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Making Cents of Family Finances during COVID-19 : 5 Uncomplicated Steps

These are surely crazy times.  Lake Country Family Fun has been working hard to bring Family Fun into your lives with virtual twists and creating content that helps families through the crisis.  We can’t ignore, however, that this is a hard time for many financially and a scary time in our economy.  So what can every day families do to make “cents” of this financial environment?  Why does everything sound so confusing on the news about stocks and tax refunds, I mean, credits, I mean it’s all so complicated!  We came up with some helpful, and uncomplicated steps in this area with the caveat that we are not financial and tax experts! (But we do know some!)

Let's Make "cents"

Lake Country Family Fun is not a financial institution or tax accounting service.  We cannot provide you legal or financial advice.  However, we can offer practical suggestions, and we always encourage you to reach out to your Tax Accountant or Financial Services Representative.  If you don’t have a Financial Services Representative, may we recommend Scott Lovejoy with Edwards Jones. Mr. Lovejoy is a sponsor of Lake Country Family Fun. We want to thank Mr. Lovejoy for his help in putting together this article and providing some easy-to-understand relevant resources for our families below.

5 UNCOMPLICATED Steps EVERY FAMILY SHOULD BE TAKING

  • #1 - Understand how COVID-19 is affecting your Budget
  • #2 - Sit down and make a Family Financial Plan
  • #3 - Enlist the Experts
  • #4 - Take Advantage of the Tax Credits available to you/your small business and Market Opportunities
  • #5 - Reach out if you need help

1.  Understand how COVID 19 is affecting your Budget.

  • It’s good to start with a {written} list of things affected.  What is costing you more (food delivery, electricity bill at home, medical expenses)? What is costing you less (gas bill, eating out, entertainment, etc).  Has your income changed at all?  Once you figure out what changes there are, you will have a better idea of how to adjust. {You can’t adjust for what you don’t know about!} Be sure to include potential changes (such as losing work hours or gaining work hours).  Think about this in stages of short term (now through April 30th) and then longer term (2020 as a whole). 

2. Sit down and make a Family Financial Plan

  • If you don’t do this already, we suggest monthly (or at first weekly) meetings between the head of households to map out a simple monthly budget plan with short and long term goals.
    • First make a “T” on a piece of paper or document. The left column should be income and the right column expenses. Keep the expenses list to fixed expenses (utilities, mortgage payments, car payments, cell phone, TV, tuition/daycare payments, and any other item you consider fixed, or not compromisable). 
    • In a separate area below, list out “other” expenses that WILL come up during the month including food, gas, savings, entertainment, gifts, and charity. Note that these have “flexible” ranges and are adaptable.
    • Finally, a third area for “short term and long term goals” such as buy clothes, pay some debt, save more, start a college fund, go on a vacation, etc.  
    • Then, do the math and play with it until you are satisfied! Key: The expenses (both fixed and flexible ones) cannot exceed the income. 
  • It’s a simple task, but it goes a long way!  Sticking to the budget throughout the month is the hard, grown-up and not fun, but oh-so-worth it, part.  Use the list from #1 to make adjustments to your family budget if you already have one.

3. Enlist the experts

  • As we stated, LCFF is NOT an expert in finances and taxes.  So, enlist some experts to help you navigate these confusing waters.  Usually introductory conversations are free of charge and very informative. Even better they can be conducted online or over the phone (contactless). As the saying goes, “Do what you are good at and outsource the rest”.  Utilize the resources of experts to make a solid plan. Bring your budget and goals from #2 to these meetings. Get on the phone with a tax professional and financial advisor today; what could it hurt?

4. Tax Advantage of the Tax Credits available to your/your small business and Market Opportunities 

  • TAX: The CARES Act passed and individiuals and small businesses are going to be eligible for tax refunds/credits and loans at varying degrees.  You can read the article from Edward Jones (passed along to us by local financial advisor Scott Lovejoy) on 3/29 that summarizes items in the CARES act.  If you are a small business, you can be proactively looking into and filing for loans that may be applicable to you. 
  • MARKET: What should you do with your investments (401k, Roths, etc.)?  Should you pull money out of the market or stay in and invest more?  A seasoned financial advisor, like Scott Lovejoy, can guide your family to the best choice given your budget/income, investment strategy, age, etc. 
5. Reach out if you need help
  • If things are rough, reach out!  From mental health services like this, to food and grocery delivery from Lake Country Strong, to community support groups like ours, there are many ways to get support!  Start with family and friends. People often will jump in to help but they won’t be aware of a need if you don’t tell them. We at Lake Country Family Fun are all about creating community and supporting that community through crisis.  We’ve put together a list of local resources that can help in times of need such as a food pantry guide and more; however, you can always just send us a PM and we can connect you with a local resource who can help.  We are in this together! 
  • On the flip side, if you are relatively unscathed by this pandemic and economic crisis, consider the joy of giving back and giving to others!  Like Fred Rogers’ mother said to little Fred when watching bad things on TV, “Look for the helpers. You will always find people who are helping.’”  Be a helper! Make a difference!  If you need ideas on how (sponsoring a grandparent, writing to nursing home residents, etc.) – let us know!  The best way to help our country right now is to #STAYHOME.  We will potentially save millions of lives by doing so and that’s not a light achievement!

You can't adjust for what you don't know about.

Stephanie Cutler

Resources and further Financial Information

The following resources were shared with permission of Scott Lovejoy, AAMS®, Financial Advisor with Edwards Jones. 

Edward Jones e-Newsletter From March 29, 2020

The CARES (Coronavirus Aid, Relief and Economic Security) Act was signed by President Trump to help provide financial stability and relief for individuals and businesses affected by COVID-19. While the bill is very broad and addresses a number of areas and industries, and many of the specific details will still need to be analyzed, we believe the following are important to highlight for individuals and their families.

Cash Payments and Unemployment Assistance

  • 2020 Recovery Payment: All U.S. residents with adjusted gross income up to $75,000 ($150,000 joint filers) are eligible for a $1,200 ($2,400) payment, as well as an additional $500 per child (under age 17).
    • There are no minimum income requirements for the payment. Individuals with little or no income are eligible provided they are not a dependent of another taxpayer and have a work-eligible Social Security number.
    • This amount is reduced by $5 for every $100 over the income limit above, so it would be fully phased out for those with incomes over $99,000 (single) and $198,000 (joint filers) with no children.
  • Increased Unemployment Assistance: Provides an additional $600/week payment to each recipient of unemployment insurance for up to four months.
    • Provides an additional 13 weeks of unemployment benefits through Dec. 31, 2020, for those who remain unemployed after state unemployment benefits are no longer available.
  • Delay in Tax-filing Requirements: Individuals now have until July 15, 2020, to file their 2019 tax returns instead of April 15.
    • The Treasury Department has also postponed the deadline for making IRA contributions until the date taxpayers file their 2019 tax return during the extended filing period.

Retirement Account Changes

The following apply to qualifying individuals including those who are diagnosed with COVID-19, have a spouse or dependent who is diagnosed with COVID-19 or experience adverse financial consequences as a result of COVID-19, including quarantines, layoffs, business closures or child care responsibilities.

  • Elimination of Early Withdrawal Penalty: Waives the 10% early withdrawal penalty for withdrawals up to $100,000 from qualified retirement accounts for retirement plan participants who qualify for COVID-19 relief. Income tax on the distribution would still be owed but could be paid over a three-year period. Individuals could “recontribute” the funds to the plan within three years without regard to contribution limits. While the law allows for these types of penalty-free distributions, individual plans can set more restrictive policies.
    • Qualifying individuals include those who are diagnosed with COVID-19, have a spouse or dependent who is diagnosed with COVID-19 or experience adverse financial consequences as a result of COVID-19, including quarantines, layoffs, business closures or child care responsibilities.
  • Increase in the Retirement Plan Loan Amount: Increases the amount that can be taken as a loan from a qualified retirement plan from $50,000 to $100,000 for 2020.
    • In general, we recommend exhausting some of the other provisions associated with the CARES Act first, such as mortgage and student loan relief, or using the recovery payment to bridge the gap on current expenses before taking a distribution or loan from your retirement accounts.
    • For any withdrawal or loan, we recommend working with your financial advisor to consider developing strategies to recontribute/pay back these funds over time to reduce any long-term impact to your retirement goals.
  • Temporary Waiver of RMDs for 2020 for All Retirement Savers: Waives the required minimum distribution (RMD) requirement for retirement plans and IRAs in 2020. This provision also applies to RMDs due in 2020, but attributable to 2019. Individuals do not need to meet COVID-19 qualifying criteria to temporarily waive RMDs for 2020.
  • Items for Consideration:
    • In general, we recommend exhausting some of the other provisions associated with the CARES Act first, such as mortgage and student loan relief, or using the recovery payment to bridge the gap on current expenses before taking a distribution or loan from your retirement accounts.
    • For any withdrawal or loan, we recommend working with your financial advisor to consider developing strategies to recontribute/pay back these funds over time to reduce any long-term impact to your retirement goals.

Enhanced Tax Benefits for Charitable Gifts

  • $300 Deduction of Cash Contributions: Ability to deduct up to $300 of cash contributions to charities, regardless of whether the individual itemizes deductions.
  • Changes to Limits on Charitable Contributions:
    • Individuals: For those who itemize their deductions for charitable giving, the 50% of adjusted gross income limit is suspended for 2020.
    • Corporations: The 10% limit on charitable contributions is increased to 25% of taxable income.

Mortgages

  • Mortgage Relief for Homeowners: Requires the servicers of federally backed mortgages to postpone mortgage payments at the request of the borrower, provided the borrower affirms financial hardship due to COVID-19. The postponement must be granted for up to 180 days and extended for an additional period of up to 180 days at the request of the borrower.
  • Foreclosure Moratorium: Prevents the servicer of a federally backed mortgage loan to initiate any foreclosure process for at least 60 days beginning on March 18, 2020.
  • Eviction Relief for Renters: For 120 days after the CARES Act date of enactment, landlords with mortgages backed by the U.S. Department of Housing and Urban Development (HUD), Fannie Mae, Freddie Mac, and other federal entities cannot pursue eviction for their tenants. Landlords also can’t charge any fees or penalties related to nonpayment of rent.

Student Loans/Education

  • Loan Payment Suspension: Suspends payments automatically for federal student loans through Sept. 30, 2020, with no interest accruing or penalties during the period of suspension.
  • Additional Provisions: Contains a variety of other emergency-relief provisions related to education, and specifically the impact of many students being sent home mid-semester. For example, it allows universities to make payments to students who were unable to complete work-study programs.

Small-Business Owners

  • Small-Business Loans: Many small businesses are now eligible for disaster relief loans from the Small Business Administration. Additionally, the CARES Act provides conditions for when loan payments may be deferred, and loan amounts forgiven.
  • Other Provisions: There are additional tax and accounting provisions such as:
    • An employee retention tax credit for employers subject to full or partial suspension of business due to COVID-19
    • The ability to delay payment of employer payroll taxes
    • Modifications for rules around net operating losses
    • Modifications for rules around corporate AMT (alternative minimum tax) credits
    • A temporary increase in the limitation on interest deductions imposed by the Tax Cuts and Jobs Act

Partner with Your Tax Professional

As with any decision involving taxes, consult with your tax professional on considerations and impacts to your specific situation. Your financial advisor can partner with them to provide additional financial information that can help in the decision-making process.

Work with your Edward Jones financial advisor to consider key aspects of the CARES Act as part of your financial strategy.

Edward Jones email with advice from Investment Strategist Craig Fehr (It’s a great read and confidence booster!)

An Upside to This Down Market

It often feels like the stock market takes the stairs up but the elevator down. The latter rings true currently, with stocks falling more than 20% from the peak, crossing the official threshold of a bear market for the first time in more than a decade. And they did so in record time: U.S. stocks sat at record highs less than one month ago.

As unsettling as this selloff may feel, don’t lose sight of that staircase. Even with this decline, the stock market is:

  • Back where it was in early 2019
  • Still 5% higher than during hte pullback in December 2018
  • Up 20% (including dividends) over the past 5 years(an average annual gain of 4%) and 345% over the past 11 years (a 12% annual gain)(1)

The velocity of this selloff and the magnitude of the daily swings are a reflection of the unique risk of this human health crisis and the unprecedented efforts to contain the virus’ spread, which raise the uncertainty around the ultimate timeline and impact. Market selloffs are fed by fear and are eventually exhausted when extreme pessimism is priced in and investments become re-anchored to the broader outlook for fundamentals.

We think investors can take comfort that:

1. There appears to be a high degree of pessimism already in the market at these levels
2. The health of the economy entering this unique situation will play a key role in fostering its rebound as the virus runs its course
3. Diversified portfolios aren’t mirroring the stock market decline (see Five Keys, below)

How Long Will This Last?

Volatility is unlikely to end soon. We think the bottoming process may require the following:

  • A peak in the rate of new confirmed cases of coronavirus in the U.S. – The pace of new cases will need to slow before a sustained rebound can occur. Experiences in China and South Korea suggest an inflection point when new cases peaked.
  • An effective and sizable fiscal policy response – Washington is evaluating tax cuts, support for impacted workers and business loans/funding. This won’t fully solve the challenges, however, full-scale fiscal stimulus will likely be needed to bridge the gap for the economy and market confidence.
  •  Further monetary policy stimulus, with the Federal Reserve cutting rates near zero – Rate cuts won’t solve a human health crisis. However, the Fed will likely cut rates near post-financial crisis levels to add at least a pillar of support to financial markets. If this happens, we’ll emerge from the brunt of the virus slowdown with incredibly stimulative monetary policy settings, which we think will help supercharge the economic and market rebound.
  • Downward corporate earnings revisions – It’s unclear just how punitive this will be on corporate earnings in the next quarter or two, but we think earnings estimates for 2020 will need to come down dramatically. This will be another metric that will help markets stabilize and look ahead to the future rebound in profits, which are the long-term guide for stock prices.

The range of unknowns raises the uncertainty around the timing of a rebound. While we don’t attempt to time the market precisely, as a long-term investor, you should take comfort in the advantage of time in the market, not timing the market.

However, we remain confident that a rebound will take shape. It may take a while longer to materialize, but we think it will be robust and fueled by a return of confidence in the post-virus outlook. Long-term investors don’t need to capitalize on the pullback all at once but should consider opportunities to benefit from this decline. Consider:

  •  Rebalancing – Trimming overweight allocations and filling gaps in underrepresented asset classes and sectors
  • Systematic investing – Taking advantage of the ongoing volatility by systematically investing at regular intervals, reducing the “timing” aspect as the selloff plays out

Lessons from History: Light at the End of This Tunnel
Within a matter of weeks, markets have dropped to a level that to us is pricing in a U.S. recession, an economic outcome that looks increasingly likely, in our view. In a consumer- and service-oriented economy, widespread containment efforts make a contraction in GDP a self-fulfilling process:

  •  Historically, the stock market peaks on average roughly six months before a recession emerges, with economic conditions decelerating before eventually falling into contraction. Current conditions are anything but typical, given the unprecedented measures being taken to limit contagion. The flipside to this story, from an economic and market perspective, is more encouraging, however.
  • The market has declined by roughly 25% from the recent highs, nearly in line with the average bear market decline. It’s uncertain at this stage if this experience will be similar to past bear markets, but this suggests a substantially negative economic and earnings outcome is being priced in to stocks already.
  •  Given the root of the slowdown, we think the downturn will be temporary. This is not, in our view, a repeat of 2008/2009. The financial and banking system is on firm footing, and we don’t anticipate unemployment to experience a sustained spike, as is the case in traditional recessions and a root cause for a more slowly developing recovery. Given the economic foundation, we think a recovery in economic activity and investment can be faster and more vigorous than normal.

Looking back at bear markets (a decline of 20% or more) since 1955:

  •  The average total decline was 26%
  • The time from the initial 20% drop to the bottom of the market averaged 86 days.
  • The stock market returned an average of 25% over the next year and 32% over the following three years.

Five Keys to Navigating Pullbacks Successfully

1. Avoid the temptation to panic. This pullback, just like those before it, won’t last forever. You’ll want to be invested when the rebound takes shape.
2. Measure your progress against your goals, not the peak value of your portfolio or short-term fluctuations. If your goals haven’t changed, your strategy to achieve them shouldn’t either.
3. Put time on your side. You’re investing for the long term, so use that to your advantage.
4. Leverage the power of diversification. A balanced portfolio of 65% stocks and 35% bonds has held up better, dipping roughly half as much as the Dow.*
5. Lean in to volatility. History shows the best times to be opportunistic are when it feels toughest to do so.

Craig Fehr, CFA
Investment Strategist

*Source: Morningstar Direct. Equities represented by the S&P 500 Index; bonds represented by the Barclays Bloomberg US Aggregate index. Edward Jones calculations.

1 Bloomberg, S&P 500 index, as of 3/12/2020.

Past performance of the markets is not a guarantee of how they will perform in the future.

Diversification does not guarantee a profit or protect against loss in declining markets.

******

You’re welcome to share this information with friends and family members who you believe may find it of interest.

Sincerely,

Scott Lovejoy, AAMS® Financial Advisor

Recent Strategy Report from Edward Jones

Click for the Edward Jones Recent Strategy Report Here

Typically, this time of year is filled with graduation ceremonies and celebrations. But with the coronavirus pandemic, not much has been typical lately. Eventually, though, things will return to normal and schools will reopen for in-person learning. And if you have young children, you may want to save for their higher education, whether that be college or trade school. At the same time, though, you’re moving ever closer to retirement. Can you save for your kids’ education and a comfortable retirement for yourself at the same time?

It is indeed possible, although you may need to prioritize somewhat. Specifically, you may not want to put off saving for retirement in favor of education. But by viewing these goals together and investing as early as possible in each of them, you can take advantage of one of your biggest assets – time. 

Of course, you’ll still have to budget your resources. You want to invest as much as you can, but not so much that your monthly cash flow is crimped. Consequently, you may have to consider retiring later, contributing less to your child’s education, or a combination of the two. But in terms of logistics, you can make saving and investing easier. 

First, consider your retirement accounts. If you have a traditional 401(k) or similar plan, your contributions come out of your paycheck before you even see the money – so it’s about as painless a way of building your retirement fund as possible. Put in as much as your budget allows and consider increasing your contributions when you receive a raise at work. You can also direct your bank to move money each month from your savings or checking account into your IRA. 

Now, let’s move to your other key goal: education. Several education funding vehicles are available, but one of the most popular is the 529 plan. Your earnings grow tax-deferred and withdrawals are free from federal tax, provided the money is used for qualified higher education expenses. (529 plan withdrawals not used for qualified expenses may be subject to federal and state income tax and a 10% IRS penalty on the earnings.) Furthermore, your 529 plan contributions may earn a state tax deduction or credit if you participate in your own state’s plan.

You can set up recurring contributions from a bank account to a 529 plan. And you don’t have to fund your 529 plan on your own. Instead of gifts for birthdays, holidays, graduations and other occasions, why not ask friends and relatives to contribute to the 529 plan you’ve set up for your child? They’re all eligible to participate – and their contributions may earn them tax benefits if they live in your state and you’ve invested in your own state’s plans.

A financial advisor can help you plan for more than one goal, understand the benefits and tradeoffs of your decisions, and make the process of saving for those goals easier. So, get the help you need to stay on track – or rather, two tracks – toward the important objectives of education and retirement. 

This article was written by Edward Jones for use by the local Edward Jones Financial Advisor, Scott Lovejoy.

Edward Jones, Member SIPC

Recent Strategy Report from Edward Jones

There’s certainly been plenty of volatility and uncertainty the past few months, but one aspect of your financial picture has probably remained stable: your need for insurance. And since National Insurance Awareness Day is observed on June 28, now is a good time to review your overall insurance coverage to determine if you and your loved ones are well-protected.

You might be surprised at the lack of protection among your fellow citizens. Less than 60 percent of Americans have life insurance, and just about half of those with insurance are underinsured, according to LIMRA, a research organization. 

Of course, you might think the reason so many people don’t have insurance is because they don’t need it. But just about every age group can benefit from life insurance.

  • If you have a house and a family … Your insurance needs are obvious: If something happened to you, could your mortgage payments still be met? How about your car payments? Doctor’s bills? College for your children? Even if you have a spouse or partner who earns a decent income, your family could still have big trouble paying its bills if you weren’t around.
  • If you’re young and single with no family responsibilities … If you’re in this group, why would you need life insurance? For one thing, perhaps you owe money together with someone else – you might, for example, be a joint debtor on a mortgage. If you passed away, your co-debtor would be responsible for the entire debt. And just because you don’t have family responsibilities now, it doesn’t mean you never will. If you have a family history of serious health issues, which may eventually affect you, you could have trouble getting life insurance later, or at least getting it without paying a lot. Now, when you’re young and healthy, the coverage is available and may be more affordable.
  • Your children are grown and you’re retired … If you retire with debt or have a spouse dependent on you, keeping your life insurance is a good idea, especially if you haven’t paid off your mortgage. Plus, life insurance can be used in various ways in your estate plans.

Even if you recognize the need for life insurance, though, you may be uncertain about how much you require. Your employer may offer insurance, but it might not be sufficient for your needs. And, perhaps just as important, if you leave your job, voluntarily or not, you’ll likely lose this coverage. If you purchase a private policy, what’s the right amount? You might have heard you need a death benefit that’s worth seven or eight times your annual salary, but that’s just a rough estimate. To determine the appropriate level of coverage, you’ll need to consider a variety of factors: your age, income, marital status, number of children, and so on.

Still, even after you’ve got the right amount in place, it doesn’t mean it’s set in stone. You should review your coverage regularly, and especially when you change jobs, get married or remarried, have children or experience any other major life event.

Life insurance should be a key part of your overall financial strategy, along with your retirement accounts and other investments. Make sure you’re properly covered – for today and tomorrow.

This article was written by Edward Jones for use by the local Edward Jones Financial Advisor, Scott Lovejoy.

Edward Jones, Member SIPC

Edward Jones is a licensed insurance producer in all states and Washington, D.C., through Edward D. Jones & Co., L.P., and in California, New Mexico and Massachusetts through Edward Jones Insurance Agency of California, L.L.C.; Edward Jones Insurance Agency of New Mexico, L.L.C.; and Edward Jones Insurance Agency of Massachusetts, L.L.C.

Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation. 

Want to speak to a Certified and lcff recommended financial Representative?

Scott Lovejoy, AAMS® Financial Advisor serves the Lake Country Area and would love to chat with you about navigating this market.

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