get your financial and physical sexy going.

Have you set up your “Savings Buckets”?

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Most people get into financial trouble when the unexpected happens. This may be health related, weather related, or job related. Whatever the reason, you need to plan for the unknown by filling your buckets.

Savings buckets can fall into two broad categories; regular expenses such as mortgage, utilities, food, or irregular such as car repairs, home repairs, taxes, or vacation. Online banking makes it very easy to fund your savings buckets. Most do not have large minimum balance requirements or monthly fees.

I feel that you should have 3 months accumulated in your regular expenses bucket. This amount will give you a decent cushion should something unexpected happen. As far as the irregular expenses go, you may want to set up a few smaller buckets, pails if you wish. One savings pail may be for vacations, one may be for property and federal income taxes. Since we are in the beginning of hurricane season, you may want yet another bucket just for weather related disasters. You might fund this bucket for such needs as insurance deductibles, a hotel stay if you have to leave your home, or boarding pets. Think about the last time there was an emergency and use those expenses as a base for how much to keep in these buckets.

If you have filled your buckets, then you will have the peace of mind to handle any unexpected emergency. You will be able to pay cash to handle things and not have to incur any credit card debt. So fill your savings buckets and cross that worry off your list.

Happy Birthday to You!

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I have a number of clients turning 65 this year and along with all the personal birthday greetings they will get, the Government has a few presents for them too.

When you turn 65 you get to apply for Medicare. If you have started taking Social Security benefits prior to age 65, you are already signed up for Medicare, otherwise, you have to sign up yourself. Three months before you turn 65 you can either go to www.medicare.gov or call 1-800-772-1213, but make sure you do it or you will have a lifetime of penalties.

The IRS has a present for you also. Upon turning 65, your standard deduction goes to $7100 from a current deduction of $5700. That is a potential tax savings of $616/year.

Many of my clients are still working at age 65, after all it is still young in my book, but retirement planning is important. Many people looked at age 65 as the marker for starting Social Security – it used to be the “full retirement” age. That may not be true for you. For most people, full retirement for Social Security is either age 66 or 66 + 4 months. You can go to www.ssa.gov to check your status.

So celebrate big for your 65th! Have cake and ice cream and accept your presents from wherever they may come.

How much company stock should I keep in my 401k?

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It may be tempting to buy or keep a large percentage of company stock in your 401k. After all, you company is successful, right? We believe in diversification, so I do not feel comfortable if more than 10% of any holding is in your portfolio, maybe less for your company stock. Let’s look at a couple of things;

Your income is dependent on that company.
Your benefits are dependent on that company.
You can control how much of your retirement savings is dependent on that company.

Some planners might say that due to the points I have just made, you should not put any of your 401k savings into your company stock

Very few things in a marriage are 50-50

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We just attended the first of the summer weddings we have been invited to. She is a new Doctor, he is a new Attorney. They should be on the road to financial security – after paying back the student loans. Here are a few more tips for newlyweds.

Keep credit cards separate:
If one spouse has good credit and the other not so good, one could drag the other down in the credit score game if you make your credit cards joint. It is not necessary to make your spouse joint on your cards.

Don’t split your costs 50-50:
Money is often power. This is very true in marriages. Splitting household expenses can breed resentment when one spouse makes a lot more money than the other. It may also create a sense that the person who pays more has more say in how money is spent.

Talk about spending:
Even after you have reviewed your finances, you need to find out how your spending habits match up. Beyond how much someone spends, there is a potential conflict as what you see as a must-have. You need to work on managing your differences that will lead to a long and happy union.

DO NO USE YOUR PERSONAL EMAIL ADDRESS WHILE ON VACATION!

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Yesterday I received an email request from a client asking for money. This is not an unusual request, what got my attention was the amount and where the funds were to be sent. I called the client and found out the request was not from her. I asked if she had been on vacation recently and checked her email, she said yes.

This is the fourth client that has checked their email while on vacation and I have then received a request for money. Do not do this! You are logging into a public, unprotected network. You have no idea who is sitting next to you with equipment that can capture your screen, your clicks, your login, or passwords.

You can go to any number of email sites and set- up a separate email address that you can use while on vacation. Use that vacation email address for that trip only, shut it down when you get home, then establish another one for your next trip.

I have had my identity stolen twice; there is a lot that needs to be done after the fact to protect yourself and to regain a sense of peace. Be proactive, set up a temporary email before you travel

A Memorial Day message.

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A veteran is someone who, at one point in his life, wrote a blank check payable to
“The United States of America” for an amount “up to and including his life.”
That is honor. There are too many people in this country who no longer understand this.
God Bless Our Veterans.

Some tips before you go skipping down the aisle.

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We will be attending two weddings in June; one couple is in their early 20’s, the other in their late 20’s. Here are a few tips for these couples and anyone getting ready to take this wonderful plunge.

Discuss your financial goals.
A huge part of being on the same page is having an open discussion about major life goals and financial commitments. Discuss short-term goals, such as paying off debt or buying a car, and long-term goals such as buying a house.

Budget your spending.
Failing to create and stick to a mutually agreed upon budget can lead to many problems. It can be as simple as listing your monthly income then adding your expenses and mutually deciding what to do with surplus.

Treat your money as our money.
This is your spouse, not your roommate. Keeping separate banks accounts and “chipping in” for expenses is one sure way to breed financial strife. A household account should be established so both spouses know where the money is going.

So skip down that aisle knowing that you have put your best financial foot forward.