I find myself in recent days thinking, “what else can I be doing to be anti-racist and support the #BLM movement?” Being an investment nerd, that’s where my mind naturally goes, although it is an often overlooked area by most people. The concept of impact investing is to use your investment dollars to buy stock in companies that support causes you care about. I only found 2 impact investing options that focus on racial justice & equality and wanted to share them with my fellow NYC Money Mavens. Listed below is more information on each of them.
As always, if you think they may be a fit for your portfolio, I recommend talking with your financial advisor before making any changes. If you do make changes, be aware of any tax consequences or fees you may incur from making trades.
Impact Shares NAACP Minority Empowerment ETF, NACP
According to MarketWatch, this is “the only financial product that explicitly addresses issues of racial inequality, doing so with the backing of one of America’s oldest and most prestigious civil rights groups.” The NACP ETF invests in 175 companies that have been screened for 10 criteria including Board diversity, the quality of the company’s discrimination policy, the effectiveness of their community development programs and if the company is working to close the digital divide. Additionally, any net profits from the fund are donated to the NAACP.
OpenInvest Racial Justice Cause
From their website: OpenInvest has identified companies that hold themselves accountable to the public regarding their progress on employee diversity and their commitment to environmental justice. Our Racial Justice cause allows any investor to tailor their investments to only include those companies who are transparent about their progress on diversity targets, and to divest from those that disproportionately pollute in communities of color.
Do you know of other ways to invest in racial justice & equality? If so, please mention them in the comments below!
After running financial planning workshops for thousands of women, I have found that the area with the most amount of questions and confusion surrounds retirement plans, specifically Traditional vs. Roth IRA. The first thing to note is that what differentiates the two plans is tax related. We’ll talk generally about the differences between them, but your retirement plan is only one part of your overall financial picture. I recommend speaking with a tax advisor or CPA (Certified Public Accountant) for specific advice about which option or combination is best for you.
So what does Roth mean? Roth is actually someone’s name - Senator William Roth - and it was introduced as part of the Taxpayer Relief Act of 1997. To understand the Roth IRA, it’s important first understand the Traditional method.
Why is it called Traditional? Quite simply, it’s the way it has been traditionally done (you’ve probably seen this in your 401(k) account). The money comes out of your paycheck pre-tax, so you don't pay income tax on that money now. Instead, it goes into your retirement plan and grows tax-deferred. When you retire and withdraw the money, you will pay income tax on it then. So if you look at your 401(k) balance and say it’s $50,000 - it’s not actually the full $50,000 because you’ve never paid tax on it.
The Roth is somewhat opposite of that. The contributions you make to your retirement plan today are after-tax, so you pay income tax on it NOW. Then it grows in your Roth tax-free so when you access it in retirement, you do NOT have to pay tax on the growth of your dollars. This is one of the few places left (along with 529 plans and HSAs) where you can get tax-free growth of your money. Tax-free growth is powerful because income tax can be really expensive!
The after-tax Roth concept started with IRAs (Individual Retirement Accounts). IRAs are your personal retirement accounts and you can have them just about anywhere - at the bank, through an app, at a brokerage firm, etc.
Who Can Contribute?
Unlike a traditional IRA, NOT EVERYONE CAN CONTRIBUTE TO A ROTH IRA. There are income limitations on making Roth IRA contributions, which means if you earn too much money, you will get phased out of contributing (see www.irs.gov for more info on the income limits). For all IRAs, there is a cap on how much money you can contribute each year - $6,000 for those of under age 50. This number is combined for all your IRAs, not $6,000 per account.
The Roth IRA has become very popular and understandably, the government likes collecting income tax today rather than 40 years from now. So much so that many company retirement plans now allow Roth provisions. To set up Roth contributions to your company plan, log into the website & look for where it asks how much you want to contribute pre-tax vs. post-tax.
The big difference for company plans is there are no income limits for contributing after-tax, so everyone can make Roth contributions to their 401(k) plan. The contribution to a company plan is higher than an IRA ($19,500 vs. $6,000 for those under age 50). Even if you make too much money to do a Roth IRA, there is still a way for you to get tax-free growth.
The Roth Conversion
Since the government likes collecting taxes, they allow for something called a Roth conversion. This is when you convert a Traditional or pre-tax IRA to a Roth one, meaning you pay the income tax when you do the conversion. This may make sense if you find yourself one year in a low income tax bracket (i.e. you got laid off or went back to school). I also see people do it with smaller IRA amounts since the overall tax implication would be negligible to their overall return. Important to note here, it’s not an all or nothing thing - you can convert as much or as little as you would like.
Unlike IRA contributions, where you can make them until you file your taxes in April the following year, the Roth conversion has to be done within the calendar year. Some company plans allow for in-service conversions. So if you are currently working for a company, you may be able to convert the pre-tax money in your plan. If your company matches, their contributions are done pre-tax.
The Back-Door Roth Contribution
There is a more complex tax planning technique called a Back-Door Roth IRA. In this scenario, you make too much money to contribute to a Roth IRA. Instead, you make a non-deductible Traditional IRA contribution and convert that money into a Roth. This is absolutely something to talk to your financial or tax advisor about before doing it since there are many nuances to make sure it's done correctly.
Should you do Roth or Traditional or both?
This is very much so a tax question. Will you be in a higher tax bracket now or in retirement? Factors to determine this include where will you live during retirement (in Florida with no income tax or a high tax state like NY or California?), how much money will you be making (you may continue to work part time, have rental income, Social Security, etc), and what will the tax code be? The tax code is certain to change multiple times over the course of our lives.
And so, there are a lot of projections and guesses about what the future holds to make this determination. This is why it’s crucial to bring in a professional like a tax or financial advisor to help guide you in making this decision.
On February 15th, I married my best friend surrounded by my family & friends in the lower Hudson Valley, one of my favorite places to escape NYC. I was on top of the world.
On March 2nd, I was terminated from my job.
On March 9th, we got notice that NYC was shutting down & my husband would be working reduced hours from home for the foreseeable future.
Over a month later, we’re still home, I’m still unemployed. And while, this wasn’t what either of us expected for our first few months of marriage, we’re hanging in there. We’re figuring out how to handle this new normal and finding enjoyment & happiness in the little things and in each other. I know a lot of others are also struggling with reduced income & unemployment right now. So I thought I would share how we’re adapting in hopes that it helps you as well.
First, I think it’s super important to note that having a solid financial foundation was always a priority to us, even before we were married. We have no debt, live within our means and have a fully funded emergency fund. I can’t stress enough how much easier this has made this time for us. I couldn’t have foreseen this scenario we’re in a couple months or a year ago. But I’m so thankful that we made saving a priority back then. If you do not have a sufficient emergency fund (3-6 months of living expenses) and have the ability to save right now, DO IT!
After overcoming the initial sadness & shock of being terminated, we got to work pretty quickly in calculating our new income. The provisions in the CARE Act allowing an extra $600/week for unemployment claims made a huge difference as it essentially doubled my benefits. We needed to figure out what was coming in to see what we were working with. Then subtracted our fixed expenses - rent, utilities, Netflix (this is essential!), etc.
Then came the not-so-fun part of cutting out our non-essential expenses. Now being stuck at home has definitely helped this - goodbye commuting expenses, dry cleaning, event registration fees, travelling, movie theaters, restaurants, shopping, etc. I decided to freeze my gym membership which hurt my heart because I love my gym and my coaches. But when going through this process, you unfortunately have to prioritize your non-essential expenses. We held on to the expenses that we see as an investment in ourselves - our continuing education (CFP for me & architect license for him), the hubby’s wood shop & drawing programs, and some website & marketing expenses for me. Then we actually had some things increase in our budget - my COBRA for example is $600 out-of-pocket which is still less expensive than being added to my husband’s plan (I was actually willing to roll the dice on this one but he said no way during a global pandemic...compromise!).
We also increased our weekly food & wine budget. Cooking together and experimenting in the kitchen is one of our favorite hobbies so we’ve really leaned into it during this time. Even though these are exceptional circumstances & times, life is entirely too short to eliminate everything you enjoy for the sake of your budget (just do it within reason!). So we spend money on more expensive ingredients but it gives us something to look forward & get excited about. Weekly menu planning is one of my favorite parts of the week.
This whole experience has really taught me to embrace the frugal joys of life - whether it is working out with my husband on our apartment rooftop, getting excited when my sourdough starter rises, or seeing my family during our weekly Zoom calls.
Have you had changes to your income? What adjustments have you made? And what are your frugal joys? Comment below!
The markets are crazy right now, swinging wildly in one direction or the other. It's times like these that you may find yourself wondering "Am I OK? Is there something I should be doing?" The short & sweet answer to that question is maybe.
In order to determine if you should be making changes depends on what you currently own. It's time to a deep dive on your investments to make sure they are the right ones for you. There are few questions you need to answer to determine this:
1. What are you investing for & how long do you have to get there?
There is a difference in how you should invest for retirement which is decades away vs a goal that you have in the next 2-5 years (i.e. saving for a down payment or a wedding). The S&P 500 historically has returned about 7% annually OVER TIME. As we are currently seeing, the market goes down and can go down sharply. So you need time to ride through these cycles. If you need your money back in less that 5 years, you need to think twice about putting that money into the stock market. I know it's not sexy with interest rates as low as they are, but that money needs to be in somewhere less risky like CD's or a high yield savings account.
2. Are you sleeping well?
Are you checking your 401k everyday seeing how big the drop is? Is it stressing you out? Times like these will help you realize your risk tolerance, how well you handle the swings in the market. If you find yourself freaking out about the market downturn, then maybe it's time to take some risk out of your portfolio. How do you do that? You add more bonds or cash into your investment mix. For example, if you are 100% in target date fund in your 401k plan, then you could switch it to 90% and add in 10% in a stable value fund. At the end of the day, this is your money. You need to do the right thing for you so can put your head on the pillow at night and sleep well.
3. Do you have too much in one spot?
One of the biggest fears women have with the stock market is that they are going to get wiped out. And yes, you can get wiped if you have all your eggs in one basket. Think back to the 2008 Financial Crisis. The people that got wiped out worked for companies like Lehman Brothers and had all their money in company stock. When Lehman went under, they not only lost their income, they also lost their net worth. Take a look at your investments, do you own a lot of a particular stock? This is especially important if you work for a company gives you options or has a stock purchase program. As a rule of thumb, you don't want company stock to be more than 10-20% of your net worth. If yes, then this is a good time to diversify your investments.
Do you ever find yourself scrolling through social media thinking on how on earth does everyone afford to be on vacation all time? And then feel like a loser because your life isn’t as fabulous? Well you’re not alone. Financial envy is real. Here’s 3 ways you cut that negativity out of your life:
1. STOP SCROLLING
“Keeping up with the Jones’s” has become exacerbated in today’s social media driven society. We all too often seem to forget that someone’s Instagram is a highlight reel of their life. Don’t judge your behind-the-scenes mess to someone else’s highlight reel. I feel it myself when scrolling – how can she afford to go to Tulum AGAIN?! If you find yourself going down this rabbit hole, stop following or hide those accounts. Out of sight, out of mind. And an added bonus…your budget will thank you for it. Charles Schwab conducted its 2019 Modern Wealth Survey & respondents identified social media as the biggest “bad influence” in their spending habits. Cutting out negative thoughts & unnecessary spending, it’s a win-win.
2. DO SOMETHING ABOUT IT
Let whatever you’re feeling fuel you to make the changes you need to move forward, whether it is looking for a better paying job, asking for that raise, or changing your lifestyle so you can save more money. We don’t have endless amounts of dollars each month to spend. So you really need to use the dollars you do have intentionally. I want you to be living your best life today and in 20 years from now. Think about what that looks like for you – heck, make a vision board – then take a look at your spending habits…do they line up? If yes, awesome. If not, think about that vision board when you make spending decisions.
3. GIVE YOURSELF A BREAK
One of the most important things you need to remember about personal finance is that its PERSONAL. Your situation is different than your friends and from everyone else on the planet. There will always be people who have more than you and there will always be people with less than you. That’s ok! Your net worth is NOT your self-worth. Take a deep breath – your student loans or credit card debt don’t define you. So don’t let them.
Coronavirus. Super Tuesday. To say it was a crazy week for the stock market would be an understatement. When the market is swinging wildly and the headlines are changing by the minute, it can be scary, unnerving and confusing for the average human. If you find yourself wondering should I be doing something? Read on for 3 tips on how to handle this wild ride:
1. Ignore the Noise
Dow Plunges 700 Points as Wall Street nears end of a turbulent week – CNBC
Stocks Plunge and Yields Sink – NYTimes
Dow dives as virus fears dominate roller coaster week – Washington Post
These headlines are alarming. Today it’s the coronavirus, in 2018 it was the trade war. There is always something in the headlines or happening in the world that will be impacting the markets, discouraging you from investing or encouraging you to take your money out. I don’t believe there has ever been a time that a green flag went up and the media said, this is a great time to invest! Whether it was 9/11, the Great Recession or the coronavirus, the market has endured has shocks and downturns before and it will again. Don’t let the headlines scare you into making investment decisions. Remember, despite how convincing the media may be, saying what the market is going to do is trying to predict the future and NOBODY can do that.
2. Don’t Let Emotions Get in the Way
Big swings and downturns in the market are incredibly uncomfortable. Its times like these where you can make a bad decision. Some of the people that suffered the most in the 2008-2009 financial crisis were the ones that got out & moved their money to cash. In fairness to them, if you read the news from 2008-2009 you would have never bought a single share of stock in your life – you would keep it all under the mattress. But in fact, that was the time you should have been backing the truck and going on a shopping spree. For example, in 2009 Netflix stock was around $5/share. Today, even with the recent pullback, it is trading at $369. If you gave into your emotions and parked your money in cash, you locked in those losses and missed the ability to grow your money all the way back and then some.
3. Remember What You’re Investing For
When we talk about investing, we are looking at money we won’t need for at least the next 5 years. You need time to ride through market cycles. Most of us do the bulk of investing through our retirement plans. Think about retirement – if you’re a millennial, you are DECADES away from retirement. And then, you will have DECADES in retirement. So does it really matter what the market is doing today? If anything, a market downturn works to your benefit because you are buying investments in your retirement account at a discount!
In roller coaster markets like this one, take a deep breath, ignore the noise, and focus on the end goal. If you work with a financial advisor, this is the time to go to them. In my next post, I’ll be talking about what financial advisors do, when do you need one, and how do they get paid. Stay tuned!
Get married. Buy a house. Have kids. Sounds lovely, doesn’t it? However, unlike my parents’ generation, I see less and less women on this stereotypical life track. More and more, I’m seeing women in their 20’s, 30’s and 40’s who are on their own, and maybe want to get married, buy a house & have kids, but don’t know when that’s going to happen.
We live in a world of Meghan Markle, Amal Clooney and Bethenny Frankel. The timeline of life is getting pushed out further, creating a new demographic – bad ass women earning & growing their wealth with no idea what to do with it.
While this seems like a great problem to have, it makes it difficult to figure out what exactly you should be doing with your money. What I’ve seen with women in this scenario is that maybe they overspend because they have extra cash flow. Or maybe they have way too much money sitting in savings earning pennies because its just been building over time.
When we talk about investing, one of the first things a financial advisor should ask you is what is the goal you are looking to achieve? The financial goal determines how you should invest. If you’re part of my bad ass women demographic, are putting money into a retirement account & have enough cash, then what is the goal? And if you can’t think of a goal, then how do you invest?
This might seem like a conundrum. But we do all have a goal - we want out future self to live her best life, even if we don't know what that will look like yet. There are things we can be doing today to be prepared for wherever life takes us.
Focus on the 20 – my personal rule of budgeting to prevent overspending. Make sure 20% of your after-tax income is going towards your future self. Some ways to do that – contribute to a retirement fund, build emergency savings or create your Future Self Fund.
So bad ass women of the world, keep blazing your own path. But don’t forget to invest for your future self - she also wants to live her best life.
I’m currently studying for my CFP (Certified Financial Planner) designation and one of the first things we learn is just how much your clients should be saving & spending. What I’ve come to learn is that people like benchmarks and formulas – one of the most frequent questions I get asked is, how am I doing?
It's never easy to answer this question – after all, the key to personal finance is that it’s PERSONAL. My situation is different than yours which is different than anyone else on the planet. So there is no hard & fast rule to say just how you’re doing. But nonetheless, we need something to say you’re going to be okay or you’re completely off track. Enter the 50/20/30 rule.
The 50/20/30 rule became popular when Senator Elizabeth Warren published her book, All Your Worth. It’s formula designed to answer the question, how should I be spending my money? What it says is that 50% of your after tax income should be spent on your basic living expenses – what you need to survive on a monthly basis – rent, mortgage, utilities, groceries, etc. 20% goes towards your future self in some capacity – contributing to a 401k, building an emergency fund, overpaying student loan debt. Then your 30% is your fun money – for you to spend on whatever gives you happiness, fulfillment & productivity in life.
So why do I think this rule is bullsh*t? Well if you’re one of the examples in my CFP book that lives in the South or the Midwest and spends $800/month on your mortgage, then sure, this rule works great. But if you’re living in the great city of New York, you can pretty much throw this formula right out the window.
We live in one of the most – if not THE most – expensive places in the world. Just how $$$ is it? The Council for Community & Economic Research and Kiplinger released research in 2019. Some of the key findings…
Awesome. Based on this data, it seems bananas to me that we can cover our basic living expenses on 50% of our after-tax income. So how do we live our best life now, while saving to live our best life in the future? Enter my new rule…Focus on the 20.
What it says – spend 80% of your income on whatever you want. If your rent is 50% of your paycheck, if you consider your $250 gym membership to be a need & not a want (I do!) or if you consider Seamless to be part of your grocery bill, so be it! That’s part of living in NYC.
Instead of worrying about how we’re spending, let’s focus on how we’re saving – the 20%. Build your budget to get your savings to 20% of your income. Here’s some ways we we can get there…
So let’s embrace this crazy expensive city that we live in and focus hard on that 20% in savings. Your future self will thank you.