Shotwell Rutter Baer

For many of our clients, charitable giving is an important part of financial planning. Supporting causes in which you believe can be a very rewarding goal. Traditionally, the tax code has supported charitable giving and encouraged Americans to be generous with their support of non-profit organizations. The tax law changed in 2018, increasing the standard deduction. This has made it more difficult for many middle-class Americans to get a tax benefit for supporting charities.

Your itemized tax deductions include things like property taxes, interest on qualifying mortgages, along with charitable gifting. If these don’t total more than the standard deduction, it can be difficult to get a tax benefit from making donations. However, with a little planning, there are some techniques that you can use to get some of those tax benefits back.

Note: With all these strategies, there may be deduction limits based on income and other considerations. Always consult your financial planner and tax advisor prior to implementing any tax strategy.

First, new changes to the tax code allow for some charitable deductions without having to itemize. For 2020, taxpayers can deduct up to $300 in charitable giving per tax return. Starting in 2021, single taxpayers can deduct $300.Married couples filing joint returns can deduct $600 a year in charitable donations. You can use these deductions regardless of whether you use the standard deduction or not. Be sure to document your giving with receipts from qualified non-profits.

Second, if you have savings available and a long-term plan for gifting, you can group contributions that you might normally spread out over multiple years into a single year This way, your donation, together with other deductions, is more than the standard deduction.

For instance, if you are a single taxpayer the standard deduction for 2021 is $12,550. If you have taxes, interest, and other deductions totaling $10,000 and make a $2000 contribution to your church, the contribution doesn’t give you any tax benefit because your total deductions ($12,000). This is still less than the standard deduction ($12,550). But if that $2,000 is something you plan to gift annually, and you have the funds in savings, you could gift $6000 this year, raising your deductions to $16,000 and allowing you to take a larger deduction than the standard.

A third technique that has become popular for retirees is to make Qualified Charitable Distributions from an IRA. If you are over 70 ½ years old, you can make up to $100,000 per year in Qualified Charitable Distributions to certified non-profit organizations. To be a qualified charitable distribution, the IRA distribution check is made out to the charity rather than to the donor. Most custodians allow the check to be mailed to the donor to deliver to the organization. The checks can also be sent directly. Distributions from traditional IRAs usually count as income for tax purposes. However, Qualified Charitable Distributions are not treated as taxable income to the donor. This way, the donor gets a tax benefit regardless of whether they itemize their tax deductions. Furthermore, these distributions count toward the required minimum distributions.

If you are not able to make a qualified charitable distribution, another option is to donate shares of appreciated assets rather than cash. The donation amount itself can be deductible if you itemize. This technique also allows you to avoid capital gains tax on the asset you donate, regardless of itemization. If you sell an investment that has gone up in value, you are usually required to pay capital gains tax on the growth. But tax-exempt non-profits can sell appreciated assets without paying capital gains. Many non-profits, even small organizations, have an investment account set up to receive such gifts and can explain how to make a transfer of shares. By sending them shares instead of cash, they can make the sale and you can avoid the tax.

A Donor-Advised Fund is a bit more complex but allows you to combine two of these techniques. A Donor Advised Fund is an investment account that you control in partnership with a non-profit foundation. The account lets you donate a sum to the account and take a tax deduction in the year of the contribution. The funds are invested and remain under your control. You can then make grants to the non-profits of your choice over time. This allows you to group several years’ worth of gifting into one year, potentially getting beyond the standard deduction.

You can also fund a Donor Advised Fund with appreciated assets, avoiding capital gains tax on those assets. There are minimums and rules for these types of accounts and a little research must be employed to make sure it is a good fit. However, they can be a very effective tool if you are charitably inclined.

There are several more sophisticated charitable giving strategies designed around estate planning, and usually involving trusts to remove assets from a large estate. Those strategies are important, but beyond the scope of this article. If you are interested in those strategies, drop us a line or check in with your estate planning attorney.

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

Join Dave Shotwell and Nick Nauta as they discuss the current financial climate and the 4th quarter of 2020.

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Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

Lately, we’ve had a few discussions with clients centered around their stimulus money and what they should do with it. While most people expect a pretty cut and dry answer from financial planners, these conversations have led to some interesting philosophical discussions around why the stimulus checks were necessary, whether they were deserved or needed, and different ways the funds can be used for their intended purpose.

The government had two main goals in issuing direct stimulus checks. First, many families are truly struggling right now as the Covid 19 Pandemic continues to disrupt the economy. Those families need the funds to pay bills and avoid dire financial outcomes.

The second reason the government issued stimulus checks was, as the name implies, to stimulate the economy by giving families extra spending power. Together, these two reasons imply that the expectation is that recipients would either spend the money because they had to spend it or would spend the money because they could spend it.

Researchers from the Federal Reserve of New York studied how Americans used the first round of stimulus payments last year. They also conducted a survey in the Fall of 2020 to determine how people intended to use a future round of payments.

The study found that:

Despite so little of the payments being spent directly, the effect on the economy was still beneficial.

If you don’t need the money…

Some people we’ve spoken with who were fortunate enough to not NEED the stimulus checks have expressed almost a sense of guilt on receiving the funds. At the same time they don’t have anything they really want to buy because, at this point, we’re still limited in travel and social interaction. If you fall into this group, one option is to donate the stimulus funds to a charity that will use the money to provide relief for those who do need the funds, such as a local food bank. A recent tax law change allows $300 of above-the-line charitable deductions for individuals and $600 for couples, so this approach has tax advantages as well.

The next option is to save the stimulus money if you don’t need it. This means you won’t be helping to stimulate the economy right now, but it does have positive effects for the future, both for the economy and you as a part of that economy. Other options include:

As always, the right choice depends on your values and your current financial situation. Think through the options and do what is best for you and your family. As the researchers from the New York Federal Reserve pointed out, even if most of the money goes into savings, the effect on the economy is still positive.

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

For the last few days, all the talk in the finance world has centered around a company called Game Stop. We’ve been fielding a lot of questions about what has been going on, and what it means for the economy and the markets.

Game Stop is a chain of retail stores that buys and sells used video games. Their business model has not done well for the last several years, as gamers can now download games over the internet rather than buy physical games, and that has been compounded by the Covid Pandemic.

Many large hedge funds had shorted Game Stop’s stock. Shorting a stock means that they made a bet that the stock would go lower as the business worsened. When you short a stock, you are borrowing shares you don’t own from a brokerage firm, with the intent that you will buy the shares when the stock has gone down, give those shares back to the brokerage that you borrowed from, and get to keep the difference. If the stock goes up instead, you must pay more for the shares instead, and you lose the difference. In the meantime, while waiting for the stock to go down, you must pay interest to the brokerage firm where you borrowed the shares, and you must maintain enough equity in the account to satisfy margin requirements. It all gets very technical, but the bottom line is that short-sellers take on a lot of risks and it can get expensive if their bets don’t work out.

Recently, groups of individuals on the internet have banded together to buy Game Stop stock and drive the price up. Game Stop’s stock has risen from $40 / share a few weeks ago to over $300 / share on a few recent days. Stock prices are based on demand for the shares, so these groups were creating extra demand for the stock which in turn fueled higher prices.

This caused a huge problem for the hedge funds who had bet that Game Stop’s stock would continue to drop. As the price went up, their short positions got more and more expensive. They began buying the stock back to close their loan positions, which in turn created more demand and drove the price even higher. This is called a short squeeze, which traditionally was something hedge funds would do to each other. In this instance, the big institutional investors were losing money because of small investors banding together. This further encouraged those small investors. Some of the hedge funds involved lost billions of dollars, while on paper the small investors were showing profits.

To understand the problem with what is going on with Game Stop, it helps to think about how to think about the value of a stock, and how that can differ from its price. The value of a stock is based on the business outlooks of the company it represents. When you buy shares of a stock, you become a part-owner of the company, which means you’re entitled to a share of the company’s future earnings and growth. Stocks usually trade in a range based on the current earnings and how they are expected to change in the future.

Value is one thing, but the actual price of a stock is determined by supply and demand.  While the company’s earnings and business growth are part of the price, popular companies that are expected to grow quickly might trade at higher prices than the current numbers would suggest, because investors, in general, expect them to continue growing.

The hedge funds that shorted Game Stop was looking at the current price, and looking at the industry and business, and expected the outlook to be negative. Thinking about Game Stop’s business model, it’s difficult to disagree with them. What they hadn’t counted on was that individuals would flock together to drive the price of Game Stop’s stock higher despite it being a lousy investment. At this point, Game Stop’s stock is far higher than its business would ever suggest makes sense.

This difference between the value of the company and the price of its shares is where the problems for the individual investors come in: They have made money on paper, but to realize those gains, i.e., take the money out and buy things with it, they need to sell their shares to someone else.  Since the share price is so high, there is no investment reason for anyone to buy Game Stop. The individuals who bought need to count on someone else being willing to buy their shares at a price higher than what they paid. As they begin to try and realize their gains, demand for the stock will drop, and the share price will most likely plummet back to a more realistic value. Some of the individuals will no doubt profit, but many will get stuck owning expensive shares that will never get back to what they paid for them.

What the individuals were doing was not investing, but gambling. In essence, the Reddit groups are playing musical chairs with each other. There is no intrinsic value to support the prices that they created, they’re simply gambling that other people will be foolish enough to pay those same prices or more. When those fools no longer show up to buy shares at ridiculous prices, the game will be over and many of them will be stuck with shares worth only a fraction of what they paid for them.

What does all this mean for actual investors? Probably not much in the long – run. Hedge funds will probably be more cautious about which firms they short, and they will probably work harder to keep their positions secret. Some individual buyers will get hurt, and that has the bad effect of discouraging people from saving and investing. Most stocks will continue to trade based on fundamental values and the world economy will continue to function.

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

Nick and Dave talk with Ian Richardson, owner of Doberman Technologies about personal and business cybersecurity practices that everyone should be doing.

Ian has an extensive background in IT security and is licenses in Microsoft and Sysco systems. He started Doberman Technologies 15 years ago to help out small businesses and individuals obtain crucial practices and services to keep their information safe.

Now with more people working from home, your home and business security is crucial.

Ian explained about his company’s No Geek Speak Statement. “In all the conversations we have with clients use plain English. We avoid acronyms or technical terms. When something makes sense that is when people start to pay attention.”

Cybersecurity is a big topic. All of it can seem scary. Whether you want to secure your household. your office, or your home office, there are things you need to be aware of and things that you can hand off to people who are knowledgeable about internet security, as well as things you can do on your own to improve your cyber – safety.

Ian explains that there are Three Cybersecurity cornerstones: Confidentiality, Availability, and Integrity

All three of these are paramount in ensuring that all of our data and access to that data is kept safe.

Confidentiality: Whatever I need to keep private I am keeping private. This includes keeping information safe from hackers, but also different permissions for team members, employees, or household members. For example, in a company with employees, there will always be sensitive information that only HR or Payroll personnel need to access. In a household, the adults need access to financial information where children and teens don’t.

Integrity: This means that all data is what it says it is. It doesn’t get changes, deleted, or corrupted. And everything is backed-up.

Availability: This ensures that the right people can easily find their information and access that information

The goal is to create a balance between security and ease of use and accessibility.

As an employee and a consumer, it is a good idea to ask the organizations you work with about their security protocols. This includes your employer, bank, financial advisor, doctor’s office, and anyone else who has access to your private information.

Ask questions such as:

How do you keep my data safe?

Who would you ever share it with?

How do you share it?

What are your Backup and update protocols?

How do I access all of my financial information through your company?

If someone is unable to answer questions about their cybersecurity, chances are they don’t understand it or they might not be doing it or doing enough of it. If they can explain it to you simply, that is a good indication that they understand it.

The National Institute of Standards and Technology (NIST)  is a taxpayer-funded organization that does many things to support consumers, including creating a five-part framework for your average business owner or individual to keep you and your info safe online. Identify, Protect, Detect, Response, and Recover.

Identify:  Identify what is important to you. For example, in your home, you have electronics, information, photos, statements, financial plan, assets, etc. Classify them in order of importance. How important is each thing to your organization or household?

Protection: Once you identify what is important, invest in protection. You put locks on the doors, a fence in the yard, etc. Cybersecurity, anti-virus on computers, complete updates, and security software are types of protection for your online information.

Detection: For your home, you may get an alarm system or join the neighborhood watch.  With cybersecurity, you install alerts to tell you if something has happened. Use multi or two-factor authentication for everything that will allow it. If you have two-factor authentication, you will get a text or an email if someone tries to log in to your accounts.

Response: If your house has been breached, the alarm goes off and the alarm company and the police are alerted.  With your online information, if you get an alert through two-factor identification or something else you can check in with your team or family members, make sure no one did something. Then you call the bank, or company associated with the breach and find out how it was accessed. You can freeze accounts, change passwords, or whatever it takes to restore security.

Recover: If someone breaks into your house and robs you or your house burns down, your insurance will cover the loss – which is a recovery strategy. In business, a recovery strategy includes a way to back-up and restore data.

It is important to be an active participant in keeping yourself and your information safe. If you invest time and/or money into each one of these steps you will be good with cybersecurity.

Passwords are a misnomer. Your password should actually be much more than a single word. A passphrase is much safer. This is a sentence you are going to remember. It can be random words, an actual sentence, a line of Scripture,  a favorite quote, the opening line to your favorite movie, or something else that you will remember. But don’t stop there. Most sites that require a password also require that it includes capitalization, numbers, and symbols.

For capitalization, you can use normal capitalization rules, reverse capitalization, capitalize the last letter in each word, or just something that you will remember.

When choosing numbers, pick a number that means something to you. You can put it at the end, the beginning, the middle, or wherever you will remember.

Lastly, throw a symbol in there somewhere. Put it in a different place than your number. Not next to one another.

A passphrase like this will be easy for a person to remember but will take centuries for a hacker program to figure out. A single word, even the ones that mean nothing like the suggested passwords that you are often given, will take about 30-60 days for a hacker system to figure out.

Don’t use the same password phrase with everything. Instead, use a password manager. You create one passphrase to get into the manager and then the password manager makes random passwords for everything else.

If you insisted on every person on your team or in your family use a password management system, it makes it so much easier and safer. When you bring on new employees or when they leave your company, your security will not be compromised as you add or delete them from your system.

This makes HR transitions much easier and much more secure. Password managers are a key tool for any cybersecurity protocol.

On the household side, couples will be able to access anything they need to. If something happens to one spouse, the remaining spouse is not locked out forever.

There are many password managers that can be set up so that if you don’t log in for a designated time, it will automatically contact a designated person and give them access. This is called a “dead man’s switch.”

What should you do if you think you have been hacked? It depends on the severity of the hack and what type of information was compromised. However, here are some common hack strategies.

Email Attack: Fake emails are sent using social engineering. They are created to trick you using human nature. Simply opening an email usually doesn’t do any harm. A common ploy by hackers is obtaining a list of passwords and emails from a site. Then they send an email to the victim stating something like, “We have your password (then they list the password) and if you don’t pay us, we are going to access all of your accounts and steal your information and money.” In this type of scam,  99.9% of the time they haven’t actually done anything with your information. If you think about it, someone with access to your information is most likely going to access it and take whatever they can and never tell you about it. So, if you get an email like the one just described the best thing to do is go to the account the email is referencing and change your password. There is no need to reply to the email. You could also alert your bank and/or credit card to not accept any charges for the business in question for a certain period of time.

Click on a link in an email or open an attachment. If you open an attachment sent to you it may install something on your computer. If you ever click on an attachment and you get a pop-up notification asking you if you are sure you want to open this, it means the attachment will try to install something or run something on your computer. This is your computer telling you that something might happen that you don’t want, and you should stop and not go any further.

A word document or a true PDF will never give you a prompt that it is trying to run or install something. If you get something from someone you know that you weren’t expecting, call the person and ask them if they sent you something. If it is from someone you don’t know, it’s probably not valid. If something is sent to you under the pretense of being URGENT, you should always verify.

If you do open an attachment or suspect that your security has been compromised, check out your system and call a tech resource. Or go through security software and run a scan to check out your computer.

Reset password link. If you get an email telling you to reset a password by following a provided link – don’t click on the link. If you do, most likely a hacker has created a fake website to look the one they have told you it is. When you change your password you are handing it to the hacker. Instead, open up a browser and go directly to the website on your own and change your password from there. Never click on a link from an email to change a password. Because of this popular hacker ruse, no legitimate company will ever send you an email with a link in it to change your password.

If you have fallen for this common ruse, go to the real website of the company and immediately change your password. You could also call your credit card company and/or bank and tell them to freeze your card or account for that store, or transfers, etc.

Hackers are very good at playing 0n people’s emotions and creating that sense of urgency. It happens more often than people realize. You may feel silly, but don’t let that keep you from doing whatever you can to mitigate the loss or re-establish the security.

Social Security Number: If you think your SSN has been compromised, call all three credit verification companies (TransUnion, Experian, and Equifax) and put a freeze on your social security number so no one else can open an account with your SSN. You can set up two-factor authentication for that as well.

Conduct Active credit monitoring several times a year. Get a bit more intentional about your security. Slow down, there is never that big of a technology emergency coming through your email.

Really look at the email, who it is from, spelling mistakes. What are they trying to get you to do?

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

Breaking down the deal with Required Minimum Distributions.

After you turn 72 years old, you will need to take a minimum amount out of your traditional IRA accounts each year. This also applies to your 401k or 403b accounts if you are no longer working for the businesses sponsoring those plans. The minimum required amount referred to as your required minimum distribution, or RMD, is based on a formula provided by the IRS that changes every year based on your age.

In the year you turn 72, the deadline for taking the distribution is April 1 of the following year. In subsequent years, you need to take the required minimum prior to December 31 of that year.

Note that the age for required minimum distributions changed in 2018. Prior to that change, the magic age was 70 1/2. If you were born before July 1, 1949, then the old rule applies, and you should have already started minimum distributions. If you were born after June 30, 1949, then you can wait until you turn 72.

You can calculate your required minimum distribution amount by dividing your IRA balance on December 31 of the previous year by a number that represents your expected “Distribution Period,” which is taken from the IRS table below. For example, if your IRA balance was $100,000 on 12/31/20 and you turn 72 years old on 10/1/2021, you would divide $100,000 by 25.6, and your required minimum distribution for the year would be $3,906.25.

Below is the IRS Uniform Life Table that applies to most retirees. If your spouse is the sole beneficiary of your IRA and he or she is more than ten years younger, you can use the IRS Joint Life and Last Survivor Expectancy Table, which allows for smaller required minimums. If you are the beneficiary of an IRA and you weren’t the owner’s spouse, you use a different table, called the IRS Single Life Expectancy Table.

IRS Uniform Life Table

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

Are you committed to starting a budget?

Budgeting is like dieting. Most of us aren’t good at it. Our brains are wired for instant gratification, not delayed consumption. Making people think about such things can be an uncomfortable part of being a financial planner. I must confess that budgeting does NOT come easily to me. However, nothing is more important to financial security than understanding where your money is going. We can’t help you build an emergency fund, pay off credit cards, save for retirement or your kids’ educations until we have a grip on your resources.

There are lots of electronic tools out there to help you track your cash flow, and many of them are very good. There is also nothing wrong with using a spreadsheet or a good old pad of legal paper, and often that is the best place to start. The best system is the one that you will use consistently and that fits with how you think about your financial life.

The process I’ve outlined here is meant to get you started, with pencil and paper or a spreadsheet, and can be adapted to most of the online tools.

Do not let perfection be the enemy of the good: If this is your first attempt at figuring out your budget, you will find yourself stuck at times. Do the best you can and move on. Any expenses that you are unsure about mark with a star or some other notation so you can return to them later. Budgeting is an “iterative” process, meaning that each time you go through the process, the budget becomes more precise as you learn more about where your money goes.

You of course will need some records to look at to get started. Gather up any paper statements you have for pay stubs, credit cards, and bank accounts. If, like me, you do your financial business online, have all your login and passwords handy.

Start the process by writing down your household net incomes – what comes into your account to use for covering expenses. For today’s purposes if your pay is irregular try to find a comfortable average. If you receive annual bonuses, I usually leave those out of the process for now, particularly if they aren’t a sure thing. We want to know what you can count on to meet your obligations, month to month. Bonuses can come back into the picture later and are useful for reaching saving goals, paying down debt, or funding things that are nice to have but not necessities like an extra vacation.

Next, make a list of your set spending obligations. These include things like mortgage payments, rent, insurance, utilities, and property taxes. Note that many of these expenses will be monthly, but some are irregular. For the irregular expenses, total them up and divide them into monthly averages, so a quarterly insurance bill should be divided by three to get the monthly amount. If you treat your irregular, fixed expenses as monthly obligations, setting aside the right amount as you go along, you will find they are much easier to meet.

A note on credit cards: If you pay your credit card debt off every month, don’t include the payment as an obligation. You are merely using the credit card as a cash flow tool, paying for budgeted expenses all at once. If you are carrying a credit card balance, include the monthly payment as a static obligation. For now, include the minimum payment. Once we know how much money you have to work, we can assign a monthly amount to pay off the card.

Related: The Snowball Strategy for Getting Out of Debt

This is the hardest part for most people to figure out. The things we need but that vary week to week, like gasoline, groceries, and dining out. For now, go back through your records and try to come up with an average of what you spend on each item. If you tend to use cash, you may need to think things through: how much does it generally cost to fill your tank with gas? Do you need to fill up once per week? Be reasonable but don’t worry too much about precision in this first attempt. If you don’t know, make an educated guess, and move on.

For now, count things you need to do, like eat, put gas in your car, maintain your home, and feed the dog. Include the day-to-day things that vary but are still part of your regular lifestyle. You can include things like gym memberships or your daily latte at the café if you see them as part of your everyday routine and necessary expenses. But recognize that if you run out of room in the budget these are items to review. Save extra things like vacations and home improvements for the next phase.

This is where your priorities and values come into the picture. If you need to adjust your spending down because your expenses are higher than your income, you will need to weigh those expenses and decide what is important to you. Would you prefer a smaller house that allowed more room in the budget for vacations? Would driving a less-expensive car allows you to spend more on your favorite hobby? Often, we spend money without connecting that spending with our values, but when we look at our spending in a budget, we have an opportunity to align our expenditures with what we find important.

After you have accounted for all your current obligations and your variable spending, it’s time to think about the things you need to do or want to do in the future. Start with the basics: If you don’t have an emergency fund already in place, start by setting a goal and saving monthly to create a cash cushion. Aim for three months of your static and variable spending as a starting point. Once that is out of the way, paying down any outstanding credit card debt would come next, and then saving for future goals. Those goals should include your own retirement and college savings if you have kids, and necessities like replacing a car or home improvements, but don’t forget the fun stuff like vacations and hobbies.

If saving for all these goals seems overwhelming, especially if you don’t have much extra cash flow after accounting for your necessary spending, prioritize them, and work on them in stages. Once you have the high-priority goals covered, like a contingency fund, you can move on to the next goal. If you use up some of that fund for an unexpected expense, then come back the following month and start saving to build it back up.

For some people, dividing savings into separate bank accounts provides a psychological boost as you can see the money adding up for specific goals. There are also computer programs, such as You Need A Budget, or Mint, that will divide your accounts into sub-accounts so you can track progress toward your savings targets.

Once you have a rough budget worked out based on these guidelines, set aside time to see how your actual expenses compare to what you’ve put down on paper. Be prepared to adjust. The first budget attempt is usually not very accurate, but as you go forward you will see which categories need to shift. Each month your budget will become more accurate, and each month you will grow more confident that you have your finances under control.

Creating an accurate budget is the most effective way to manage your money and more toward eliminating debt. You’ve got this. If you would like to talk to a financial expert and get help with your budget, please feel free to contact us at Shotwell Rutter Baer.

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

Is getting out of debt your goal for 2021?

At the start of the new year, resolutions are on people’s minds right now.  As I type this it’s snowing so it seemed like a good day to write about my favorite strategy for eliminating debt – the Snowball Strategy. After all, if you have credit card debt, making it go away is a great new year’s resolution. And who doesn’t like a good weather metaphor?

I’ll try to avoid all the other bad snow-related puns about feeling snowed under by credit card debt or needing to dig your way out and stick to the point. The Snowball Strategy gets its name because as you work through paying off debt you gain momentum, like a snowball rolling downhill. This approach helps you prioritize your debt payments and tackle them in a logical way to make the task manageable.

Check out SRB’s First Step Cash Management System™. It is an operating system for making decisions about life and money. It is a simple and effective way to manage expenditures, reduce debt, increase savings, and fund important life goals. With First Step, income flows into three “buckets”, with each bucket having a specific use or purpose.

The strategy focuses on paying off the smallest debt first and then using the payment that was going toward that debt to start paying down the next largest debt. This is where the snowballing momentum comes in. Each card that gets paid off helps you in turn payoff the next. While focusing on higher-interest debt may save a bit of money in the long run, we like this strategy because the positive psychology that comes from this momentum helps people stay focused and see the task through to the end.

The key to making this strategy work for the long-term is to make sure you are starting with a balanced budget. Getting rid of old debt is an important goal, but so is not creating any new debt while you’re at it. If you haven’t started budgeting your income and tracking your spending, now is the time.

The strategy itself is simple:

Here’s an example: Imagine you have three credit cards.

You have enough room in your new budget to make an extra $100 per month payment.

Your total monthly payments would be $250, which is the total of the monthly minimums and the $100 per month extra you have dedicated to getting out of debt.

The first month, you would pay $125 on the first card: your extra payment plus that card’s minimum, while paying $50 and $75 on the other two cards. You would repeat this until the first card is paid off, sometime in April. At that point, you would pay $175 per month on the second card (the amount you were paying on the first card, plus the second card’s minimum) until that card is paid off while continuing to pay the minimum on the third card. By the end of September, the second card should be paid off and now all $250 of your monthly payment can be directed at the third card, which in turn would be paid off by the end of the year.

When you’re done celebrating, you can go back to your budget. Now, all that money you were directing toward debt payments can be repurposed to build your savings and help you reach your future goals.

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

It’s that time of year: Prediction Season!

Along with new year’s resolutions, it’s time for economists and money managers to make market predictions.

Some will be gloom and doom, constructing elaborate arguments about how the market is greatly overvalued and about to crash. Others will be optimistic, explaining why there’s still opportunity in the markets and room for stocks to move higher. Some are merely trying to justify what they did or did not do last year or sell you on the strategy they plan to employ for the coming year. All of them will produce coherent arguments that can be quite compelling.

Half of them will be right, and the other half will be wrong.

How do you know to whom you should listen to? You can’t know, and you don’t know. The markets will do what they are going to do, and the economy will do what it is going to do, regardless of what the talking heads on MSNBC, the cover of Forbes Magazine, or the latest “Economic Outlook for 2020” from a particular fund manager says will happen. No doubt, some of them will be correct but as they say even a stopped clock is right twice a day. Figuring out which predictions will be correct can only be done with the advantage of hindsight.

A well-constructed portfolio is built around the principles of risk and reward, and how different types of funds work together over time. Rather than try to predict the market’s direction, it is a far better strategy to build a portfolio around your need for return and your tolerance or risk, built to last regardless of which talking head on TV or fund manager’s newsletter proves to be correct.

Shotwell Rutter Baer’s bold predictions for the coming year:

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

Life Planning is a personal approach to financial planning that starts with a conversation about your life goals and dreams. We often don’t give ourselves the time and space to really think about what we want for our lives now, in the near future, and in retirement As humans, we tend to have tunnel vision and get so busy that we are only thinking of the week ahead. We don’t always look at the big picture.

Nick Nauta recently attended the Kinder Evoke 4 day virtual training. George Kinder is widely regarded as the father of life planning. Training system. for financial advisors to master his Evoke process. The training was led by the company’s current guru,  Louie, who taught the training from the Netherlands. Despite the crazy time zone challenges, Nick really benefitted from the training.

“I learned a lot about Life Planning but also a lot about myself. One of the neat things about the training is that you actually get life planned yourself. I got to experience it from the client’s point of view.” Nick explains.

Exploration

Vision

Obstacles

Knowledge

Execution

The knowledge and execution steps are the same as traditional financial planning. However, where the new way of looking at planning comes in is during the first 3 steps, Exploration, Vision, and Obstacles.

We help clients quantify their goals and connect those goals to their values. You have money and you have resources, but how do you use them to create an impact on your life? How does that translate into how you want to live your life?

As financial advisors, we have all these tools, but if we don’t have a target we are shooting for, we are just shooting arrows and hope we hit something. The Life Planning approach is how we get really specific and know exactly where the bullseye is. This helps us to know exactly what advice to give each client for their unique life situation.

Financial planning is not just about the investments. As Nick is fond of saying, If that were the case, we’d all be living in cardboard boxes with million-dollar investment accounts. Numbers-wise, that is the best-case scenario: spend nothing and invest everything. However, that is no fun.

Money is only as good as what you do with it.

~David Shotwell

We can analyze the numbers and market all day long, but if we don’t know how it fits into what is important to the client, then we are shooting in the dark.

There is internal planning and there is external planning. External Planning is the nuts and bolts and analyzing the money. Internal planning is what you want to do, the life you want to have, and how to make that happen.

Nick explains the most beneficial part of his life planning experience.

“Being given space to really think about what is important to me and having that person to talk through the options was remarkable. One of the aha moments for me was about emotions. Typically when you talk with a financial advisor they want nothing to do with emotions.  But life planning is a lot about dealing with emotions. The reason that it is so important to deal with emotion is that if you think of the word emotion it is is E + motion = energy and motion. We don’t do anything unless there are emotions attached to it because that is where we get our energy from. If you ignore the emotions, chances are you are not going to go out and do the things you want to do or the things you say you want to do because there is no energy behind it.”

As financial planners, we need to provide the space and encouragement to talk about the emotions behind financial decisions to get to the heart of each client’s life goals. This is not typically the kind of thing people come to a financial planner for. It’s a different approach, but if what you are really trying to do is create a successful financial life you have to start with that overall vision.

Life planning isn’t therapy in the traditional sense, which looks back at the past. Instead, you and your financial planner are looking ahead to what’s next. We take the current moment of what you want out of life and what will make it meaningful and apply the tools and experience we have to make it happen. No one else is really set up to help you other than an experienced financial advisor who also has Life Planning expertise.

Your Life Plan helps your financial advisor be that much more specific in making recommendations that are going to help you reach your goals in the most successful way possible.

Our focus is on, “Are you able to do what you were truly put on this earth to do?” Instead of just thinking about whether or not you are making more money?

It is important to keep in mind that your life and financial plans are an evolution. They are not etched in stone and can change and shift with your changing ideas and circumstances. That is why you have an ongoing relationship with your financial advisor. Goals and values change.

For example, you might have a passion for sailing around the world on your sailboat during retirement. You get to retirement and sail for a month and realize that it was really fun, but you don’t need to it any longer. You want to move on to something else. But if you had never taken that month, you’d always wonder for the rest of your life what it would have been like.

The Obstacles portion of the plan is also crucial. Continuing with the sailboat analogy, maybe the husband really wants to spend a lot of time sailing around on his boat in retirement, but his wife gets seasick. The wife’s main goal in retirement is to spend more time with their grandchildren.

So, the financial advisor offers a plan of creating a schedule where the husband sails from port to port and the wife can fly out to meet him occasionally with the grandchildren. This plan meets everyone’s needs, but if they hadn’t talked it out with an advisor they may not have come to this plan on their own.

It is fascinating how often someone will reveal something that is really important to them they had never told their spouse before.

Sometimes people’s goals are not conducive to their financial reality. Their financial situation may not support them being able to sail around the world, but as their financial planner, we can help them figure out a version of their goal that will help satisfy their dream. This might include shorter trips and a scaled-down version of word travel.

Another great benefit of having a financial advisor is having a person to bounce ideas off of. So often we have goals and dreams but if we don’t talk to anyone about them it is very easy to dismiss them and tell ourselves, “That’s impossible. That will never happen.”

A financial advisor can help you really explore those ideas and determine if you can do them, or a version of them. It is really energizing and helpful to have someone in your corner to help you plan for things that you may otherwise have just put off and assume you could never do.

Shotwell Rutter Baer has its own Financial Plan process that is rooted in the EVOKE Life Planning philosophy. We spend as much time as needed with each client on the visioning process. We consider this the most important part of the entire financial planning process. It is important to have space to not only think about what is truly important to you but to also verbalize this to someone else who can help you create a plan that will bring your goals into reality.

We are excited to continue developing our training and offering Life Planning to all of our clients to provide them with a well-rounded and goal-oriented approach to financial planning.

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.