Stacy’s Savvy Financial Advice
Stay Savvy with our founder Stacy Francis’ latest articles on financial planning, budgeting, debt management, investing, divorce, retirement planning, and more.
Stacy Francis founded Savvy Ladies® in 2003 with the mission to educate women about their finances and empower them to make proactive choices. Inspired by her grandmother who stayed in an abusive relationship due to financial reasons, Stacy has been determined to never let another woman become powerless by financial instability.
Get the resources, knowledge, and tools you need to make smart and informed decisions about your money and your life.
In addition to being the Founder and Board Chair of Savvy Ladies®, Stacy is the President, CEO of Francis Financial, Inc., a boutique wealth management and financial planning firm. A nationally recognized financial expert, she holds a CFP® from the New York University Center for Finance, Law, and Taxation, and is a Certified Divorce Financial Analyst® (CDFA®), a Divorce Financial Strategist™ as well as a Certified Estate & Trust Specialist (CES™).
Stacy has appeared on CNBC, NBC, PBS, CNN, Good Morning America, and many other TV & Financial News outlets. Stacy too is ofter sought out for her advice and can be found quoted in over 100 publications such as Investment News, The New York Times, The Wall Street Journal, USA Today. She shares her wisdom and expert financial advice here for you to learn and get savvy about your finances.
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STACY’S $AVVY ADVICE
The Scoop on IRAs and Tax Losses
by Stacy Francis, CFP®, CDFA
My friend who is a stockbroker wrote heaps of sell tickets for his clients back in December of last year. This may seem controversial, considering that finance gurus always advise us to sell high and buy low and it has been a long, long time since stocks traded as low as they did at the time. However, selling stocks in a down market has one huge advantage: you can deduct the losses from your taxable income. Especially thinly traded, volatile stocks that have performed poorly throughout the year tend to be hammered to the ground in December, only to rebound in January as investors with a long-term, bullish perspective pick them back up again.
Taking advantage of these losses in your regular, taxable accounts is a no-brainer. But at times, it can pay off to take tax losses in your retirement accounts as well.
Before you read any further, take note that you can never deduct losses in traditional IRAs or 401(k)s. The reason for this is simple: you already made a deduction when you put the money in the account!
However, if you have a Roth or traditional nondeductible IRA, you may be able save a few tax dollars, as long as your cost basis is higher than your current account value. Unfortunately, this type of transaction has several drawbacks.
First of all, in order to deduct a loss, you need to liquidate the entire account. When you want to build it back up again, all the usual limits and restrictions will apply to you. Furthermore, losses in these accounts cannot be deducted directly from your taxable income – they can only be used as parts of an itemized deduction. Therefore, they are much less beneficial for this purpose than losses in regular, taxable accounts.
To sum up, taking a tax loss in your Roth or traditional nondeductible IRA may make sense if you have accrued only a tiny balance and you itemize. If you have a large amount of money saved up, you don’t itemize, or your account is either a 401(k) or a traditional IRA, don’t bother.
Spring Cleanout of Your Investment Portfolio
by Stacy Francis, CFP®, CDFA
I love this time of the year! Trees painted in that fresh, new green, baby birds chirping in the trees, and a sense of excitement in the air. I spent last Saturday preparing my closet for spring and summer: warm, heavy jackets making room for light summer coats, sweaters yielding for shorts and dresses, and boots replaced by cute sandals and heels. Of course, I also had the opportunity to donate the old items that no longer fit (size or fashion wise) to a lovely charity, and to pick up a few new ones – you know, the kind that gives your entire closet a facelift and makes every outfit feel brand new.
For those who haven’t yet gotten around to it, this is the time to clean out your investment portfolio as well. Schedule an appointment with your financial planner to discuss the following:
1. Is all or a portion of your capital invested in a fund, industry, market or company you no longer believe in? If so, it may be time to toss! The same applies if a fund has gone through a shift in management or style that you feel is for the worse. You can access this information in annual reports – or through google!
2. Monitor the Morningstar ratings for your funds, albeit not religiously. The score (one through five) will tell you how well a fund is doing compared to similar funds and relevant indexes – not how good of an investment it is overall. This is why it is crucial to do your own research as well. A two star-rated fund in an upcoming industry may be a better option than a four-rated one invested in a troubled sector. And with this in mind . . .
3. Have any new industries, companies, funds or markets sparked your interest lately? Have you done your research and feel fairly certain they’ll do well in the future? You may want to send some of your dollars in that direction!
4. Do you need to be more conservative, or could this be an opportunity for you to speculate a little? Your investment strategy should change not only with age (typically, the older you get, the more conservative it should be), but also with new market circumstances. If you are young and have plenty of time still, you may want to take advantage of this opportunity to pick up stocks and mutual funds invested in stocks for less.
The 8 Characteristics of a Successful Financial Plan
by Stacy Francis, CFP®, CDFA
Having a financial plan in place means more than just having a good asset allocation or some insurance to protect the people you care for. No matter what your age is or income level, you should always have a plan in place. it is recommended that YOUR financial plan includes ALL of the following 8 characteristics for a healthy financial plan.
8 Financial Advice Tips from a Financial Expert
- A consistent flow of money into the plan. It isn’t enough to randomly “feed” your plan and rely on portfolio returns. Consistency breeds stability and predictability when it’s time to “reap”.
- A fair rate of return as it pertains to your individual plan objectives and risk tolerance.
- Minimum tax consequences while you are building your plan.
- Minimum tax consequences while you are reaping the fruits of your labor.
- Access to your money. Your plan will most probably include different “buckets” of money. Some intended for short-term objectives and some for longer term objectives. When an objective is reached the funds set aside for it should be easily accessible.
- Minimum risk. If you have gone to the trouble of putting together a well-thought-out plan, don’t try to accelerate your progress by taking more risk than you have to in order to accomplish the goals you set out for yourself with the help of your planner.
- Provide for emergencies and unpredictable events. “Life happens!”
- Flexibility to change and adjust as your life does.
Your plan will stand the test of time and will reward you well if you take care to include each and every one of the above. If you cut corners or leave out any of the above, your plan will at some point fall short.
Visit our Free Financial Helpline for personalized 1:1 Financial guidance with one of our pro bono certified financial planners. Learn more here.
Why You Need a Roth IRA
by Stacy Francis, CFP®, CDFA
I met with a new client last week; a woman in her early thirties eager to get started on her nest egg. A discussion of her financial goals and priorities revealed that she hoped the not-so-distant future would bring her not only a home of her own, but a few children as well. When I recommended a Roth IRA, she was all frowns. What’s the point? she wondered.
This is such a common question; it deserves a blog of its own. After all, why would you make your contributions on an after-tax basis, when you could just as easily open a traditional IRA and cash in on your tax breaks right away? In this day and age, what could possibly beat the magic of instant gratification?
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With a traditional IRA, the withdrawals you make in your golden years are taxable, at your current rate. With a Roth IRA, once you’ve made your contributions, you never pay tax on the capital again (provided, of course, that you play by the rules). Since the amount you’ll withdraw from the account will be much larger than the amount you put into the Roth, in most cases, your total tax bill will be considerably smaller with a Roth IRA. Remember? You don’t retire off the money you set aside – but off the money you make off the money you set aside.
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If, like my client, you are aching to buy a home and start a family, note that you can withdraw money from a Roth IRA without becoming subject to the penalty tax, to pay for a first home or college tuition for yourself, your spouse or your children. No such exceptions apply for traditional IRAs.
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A Roth IRA is typically more beneficial for your heirs, should you kick the bucket.
Note, however, that there are strict income limits for contributions to Roth IRAs. Singles needs to make between $5,000 and $101,000 per year (phase-out between $101,000 and $116,000), while married couples must have an annual income of less than $159,000 (phase-out between $159,000 and $169,000). As long as you fulfill this requirement, chances are, a Roth IRA is a great option for you.
Recommended Reading: Jump-Start Your IRA!
Your Financial Fitness Checkup
by Stacy Francis, CFP®, CDFA
Leaving the organic produce store yesterday, a flier on the revolving glass door caught my eye. It was entitled “HEALTH CHECKUP: Do You Have the Supplement Basics Covered?” and listed five types of supplements – multivitamins, enzymes, probiotics, fatty acids, and green vegetables – as the foundations for good health. Not only is it nice to know that I take all the necessary measures to ensure my physical well-being, this also translates very well to financial health.
Do you have the personal finance basics covered?
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Do you make more than you spend? Are you able to pay all your bills in full, on time, or do you need to make more and/or spend less?
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Do you have an emergency fund? Do you have enough money to cover six months worth of expenses, and is this money easily accessible?
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Are you in the black? Do you pay off your credit cards in full every month? If not, draft a plan to get rid of those balances!
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Have you thought about retirement? Do you have a 401(k), Roth IRA or similar, and do you contribute to it regularly?
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Have you protected yourself against disaster? Do you have the insurance coverage you need, including medical, disability and homeowner’s insurance?
Yes on all? Congratulations! Chances are you’re in great financial health.
The New Triangle Drama: Remarriage, Kids, and Inheritance
by Stacy Francis, CFP®, CDFA
It is rare that anyone cries in my office, but it did happen last week. A client reported between sobs that her dad had passed on a while back. Not only was she paralyzed with grief; she had also just learned that she wouldn’t get a dime out of his estate. It was all going to the twenty-years-younger woman he married three years ago. It felt, in her words, like a slap in the face.
A sad story indeed, and more common than I think anyone would like. With an increasing number of people remarrying late in life, conflicts with children are on the rise – not just on a personal level, but financially, too. Unfortunately (and perhaps surprisingly), kids have very few rights in these scenarios. While it takes very little for a parent to disinherit a child, most states require that a surviving spouse receive between a third and half of the estate, at least (referred to as the elective share).
Sure, my client could make a court case out of it. Children often gain the jury’s sympathy in inheritance disputes. Unfortunately, the law is on the surviving spouse’s side.
The good news is: if you plan ahead, you can nip this ugly scenario in the bud and ensure that bereavement is the only reason your children cry at your funeral. Below are just a few ideas:
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Skip the wedding altogether. Many couples who meet late in life opt to just live together, keeping assets separate and making life a lot easier for their respective children.
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Draft a detailed prenup. It may not be the most romantic thing to do, but it can make all the difference later on.
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Set up a Q-Tip trust. Q-Tip trusts are designed for this very purpose. When the parent passes on, the surviving spouse receives the income from the trust while the children hold on to the principal. Once the surviving spouse kicks the bucket, everything in the trust is paid out to the children. While Q-Tip trusts have their advantages, they can also create a lot of conflict- especially if the surviving spouse is young with a long life expectancy. Furthermore, setup costs can be substantial.
Ditch These Three Major Money Wasters and Save Hundreds
by Stacy Francis, CFP®, CDFA
This weekend, my family and I spent some time browsing plasma TVs at Best Buy. Strolling past walls of pulsating light and sharp-as-a-knife imagery, I was amazed at how much prices have dropped lately. In line, I was even more amazed at the number of people who purchased extended warranties for their electronics. From a statistical standpoint, it makes little sense. The vast majority of such products malfunction either early on – while still under the manufacturer’s warranty – or way down the road, long after the extended warranty has expired. In this economy, few of us can afford to waste money. So do yourself a favor and decline these offers.
While we’re on the topic of money wasters, I would like to point out another one: gym memberships. I’m not saying you shouldn’t work out! Few things – if any – are more important than good health. But not only do many people pay more than they need to for their memberships (you can use sites such as globalfit.com to compare prices), but many of us don’t need the gym to stay in shape, at least not all the time. This time of the year, why not go for a run or bike ride in the park? The fresh air and change of scenery are free bonuses! I work out at 5:30 am four times a week and love being outside. It is relaxing and also super effective at helping me drop my post pregnancy baby weight.
The third major money waster on my list is overdraft fees. If you are unable to keep a cushion of a couple of hundred dollars in your account or if your balance bounces all over the place, consider signing up for overdraft protection. It typically costs $5-$10 per year, and with overdraft fees starting at $30 per transaction, you may end up saving hundreds.
Bounce Back Boot Camp
by Stacy Francis, CFP®, CDFA
Recently, I received an email from one of my “Bounce Back Boot Camp” members who has difficulty planning a budget with a fluctuating income. I’ve found that uncertain incomes are a common occurrence and can make your wallet stretch beyond its means. There are so many jobs out there with incomes dependent on jobs completed and not salary-based which make preparing a budget a difficult, but an imperative tool to learn. Because monthly income fluctuates like it does, budgeting could be one of the best skills you may acquire toward your path to becoming financially independent and secure.
My friend recently the mistake of setting her savings goals on a fixed dollar amount per month or year. A more flexible method would have been for her to try saving a percentage of the earnings she had each month to allow more flexibility. Many advisors will recommend you save between 10% and 20% of your take home income and use 80% to 90% for living expenses. I would recommend you follow these guidelines. Aim to spend only 80% of your earnings on living expenses and save 20%. Because of uncertain income, choosing to save closer to 10% during the less lucrative months and 20% when you make the big bucks is a good idea.
If you have any outstanding bills that are overdue, then the beginning months may include 5% or 10% of your savings to contribute towards overdue bills. My husband’s co worker had overdue bills of $1200, and he took home about $10,000 this month- so I advised him to save about $1,000. 10% of the $1,000 is $100 he used to pay off his debt. Its efficient and it doesn’t set you back too much!
Depending on your personal situation and comfort level, you may decide to adjust these proportions to better suit your needs.
Your Cell Phone Bill: Is Prepaid a Better Option?
by Stacy Francis, CFP®, CDFA
At a recent family get-together, the conversation turned to cell phones. More specifically, my sister-in-law had received a statement that morning. Stunned that she had used less than a third of the minutes she paid for, she wanted to know whether prepaid would be a better option.
What an excellent question! And indeed, many families could save big by making the switch. However, below are a few things to consider first:
- How many minutes do you use – really? If you normally spend 600 minutes per month on the phone and the measly 100 minutes on your latest statement is the result of your phone being broken most of the month, you should probably stick with your plan. But if you find that during the past six months or so, you have never even used half of your minutes, prepaid could be for you.
- Could it be that you just have the wrong plan? Have you looked at different plans and providers? From unlimited plans with majors such as T-Mobile and AT&T to cheaper options with lesser-known companies like Tracfone, chances are you could find a plan better tailored to your needs.
- What about the handset? When you commit to a plan, most providers will throw in a free (or at least heavily discounted) handset. With prepaid, you typically need to purchase your own. If you have an extra handset, this may not make a difference. But if you don’t, you need to factor this price into the calculation.
- Are you shopping for yourself or for your entire family? Family plans tend to be cheaper than individual ones. On the other hand, if you have teens, between chatting with friends and text messaging, a prepaid plan could save you a fortune.