An Innovative Approach to your Emergency Fund

Contributed by: Timothy Wyman, CFP®, JD

Innovation isn’t a word you generally hear from financial planners. I have to admit my DNA is more about consistency and research-based practices.  However, at times new thinking and methods might just be what the (financial) doctor calls for.

Traditional Emergency Fund Approach

Take the old Emergency Fund – Financial Planning 101.  You’ve heard the advice; place 6-12 months of living expenses in a safe and liquid vehicle (think savings account or Certificate of Deposit) so funds are available should there be an emergency such as a leaky roof, need for a new hot water heater, kids medical bills, etc.  My sense is that this is a good strategy especially for younger folks starting their careers and families.  This strategy provides discipline and limits the chances of abusing credit, which hampers many young families today.

Innovative Emergency Fund Strategy

However, for more seasoned folks like me, perhaps a change in strategy is in order.  Partly due to very low interest rates (that may even become negative soon) as well as hopefully more financial discipline from years making mistakes, you might consider using a ROTH IRA, Home Equity Line of Credit (“HELOC”), or Securities Based Line of Credit (“SBL”) for your emergency fund needs. Here’s a closer look at all three.

Roth IRA in an Emergency

While the ROTH is intended for retirement savings, they do offer some flexibility in that contributions (but not earnings) may be withdrawn penalty and income tax free at any time.  Hopefully the money is not needed and your so called emergency money can grow tax free.  The downside is that not everyone qualifies due to income limitations - that is, of course, unless your financial advisor is not innovative enough to know about the “Back Door Roth”…we do! If you haven’t yet, read this blog on Back Door Roth IRA Conversions.

Home Equity Line of Credit (“HELOC”) in an Emergency

A HELOC can provide flexibility or access to immediate cash if needed, thus perhaps eliminating or reducing the amount you need to set aside in an emergency fund earning close to zero.  If you are required to use the line of credit, make plans to pay it down or off with other assets over time.

Securities Based Line of Credit (“SBL”) in an Emergency

A SBL is a line of credit secured by a taxable investment account.  In many respects it is very much like a HELOC except that it is secured by an investment account rather than your home equity.  Like a HELOC, the rates are very competitive currently; however they are normally variable rate products.

In the great words of Forrest Gump “IT happens”. The key is to be prepared prior to a crisis by having an emergency fund established, whether it be a traditional savings account, Roth IRA, HELOC, SBL or combination of all three. We’re always here to help you be ready to deal with IT.  

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a contributor to national media and publications such as Forbes and The Wall Street Journal and has appeared on Good Morning America Weekend Edition and WDIV Channel 4. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), mentored many CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment or financial decision, and it does not constitute a recommendation. Any opinions are those of Center of Financial Planning and are not necessarily those of Raymond James.

The Value of Knowing Where You’re Going

Contributed by: Timothy Wyman, CFP®, JD

Recently one of the most quotable fellas of our time, Yogi Berra, passed away. It is impressive how much meaning can be captured in a short sentence like, “You can observe a lot by just watching” or “It ain’t over till it’s over.” One of my favorite quotes is from Roy E. Disney, brother of Walt Disney who is credited as saying, “When your values are clear to you, making decisions becomes easier.” If you have been to our web site and visited my profile, you have seen a play on the quote that I use:

"When your vision is clear, your decisions are easy."

 I know, you’re thinking: Sir, I knew Roy E. Disney and you are no Roy E. Disney.  However, whenever faced with a challenging issue, whether it is personal or business related, I find it helpful and even therapeutic to go back to vision or values as Roy suggests.

The Center developed a set of values years ago to help us make decisions and we not only talk about them but strive to live them each day. Recently during an All Staff meeting we reviewed and discussed our values, what they meant to us, and how we could embrace them even more.

Our values are more than words; they serve to guide us in our everyday actions. Everything that we do is about our clients and our team with values leading the way. Our Center values include:

• Congruence between Words & Deeds

• Compassionate and Effective Leadership

• Passion for Excellence

• Strong Work Ethic

• Professionalism & Competence

• Balanced Life

• Commitment to the Financial Planning Process

• Continuous Learning and Personal Growth

At our meeting recently we dug into the meaning behind a few of these values:

Compassionate & Effective Leadership

We are compassionate leaders to our clients, to our communities, and to our families.  Leadership isn’t bestowed by position or title – one can exhibit compassionate and effective leadership regardless of role or “boss” title.

Passion for Excellence

One team member shared, “It is all encompassing.”  A passion for excellence means you act with integrity, continuously learn, have strong work ethic, etc.

We also talked about giving future space to consider other values such as Service to Others/Servant Leadership and Intellectual Curiosity.

Without a strong set of values and vision of what’s important in your life – you might just live out one of Yogi’s classic observations:

“If you don't know where you are going, you'll end up someplace else.”

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a contributor to national media and publications such as Forbes and The Wall Street Journal and has appeared on Good Morning America Weekend Edition and WDIV Channel 4. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), mentored many CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

Making the Most of Affordable Care Act Open Enrollment

Contributed by: Nick Defenthaler, CFP®

It’s that time of year again – open enrollment period for the Affordable Care Act (ACA)!  This year, open enrollment for ACA health plans runs from November 1, 2015 – January 31, 2016.  It’s very important that you enroll for a plan during this time frame if you do not have coverage to avoid being uninsured.  If you’re thinking you’ll just “roll the dice” and go without coverage, think twice.  Number one, the risk of going without coverage is a big one – having a medical event without coverage can destroy you financially.  Number two, the penalty for not having insurance will increase once again for 2016.  New next year: You will now have to pay a penalty that is equivalent to 2.5% of your income or $695 per adult, whichever is greater.

Common ACA Mistake

A common misconception is that health plans offered through the ACA are government health plans like Medicare or Medicaid.  This is NOT the case! This misconception often times will cause clients to avoid these plans that could potentially benefit them very positively.  Healthcare.gov is simply the website all of the ACA eligible plans are offered through.  Plan carriers include big names such as Blue Cross Blue Shield, Priority Health, HAP, etc. all of which have their “sweet spot” pricing depending on the type of plan (platinum, gold, silver and bronze) that makes the most sense for your needs. 

These are health plans you could simply purchase on your own as an individual policy, however, by going through healthcare.gov and utilizing the ACA, you could potentially be eligible for subsidies that could dramatically reduce your monthly premiums, potentially saving your family thousands of dollars. This link to healthcare.gov shows those qualifying ranges.  Subsidies can also be very important for younger retirees that have not yet begun Medicare (under the age of 65).  We have worked with many clients in this age range and have done strategic planning with their income throughout the year to qualify them for lower premiums.  I encourage you to contact us if you’re considering enrolling in an ACA plan to see how we could potentially help on the financial side of things!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Live Your Plan: Estelle Wade

Contributed by: Center for Financial Planning, Inc.

We think it’s as important to Live YOUR Plan™ as it is to make your plan. Every day we work with clients to build visions of retirement and we love seeing those visions become reality. About 30 years ago, Estelle Wade helped start Center for Financial Planning. From those early days until her retirement in 2002, she helped build hundreds of retirement plans. And as she worked for her clients, Estelle also took time to put her own plan in place. Today, she’s living it out with her husband Gene in Arizona. We caught up with her to find out how she had put her projections into practice.

Tim Wyman Joins Board of Leadership Oakland

Contributed by: Center for Financial Planning, Inc.

Every year, Leadership Oakland takes 50 developing local leaders and challenges them to become catalysts for change in our community. The Center’s Tim Wyman is a graduate of the Cornerstone Program and has just stepped up to serve on Leadership Oakland’s Board of Directors. He says he’s honored to continue the tradition of leadership:

“For 25 years, leadership Oakland has been the premier organization for individuals looking to develop their leadership skills and knowledge in Oakland County. Participants of their Cornerstone Program are fully immersed in leadership positions in both the private and public sector. The organization continues to play an important role in Oakland County's future success and I am privileged to serve as an ambassador of their mission.”

In a span of 9 months, Leadership Oakland participants delve into the issues facing the region -- from education, government and the justice system to health and human services and race and ethnic diversity. The program’s new President Kevin Wisely welcomed Tim and the other new leaders:

“We are pleased to welcome our newest board members to the Leadership Oakland team. Our board is comprised of dedicated, successful and committed individuals that strive to advance our mission of regional leadership development. Graduates of our program are effective leaders in their personal, professional and public lives. We are looking forward to an exciting program year!” 

To find out more about the mission and how to get involved, click Leadership Oakland.

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Raymond James is not affiliated with Leadership Oakland. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Five Financial Tips for New Graduates

Contributed by: James Smiertka

It hasn’t been too incredibly long since I trekked the campus of Western Michigan University and I’m not alone. The Center has more recent graduates, including Clare Lilek and Nicholas Boguth, who are now gracing our office with their mental gifts and unmatched wittiness. Even Matthew Trujillo himself, isn’t yet a full decade removed from marching across the stage to lay hands on his college degree. At some point in our lives, many of us have traded textbooks, studying, homework, and a lucrative job as a barista for a career, pantsuits, ties, and taxes. If we could offer financial advice to our excited yet somewhat horrified, newly graduated former selves, what would we say? I’m sure we would all have a lot of good advice, financial and otherwise, to offer. To help avoid unsavvy decisions during your first steps into the great financial unknown, here are a handful of good financial tips for new graduates.

Tip #1: Don’t upgrade your lifestyle too quickly.

So you have just graduated and found your first job, which hopefully is a great first step in your career path. Congratulations! Now it’s time to make a plan, and then, as Tim Wyman likes to say, “Live your plan”. But don’t try to upgrade too quickly! It can be easy to get carried away moving into the nicest apartment, buying expensive furnishings, and purchasing a new car right away. You may believe that your new income will keep up with your increased spending, which may or may not be the case. Removing uncertainty, it’s a lot easier to take some time and lay the groundwork for a good spending plan than it is to scale back spending dramatically after you realize you’re living beyond your means. The best choice is to slowly increase your spending as your earnings increase. One of the best tips that I’ve heard, is to keep your “broke college student lifestyle” as long as possible. Keep a modest apartment and your old beat up car, or ride your bike to work if possible. This will allow you to save more now towards things like emergencies, a first home, and becoming financially independent in the future. Every little bit saved now can make a great impact in 30 to 40 years thanks to the compounding interest.

Tip #2: Start saving.

Aim to save around 10% of your income right away. It’s a great starting point. If your employer has a retirement plan in place, it is important to contribute at least enough to take advantage of the full amount of savings that your employer will match. This is usually around 3-5%, and it’s free money that you would be foolish not to take advantage of – a great incentive to start saving for your future retirement.  No matter where you start, you should try to gradually increase your contribution rate every year by 1-2%. Some plans can even be set up to increase this amount automatically, and you won’t even notice the difference from year to year. You should also aim to build an emergency fund during your initial savings endeavor. This account should eventually contain 3-6 months or more of living expenses which will allow you to be prepared for unforeseen circumstances & also provide you with assurance. Some will even utilize this account, if needed, to allow for freedom as they establish their careers, using the money to help fund moving to a new location and the other costs associated with changing jobs.

Tip #3: Make a budget. And stick to it.

There are things that you need to pay for like medical and renter’s insurance, gas, and utility bills & then there are unessential, discretionary items like clothes, concerts, and going out for dinner & drinks. Track your spending, look for savings opportunities, and also for areas to cut back. For most young people, food is the largest expense after housing and transportation costs. Learn to cook, and you could find yourself potentially saving 50% or more on your food costs by doing something that could become a worthwhile hobby. This can easily save you $1,500-$2,000 per year. The time spent cooking will also keep you from wasting time perusing unessential Amazon Prime purchases (which I may absolutely be guilty of). Bottom line: Look at your net income. Subtract out your fixed/essential expenses. Then allocate the leftover money towards savings goals and discretionary spending. Consider an online budgeting tool/app to help you achieve this.

Tip #4: Understand your debt & credit.

Know the real cost of your credit cards, student loans, and other debts. Your credit score is a powerful tool, and it can be friend or foe for your lifetime. A bad credit score can make it more difficult to land your dream job or be approved for an apartment lease. A good credit score will allow you lower interest rates on credit cards and loans and a better chance for approval with those items. It is very easy to get carried away with credit cards, and credit card companies target young adults more than any other demographic. Remember: If you are consistently carrying a balance, the credit card company is the one being rewarded. Credit cards can frequently have annual interest rates of 15-25%, and higher, especially for many young borrowers who haven’t had time to build up their credit scores. Many credit card companies also reserve the right to increase your interest rate if you are late with your payments, heaping on additional debt on top of your existing unpaid balance. Bottom line: be smart & manage your debt.  If you already have credit cards, in addition to student loans and/or personal loans, try to pay off balances with higher interest rates to keep them from becoming unmanageable. Some people find it easier to completely pay off a smaller balance first as it gives them a sense of progress and accomplishment. This is a more than acceptable start to proper debt management.

Tip #5: Save more.

If you are able to make the maximum contribution to your employer’s plan – amazing! If you want to save more early in your career, consider a Roth IRA. It’s a great savings vehicle for tax-deferred growth and tax-free withdrawals in retirement. You contribute dollars that are taxed at your current marginal rate which will, with any luck, be lower than your future marginal tax rate. This will allow you to avoid the taxes later in life in addition to taking advantage of tax deferral. Many employer 401(k) plans will allow for after-tax contributions, as well as the more common pre-tax contribution. Obtain information on your specific plan to find out.

Now is the time to build a great foundation in the journey towards financial independence. By making smart decisions now, you are positioning yourself for future success. Use these helpful tips, and keep progressing toward the ultimate goal of a worry-free financial future and retirement. Feel free to contact your team here at The Center with any questions. Take control now, and you will rule your finances – not the other way around.

James Smiertka is a Client Service Associate at Center for Financial Planning, Inc.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jim Smiertka and not necessarily those of Raymond James. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

Tax Free Growth: A Webinar Targeting Fiat Chrysler Retirement Plans

Contributed by: Center for Financial Planning, Inc.

A couple of weeks ago, Nick Defenthaler, CFP®, hosted a webinar targeting Fiat Chrysler employees and how they could save thousands of dollars by contributing to the after-tax portion of their 401k plan. Although not all 401k retirement plans have these same capabilities, knowing about the possible tax deferred options that could be available for your retirement plan can be helpful for future saving.

In the webinar below, Nick explains the difference between traditional 401ks and Roth 401ks, and also includes insight into other retirement saving vehicles like IRAs. He explains what retirement plan could be best for you and your future, which can depend on your current tax bracket and your predicted future bracket. The webinar is filled with basic information about retirement plans and then delves into the specific plan as it relates to Fiat Chrysler employees. Take 30 minutes to review the information and if you have any questions, feel free to contact us.

For further information, Nick has already shared advice for thinking about Back Door Roth IRA Conversion and what Ford Employees should do regarding this same topic.

Exercising (and Saving Money) Without Realizing It

Contributed by: Gerri Harmer

Exercise without realizing it? Really?  Really! I know it sounds too good to be true but let’s think about this whole exercise thing in a new way.  We can have fun and save money while getting a good workout!

Spending 20-30 minutes a day on aerobic activity does not mean you have to be sweating to the oldies in front of the TV or forking over your hard-earned money to a personal trainer.  While exercise videos and personal trainers are fabulous and very effective, they might not be your favorite things to do, which means you probably are not very motivated to jump in and may find excuses to put it off.

Why not opt for a less stressed, enjoyable exercise option once in a while? Take a 30-minute bike ride through your favorite neighborhood. Increase your heart rate, take in nature, say “hi” to the neighbors, and let the wind blow through your hair. Better yet, put a basket on the front and bike to the store for that bread you needed to pick up.  Or, load your bike on the back of the car, park and ride your bike through your favorite metro park or sightsee in a new town.  It’s the best way to see the city, stopping whenever you like to get a better look without holding up traffic while getting access to areas you couldn’t get to with a vehicle.  You are now stress free, you have endorphins flowing, and you didn’t spend a dime.

How about having a hula hoop contest or playing catch with your kids or grandkids? Water balloons? Bowling?  I’ve never been as sore as the day after I’ve gone bowling -- it kicks my tail! Taking a new dance or martial class are fantastic ways to move and learn something interesting. You get toned and your friends are amazed with your new skills.  It feels like cheating because it’s so much fun and it didn’t cost any more than your normal recreational activity. 

More ways to save AND get a workout?  

1. Go for a hike. Meet up with friends or fly solo for a respite. Clean out those mental cobwebs.

2. Try gardening. Make your yard the envy of the neighborhood or grow an organic garden.

3. Join a recreation league. Make some new friends by joining a softball, soccer, horseshoes, or bocce ball team.

4. Play a game with your kids or grandkids.  A good game of capture the flag, tag or kickball gets the adrenaline going while spending time with your family. 

5. Play an interactive video game.  They have tons of games that get you running, jumping, dancing, chopping, and shuffling. Your kids and/or grandkids will think you are so cool.

6. Try new things.  Ever heard of LARPing (live action role playing) or Geocaching?

You get the idea. What are you going to do first?

Gerri Harmer is a Client Service Manager at Center for Financial Planning, Inc.

Rob O’Neill and an Inspiring Perspective on Difficult vs. Impossible

Contributed by: Nick Defenthaler, CFP®

Last month at a due diligence luncheon, I had the chance to hear Rob O’Neill speak. The former Navy Seal spent an hour telling his captivating and incredible story about when he was a member of Seal Team Six. You may have seen “The Man Who Killed Osama bin Laden," the Fox News documentary about O’Neill’s experience. For several years, many wondered who was the American hero that took down the most wanted terrorist on the planet and was responsible for the attacks on September 11th?  I distinctly remember watching this documentary at home and having chills throughout the two night special.  In the documentary, O’Neill told his story of being a member of the Navy Seals and went into detail about the raid Seal Team Six conducted that ultimately led to him killing Osama bin Laden.  After watching that documentary, I never dreamed I’d have the chance to shake that hero’s hand.

O’Neill: Refusing to Quit

O’Neill spent the better half of his presentation telling stories of his time as a Navy Seal and some of the incredible missions he and his team completed.  He also described in detail the training that is required to become a Seal and the physical and mental obstacles he had to overcome, both individually and as a team, to be successful.  He attributed his ability to successfully complete Seal training by simply refusing to quit (I’m sure this was easier said than done!).  His instructors pushed him beyond normal limits but they never asked him to do anything impossible.  This really resonated with me.  I think many times in life we look at obstacles or things we’d like to accomplish as virtually impossible, but in reality, they’re just very, very difficult.  Hard work and the refusal to quit can overcome just about anything.  Talk about being inspired! 

O’Neill: Defending Freedom

At the end of his presentation, O’Neill shared a quote from President Bush’s address to the nation the evening of September 11th: 

“Freedom itself was attacked this morning by a faceless coward, and freedom will be defended.” 

On the helicopter ride to the raid that killed bin Laden, O’Neill described how this quote came to him out of nowhere and he kept repeating it to himself as they approached the compound they were about to attack.  He has since had the quote tattooed to remind him of his fellow service men and women who are keeping us safe each and every day.  When I left the luncheon, we had the opportunity to meet this inspiring hero briefly, shake his hand and thank him for his service – something I’ll never forget.  I walked away that day with an even greater level of respect and gratitude for our men and women in uniform.  Although I’m nothing close to a Navy Seal, I realized we can all still apply the same principles and values in our own personal lives to be the best we can possibly be – there simply isn’t an excuse for anything less.   

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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It's Medicare Open Enrollment Time

Contributed by: Sandra Adams, CFP®

If you’re 65 and older (or you assist someone who is), you are likely swimming in a sea of Medicare plan flyers, prescription drug plan notices, disclaimers and other various forms that are nothing short of overwhelming and confusing.  Welcome to Medicare Open Enrollment!

What is Medicare Open Enrollment? 

It is the window that opens annually from October 15th through December 7th for anyone currently enrolled in Medicare. Open enrollment allows you to make changes to your plan by signing up for Medicare Advantage (Part C) or a Medicare Prescription Drug Plan (Part D). You can also make changes to an existing plan, move to a new one, change drug coverage benefits or dis-enroll.  Or you can make no change at all. 

In our experience in listening to clients, open enrollment and Medicare options in general can be a bit overwhelming.  However, taking the time to do a thorough annual review of your Medicare options to make sure you are in the most cost effective plan can be very worthwhile, if done right.

Here are tips for a successful Medicare Open Enrollment:

Don’t get Overwhelmed.  There will be a lot of mail, most won’t apply to you.  Wait until you get your Medicare and You Book from Medicare. This is the guidebook for the new plan year.

Be Prepared.  Have all of the information you will need regarding any current coverage, current costs, current medical conditions, physicians and medications so that you are able to go through the process of making a decision about making a change.

Use Available Resources. 

• Use the online tools at www.medicare.gov can help you determine the correct plans for you based on your geographical area, physicians, medications, etc.

• Use the resources and assistance available at local senior centers and Area Agency on Aging, etc.

• Use the resources of independent Medicare consultants who may be able to guide you based on your individual needs (see the link here for upcoming Medicare events sponsored by the Center).

Take Action (or Not).  If your analysis on your own or with the help of others suggests that a change is in order, take action to make that change before the December 7th deadline.  However, if you are already in the best plan for you, nothing says you have to make a change just because it is open enrollment time.  It is okay to make no change at all.

Medicare Open Enrollment provides a window of opportunity to review current plans and make changes if they make sense for you.  We recommend that you take advantage of the resources that are available to assist with the analysis of these plans – they can get complicated and there is no need to go it alone!   Please contact your financial planner if you have questions about how Medicare works with your overall financial plan or if you would like a personal referral to a Medicare resource in your area.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Sandy Adams and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.