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Food for thought

Take Financial News with a Grain of Salt

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Listening to the news is enough to cause many people a great deal of stress and anxiety, especially when it comes to your finances. The media is filled with people who claim they have the fix-all solution to your financial woes or those who purport that they can predict the future. In reality, you should pay less attention to financial news media and more attention to the people who have taken the time to listen to and understand your specific financial situation.   

Why Not Trust the Media?

There are plenty of financial experts out there to choose from if you want to turn to popular media outlets for financial solutions. These individuals, however, might not have your best interests at heart. In fact, fake financial news is already relevant and it has the potential to cause serious problems for a number of Americans.  

  • Impulsive reactions based on headlines can cause big regrets down the road, especially if headlines turn out to be untrue or misleading.
  • Social media, in particular, is a prime location for untrue “financial news”: companies may post false disclosures or other information that is designed to cause big reactions, but without the numbers to back up their claims.
  • Media-based financial “experts” may have more interest in lining their own pockets than they do in ensuring that you get the best possible investment advice. This can include everything from recommending a specific company primarily because they get kickbacks from them to outright lies about financial results in an effort to boost their personal sales.

Due to the prevalence of erroneous financial news, many Americans find themselves struggling to make critical financial decisions. With so many fake sources out there, it’s difficult to determine who to trust. Fortunately, there are better solutions to help guide financial decisions than turning to media.

Who Do You Trust Instead?

If you can’t trust the media, who can you trust to help you make those vital financial decisions? For most people who are hoping to invest their wealth, prepare for retirement, or take care of other critical financial concerns, working with a fee-only CERTIFIED FINANCIAL PLANNERTM can be one of the best ways to proceed. Fee-only CFP®’s offer a number of advantages.  

  • A fee-only CFP® should take a holistic approach to your financials. They’ll look at the whole picture: your family and career situations, your personal and financial goals, your income and assets, the protections (various insurances like homeowners, auto, life and disability) you have or need, and your comfort level with risk, among other factors. Then, they’ll help create a comprehensive financial plan for achieving your goals, rather than giving you just a few pieces of the puzzle.
  • A fee-only CFP® is compensated only by the client through the fees he or she charges, and not through commissions earned from the sale of financial products. This offers these professionals the freedom to provide advice that is truly in your best interest without having a significant portion of their income tied to selling you financial products.
  • A fee-only CFP® can help you discern whether or not you’re currently on track with your savings. Do you have enough money to cover an emergency? That amount may differ drastically depending on your family size, your income, and your financial responsibilities.  Are you on track to reach your other financial goals?  
  • A fee-only CFP® will work with you to help you learn how investment options can fit into your overall financial plan. How does your investment strategy fit into your retirement plan or college plan?

Sometimes it’s best to turn off the television, stop scrolling through social media, and ignore the way popular media tells you to manage your money. Instead, turn to a fee-only CFP® to help you determine a strategy that will work for you, taking a holistic approach to your financial situation and helping you determine how you can best manage your goals and investments. From the earliest steps of building your savings account to planning for retirement, hiring a CFP® can be a good way to get the advice you need for financial success.

5 Money Lessons Before Your Kids Leave for College

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You’ve done your best to teach your child financial responsibility when they were young. However, before they leave for college, there are a few last-minute lessons you can teach them. College is a tough adjustment for many young people, financially speaking, and these key lessons may be enough to help keep them from digging themselves into a financial hole that could take years to dig out.  

Lesson #1: How to Manage Money

Whether your child’s college expenses are fully funded by scholarships and savings or he/she is planning to work his/her way through, college may be the first time your child will need to deal with money on a regular basis. There are books to buy, meals and groceries to buy, and plenty of opportunities for overspending along the way. Make sure your child gets a basic course in managing money before heading out the door. Teach teens how to create a budget, how to prepare for major expenses, and, of course, how not to rely on Mom and Dad for money.

Lesson #2: How to Handle Credit

Many children are eligible to take out loans or apply for credit cards around the time they start college. While building credit is important for future financial transactions, college may not be the best time to try to juggle it. If your child is responsibly ready to begin building credit, use one credit card for one purpose, such as filling up the car with gas. Teach them to be sure there is enough money in their checking account at the end of the billing period to cover the expenses placed on the credit card.  And, teach them how to set up automatic payments so that their credit is not damaged by late/missed payments.  This will keep the credit card manageable while building credit in his/her name. However, if your child has not yet demonstrated financial responsibility, encourage him/her to avoid using credit cards as much as possible–or even to put off having one until after college. Overuse of credit now could lead to paying off extreme credit card debt for years in the future–a costly mistake.

Lesson #3: The Impact of Student Loans

Many millennials are quickly discovering that student loans can hinder their financial future if they aren’t planned for responsibly.  These days, there’s no guarantee that graduating from college with a shiny degree will result in an equally impressive job to go along with it–and unfortunately, student loans start coming due just a short time after graduation. Make sure your child fully understands the impact that student loans will have on future finances, including how long it could take to pay off those loans. Encourage your child to research starting salaries for their desired future career path and subtract the future student loan payments to get a realistic view of potential income after college. It could even be worth having a serious conversation with your child about whether or not that high-dollar first choice school is worth the extra expense or if a year or two at a community college could help prepare them for future financial success.

Lesson #4: How to Search for Scholarships

Too many kids have absolutely no idea where to find scholarship help–and it is out there! Whether your child is ready for freshman year or halfway through, there are scholarships available that will help offset the cost of college, books, and even living expenses. Do some serious research into how to find scholarships, then help your child set a schedule for applying for them. Remind your child that small scholarships–which many people overlook, which could mean less competition for them–can add up fast. That $250 may not seem like much against the cost of tuition, but it can make a big difference in the cost of books and other supplies.  

Lesson #5: How to Reduce Debt by Working

Unless your family has the means to support your child through his/her college years, working during college is a great way for your child to reduce the debt burden after graduation. Even if scholarships or student loans are paying the costs, working now can help offset living expenses and reduce the amounts of student loans so that your child will have greater financial freedom later in life.  

The college years can have a huge impact on children’s financial future, especially if they end up heavily in debt early in their education. By teaching these five critical money lessons before your children head to college, you can give them a step up after graduation instead of constantly worrying about paying off those loans.

What to Do Now if You Want to Retire in 5 Years

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As Antoine de Saint-Exupéry succinctly paraphrased, “A goal without a plan is just a wish.” If your goal is to retire in five years (or less), be sure that your retirement is not simply a wish by starting with these five steps:

1. If you haven’t done so already, meet with a financial planner to see if you are on pace to successfully retire in five years. As part of the financial planning process, review your spending patterns and categorize which expenses will continue into retirement, which expenses will drop off, and new expenses that will begin in retirement. If you are planning to retire before Medicare eligible age (65), be sure to include private health insurance premiums into your budget.

Keep in mind that Medicare typically does not cover long-term care costs. Therefore, begin developing a plan to cover future long-term care costs. If your plan does not include insurance, be sure to incorporate the future inflated cost of self-funding.

2. Developing a retirement portfolio transition plan is an important element of your portfolio design given the potential of a market downturn.  The fundamental steps of the plan focus on providing enough liquidity to maintain your standard of living until the market has an opportunity to recover, thereby preventing you from being forced to sell remaining invested assets during a down market.  We recommend that you establish a retirement portfolio transition plan approximately three years before dependence on your portfolio for income.


3. Review your Social Security retirement benefit statement online at www.ssa.gov for accuracy and your potential future benefits. Be sure to note that the calculation assumes your previous year’s earnings continue until your normal retirement age. If you plan to retire before your Social Security normal retirement age, you will want to be sure to recalculate your estimated benefits.

4. Often we find that people are not adequately aware of the taxes they will face during retirement. Although you may not be paying FICA taxes anymore, you will likely still pay Federal and State taxes on IRA and 401(k) distributions, part of Social Security benefits, pension income and possibly capital gains on brokerage accounts.

One form of tax planning is to take advantage of the 0% long-term capital gains rate in the 10% and 15% marginal tax brackets. This can be helpful during years of low taxable income if you plan accordingly. Another strategy in years of low taxable income is considering Roth conversions. Be sure to review any tax strategies with your tax accountant.

5. You know what you are retiring from, but what are you retiring to? Retiring can be just as much an emotional transition as it is a financial transition. Often times people are anxious to retire simply to leave the stressful work force behind. However, we encourage you to begin envisioning what your weeks will look like in retirement. How are you filling your days? How will you find mental stimulation and social interaction? Where do you see yourself living and what kind of travel are you picturing? Exploring these ideas now will help make for a smooth transition into retirement.

We would be honored to help you begin your retirement planning. Call Sharkey, Howes & Javer at 303-639-5100 to schedule a complimentary meeting.

The 10 Golden Rules of Loaning Money to Adult Children

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When faced with the decision of whether to loan money to adult children, parents are often unsure about the proper approach to take. They want to support their children, yet do not want to become enablers. A key to successfully loaning money to adult children is to have a strategic plan in place to help ensure that children are able to address a temporary cash crunch while developing productive money management skills in the process. Below are the ten golden rules of loaning money to adult children.

1) Do not loan money that you do not have.

Loaning money that you do not have can be detrimental in many ways. In addition to worsening your personal financial situation, you set an example for your child that it is okay to borrow money that you may not be able to repay.

2) Clarify the purpose of the loan in advance.

As a parent extending a loan to your child, it’s important to ask how the money you lend will be used. You have the right to refuse your child’s loan request if you feel that the request is unreasonable or if you feel that the funds will be used inappropriately. Be sure to differentiate between a loan and a gift. A loan is expected to be paid back, whereas a gift is given with no strings attached.

3) Create a written “contract” that specifies the terms of the loan.

Making a loan as businesslike as possible increases the chances of a positive result. Prepare a draft that outlines the details below and sign a copy together with your child:

  • The loan amount
  • The purpose of the loan
  • Terms of the loan (when the full amount is due)  
  • The total amount to be repaid, including interest  
  • Any special incentives for early repayment or additional payments

4) Offer an incentive for making additional payments or paying off the loan early.

As a parent, you have the ability to reward your children for paying their loans off as quickly as possible. An example of an incentive could include reduced interest charges.

5) Establish boundaries.

You can love your children unconditionally while also setting boundaries. Be empathic but firm as you talk to your children about the pros and cons of borrowing money. Make sure adult children know that you reserve the right to refuse any future loans if they ignore or fail to abide by the terms that you both agreed upon in your contract.

6) Outline terms for late payments.

Most established lenders and credit card companies charge late fees if customers fail to make loan payments on time. Parents can stress the importance of repaying loans on time by charging penalties or fees for late payments.

7) Get to the heart of the matter.

In some cases, there might be a greater underlying problem contributing to your children’s cash flow troubles. If requests for loans occur with increasing frequency, it is a good idea to sit down with your children and review their income, expenses, and spending habits.

8) Ask your children what plans they have in place to improve their financial situation.

Loaning your children money may provide a short-term solution to a financial squeeze. However, a loan will not help them create a plan to avoid the need for future loans.

9) Require your children to enroll in credit counseling before you agree to lend them additional money if the request for a loan becomes a continuous habit.

Credit counseling helps people develop money management skills. Additionally, this measure helps to foster a sense of accountability that might be lacking in adult children.

10) Consider making payments on behalf of your children instead of handing them the money.

This strategy helps prevent your children from misusing the money you give them on unintended expenses like vacations or other items not outlined in the original loan request.

The guidelines above combine to form a comprehensive strategy for parents facing the prospect of loaning money to their adult children. By following these suggestions, parents can bolster the odds that their children will improve their money management skills.

If you would like help from a CERTIFIED FINANCIAL PLANNER® in creating a strategic plan to loan money to your children, please contact us today to schedule a complimentary consultation.

Making a Qualified Charitable Distribution vs. Donating Appreciated Stock

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For individuals with charitable intent, there are many ways to satisfy a bequest, but which strategy maximizes the tax benefit of the donation? This depends largely on each individual’s circumstances and tax obligation. In this article, we will review three strategies for making charitable donations: donating cash (or writing a check), making a qualified charitable distribution from an IRA, or donating appreciated stock.

Donating Cash

By donating cash or writing a check to a qualified charity or organization, you may be entitled to a charitable contribution deduction if you itemize deductions on your tax return. The IRS website states, “you may deduct up to 50 percent of your adjusted gross income, but 20 percent and 30 percent limits apply in come cases.” So, depending on your adjusted gross income and charitable contribution in a given year, you may not be able to deduct the full contribution amount.

Making a Qualified Charitable Distribution (QCD) from an IRA  

Beginning the calendar year in which you turn 70 ½, you are required to start taking minimum distributions from your IRA. Rather than distributing the funds and reporting them as ordinary income on your tax return, individuals can make a qualified charitable distribution directly from an IRA to a charity without any tax consequences. This strategy is an efficient way for individuals with charitable intent to offset the tax burden of a required minimum distribution dollar for dollar because the funds donated are not included in the taxpayer’s adjusted gross income. Beyond satisfying a required minimum distribution, individuals can make QCD’s of up to $100,000 from an IRA to a charity each year, which can be more beneficial than donating cash due to the 50% of adjusted gross income limits on charitable deductions.

Donating Appreciated Stock

Similar to donating cash, individuals are eligible to take a charitable deduction when filing their tax return for donating an appreciated stock. The amount that can be deducted is the fair market value of the stock (or other investment). This is beneficial when the stock has been held for at least 12 months and has greatly appreciated in value because the taxpayer is not required to recognize the capital gain on the investment. Therefore, the taxpayer benefits from both the charitable deduction as well as avoiding any future capital gains tax liability that otherwise would be due in the future.

To speak with a CERTIFIED FINANCIAL PLANNER™ professional about how to maximize the tax benefits of a charitable contribution specific to your personal situation and charitable intent, call Sharkey, Howes & Javer at 303-639-5100 to set up a complimentary initial consultation.

Source: https://www.kitces.com/blog/ira-qualified-charitable-distribution-qcd-to-satisfy-rmd-vs-donating-appreciated-securities/

Spending Tips for Retirees: What to Consider in a Retirement Spending Plan

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Retirement can be a time for relaxing, traveling and exploring new hobbies. However, many seniors are not enjoying their retirement because they never created a realistic spending plan and their assets are insufficient to provide the retirement they desire. A key component of planning for retirement is examining your current expenses as well as estimating future expenses to ensure you’ll have an adequate income to cover all your costs. Understanding your retirement spending plan should be a top priority. In this blog we provide some basic tips for retirees along with what to consider when creating a retirement spending plan.

Housing

Housing is typically the biggest expense for retirees. In fact, the average retiree spends about $1,294 per month on housing. Costs related to housing include homeowners insurance, furniture, utilities, landscaping costs and maintenance. To reduce costs, you may want to consider downsizing to a less expensive house or neighborhood. Some retirees even relocate to communities that offer a lower cost of living. Another option is taking out a reverse mortgage to utilize the equity in your house for everyday living expenses or larger one-time needs.

Healthcare

Healthcare bills can easily eat away at a spending plan, especially for retirees. One way to reduce your healthcare expenses is to compare and contrast the differences between Traditional Medicare (with a supplemental policy) and Medicare Advantage plans. However, before you change a healthcare plan, you’ll need to talk to a specialist who can help you make the best decision given your situation.

Transportation

Besides the cost of your car, you’ll also want to consider additional car-related expenses, such as insurance, maintenance, gasoline and other factors. Transportation costs can be reduced by having only a single vehicle. If you live in a large city and don’t need to travel far to visit family, you could even give up your car and depend on public transportation, if necessary.

Consider Family Expenses

Costs involved with caring for elderly parents can easily compromise your retirement spending plan. Therefore, if this situation affects you, it’s critical that you take this into consideration when developing your spending plan. Your aging parents may need your help with assisted living costs, home healthcare costs, or paying medical bills. Another cost can be helping your parents with everyday living expenses, such as groceries.

Even though your grown children may be financially independent, you still may want to help them with larger ticket items, such as with college expenses or a down payment for a house. Just be sure you’re able to afford these costs and can manage your own expenses prudently.

Other Considerations and Warnings

  • Although you can collect Social Security as early as age 62, the benefits you receive will be permanently reduced.
  • One way to generate some income is by renting out property, such as an unused vacation home.
  • When deciding if and how much money to leave to your children and grandchildren, be confident that it will be used in ways that are in line with your basic values.
  • Don’t forget to set aside some money for fun.

Planning for retirement can be overwhelming for many people. If you would like help, please schedule an appointment with one of Sharkey, Howes and Javer’s CERTIFIED FINANCIAL PLANNER™ professionals to help you create the best financial plan for your specific needs.

 

 

Resources:

https://www.fool.com/retirement/general/2016/01/25/heres-what-the-average-retired-americans-budget-lo.aspx https://www.ssa.gov/planners/retire/agereduction.html http://money.usnews.com/money/blogs/on-retirement/articles/2016-08-10/7-tips-for-budgeting-in-retirement

Veterans Shifting to Civilian Employment

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As we celebrate the Fourth of July holiday with fireworks and barbeques, it is also a time to appreciate the men and women who have bravely served our country in the past, and those who are serving our country today. The United States has just over 21 million veterans across the nation, in addition to active military duty. One of the most difficult transitions that a veteran can face is the transition from military life to civilian life, partly because the difference in employment structure can be night and day.  

Corporate America has been increasingly promoting the hiring of employees with military backgrounds for several reasons, from needed skill sets to tax incentives and overall goodwill.  However, the efforts seem to end once the employees are hired. According to the Center for Talent Innovation study, “many veterans feel under-utilized, alienated and uninspired in corporate workplaces…nearly two-thirds of veterans said they felt more purpose in the military than in their corporate jobs…many cited far less camaraderie with their teams at work, and those who were no longer leading other people as they had in the military missed doing so”.

Taking the time to adequately prepare for the transition to civilian employment could be key to finding the best fit possible and pay commensurate with that needed to maintain the veteran’s lifestyle. An article titled Onward and Upward states, Encouraging service members to begin saving for transition well in advance could provide an economic safety net to prevent some of the more extreme unemployment-triggered issues such as health care problems or homelessness, while allowing some the luxury of a more extended job search, potentially resulting in a better initial fit.” Finding the right career path (rather than simply any job) is profitable to both employees and employers in the long run. Saving a healthy cash reserve prior to leaving the military can afford the veteran the ability to go back to school for career training or more thoroughly explore employment opportunities.

In addition to finding fulfilling employment, the learning curve in understanding the change in personal finances can be steep. Although civilian employment may pay higher gross wages, many tax benefits often drop off and the price tag of housing, healthcare, and childcare can quickly devour a new paycheck. However, as outlined on military.com, there are certain benefits that can help veterans navigate civilian life. VA loans can help veterans purchase a home with no down payment in addition to preferential rates and financing. Also, disability compensation, pension programs, job training, and assistance with financial planning or tax preparation can be helpful.

If you would like help navigating your personal finances, call Sharkey, Howes & Javer at 303-639-5100 to schedule a complimentary consultation.

Avoiding the 5 Most Common Mortgage Mistakes

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For most people, a house is one of the biggest, most expensive investments that you’ll ever make. The journey to homeownership is often an exciting milestone, but you must be careful in order to ensure that it’s a positive experience.  Whether you are a first time homebuyer or you’ve purchased several homes, avoiding these common mortgage mistakes will help prevent financial problems following the purchase.  

Mistake #1: Making Yourself House Rich, Cash Poor

Home ownership can be more expensive than renting–especially when you add up all the taxes, insurance, and home maintenance costs over several years.  In fact, many people fall into the trap of making themselves “house rich, cash poor”–that is, tying up all of their available income in the house. Suddenly, despite having a reasonable monthly income stream, you have no extra money, and you find yourself living in a tight paycheck to paycheck struggle.

How to avoid the trap: Find out how much house you can actually afford! The fact that a mortgage broker has offered you a mortgage loan in a particular amount doesn’t automatically mean you can afford to spend that much on your house each month. In fact, many mortgage brokers will offer you a mortgage that exceeds the amount you really should spend on a house. This is because mortgage brokers don’t know your regular expenses since they don’t appear on your credit report.  Nor do they take into account the additional monthly savings necessary for you to reach your other short and long-term goals. Review all your expenses and required savings before committing to your mortgage.

Mistake #2: Ignoring the True Cost of Home Ownership

Home ownership expenses don’t just stop at your mortgage. You’ll also have to take into consideration homeowners insurance, property taxes, Home Owner’s Association (HOA) dues, and maintenance on your home. Once a home belongs to you, you no longer have the luxury of calling your landlord to fix something that breaks. You’ll need extra income or an emergency fund to cover those expenses instead! If you’re used to renting, you’re likely used to a fixed monthly housing expense in your budget. The cost of homeownership, on the other hand, fluctuates and can be difficult to predict month to month.

How to avoid the trap: Create a budget estimate that includes all of the costs associated with home ownership, not just your mortgage. Don’t forget to set aside an estimate for maintenance! This more detailed budget may give you a better idea of what you can afford when you’re setting up mortgage payments. One rule of thumb is to put away 1% of the home value in a separate home maintenance account. For example, if the value of your home is $600,000, save $6,000 per year (or $500 per month) toward future maintenance costs.

Mistake #3: Not Shopping Around for the Best Loan

All loans are not created equal! Some mortgage brokers will give you better terms on your loan than others. If you aren’t shopping around–looking for better interest rates or more favorable closing costs–you may end up paying more than you have to for your home.

How to avoid the trap: Take the time to get mortgage information from several lenders–and make sure you know what they’re really saying! Compare interest rates, down payments, fees associated with the mortgage, and private mortgage insurance requirements in order to be sure that you’re getting the best deal for your mortgage.

Mistake #4: Putting Little to Nothing Down

Although there are loan programs where you may not be required to make a 20% down payment, which seems appealing if you don’t already have a lot of money saved, there are some drawbacks to this option.  Unfortunately, lower down payments don’t just lead to more money paid over the lifetime of the loan. It can also lead to higher interest rates, higher monthly payments that are more likely to put you in a financial pinch, and the need for mortgage insurance.

How to avoid the trap: Save for a little while longer before jumping into the home buying process.  Putting down an additional 5-10% can make a big difference over the lifetime of your loan. Be willing to be patient and wait for it!

Mistake #5: Not Checking and Fixing Your Credit Reports

Your credit report has a significant impact on your mortgage: your monthly payment, your interest rate, and how much you have to put down on the loan, not to mention the need (or lack thereof) for mortgage insurance. If there’s something wrong with your credit report–and unfortunately, sometimes, there can be problems on your credit report that aren’t a result of your spending–it may send up red flags for potential lenders.

How to avoid the trap: Take the time to check your credit report before you start looking at mortgage rates. Make sure you don’t have any common red flags. If there are issues, take the time to fix them before you’re ready to buy a house.

Having a mortgage doesn’t have to be terrifying. By avoiding these common mistakes, however, you can save yourself and your family some money and ensure that you’re better prepared for the road to home ownership.

Are you thinking of buying a house? Give us a call or schedule a complimentary consultation to discuss how to avoid these mistakes with a CFP®.

Debunking Myths about Fee-Only Financial Planners

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In an industry swirling with various terms and definitions, it can be easy to develop a few misconceptions about what it means to work with a fee-only financial planner and the services they provide.  Before clarifying some of the various myths, it is important to understand the definition of the term “fee-only”.  According to NAPFA (National Association of Personal Financial Advisors), “a Fee-Only financial advisor [is] one who is compensated solely by the client with neither the advisor nor any related party receiving compensation that is contingent on the purchase or sale of a financial product.”  

The following are common myths regarding fee-only financial planners:      

1. An advisor can be fee-only and still sell insurance.

False. By definition, the term “fee-only” means an advisor cannot receive a commission or any form of compensation from the purchase or sale of a financial product.  In other words, a fee-only financial planner is paid by the client for the advice they give, not by product sales or commissions.  An advisor can still make recommendations on the amount and type of insurance to purchase, but they can’t be the one to sell the product.

2. An advisor can work for a company that sells financial products but still personally be fee-only.

False. The definition of fee-only is applied at a firm level, not an individual level.  Even if an advisor personally acts in a fee-only capacity, if any related party within their company has the ability to earn a commission no one may be deemed as a fee-only advisor.  

3. An advisor or planner only gives advice on investing.

False. Often fee-only planners provide comprehensive financial planning, which encompasses various aspects of an individual’s financial foundation. In addition to investing, insurance, cash flow, retirement, estate planning, taxes, and life goals are taken into account.  

4. Only wealthy individuals need a financial planner.

False. There are fee-only financial planning firms whose intent is to help clients meet their financial goals regardless of their income level or asset base. Sharkey, Howes & Javer is one of those firms, and individuals can gain a second opinion or plan specific to their situation without the pressure of a product sale.     

Contact Sharkey, Howes & Javer at 303-639-5100 to schedule a complimentary meeting and learn more about working with a fee-only financial planner.

Build a New Home or Renovate a Fixer Upper?

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Planning a move can be an exciting time for your family. While you are shopping around to see what’s on the market, it feels like the possibilities are limitless. Before you get your heart set on a plan, however, consider the implications of buying a new construction home, or buying a fixer upper to renovate. Now is the time to take a critical look at your financial situation and goals to determine how much house you can afford.  Additionally, take the time to decide upon and make a list of non-negotiable items you want when considering your next home.

The thought of purchasing a brand new house, complete with home automation and an in-ground pool, sounds appealing to just about anyone. Determine exactly what you need in a new home before you start browsing real estate catalogs, and then search for homes that specifically fit those parameters.

New construction homes can provide a sense of security that you won’t get from purchasing a fixer upper. Some of the benefits of new builds include:

  • Low maintenance costs. Everything, from the sinks and counters down to the plumbing and electrical wiring, is brand-spanking new. You shouldn’t have to pay for many repairs for some time.
  • Energy efficiency. While most new build homes aren’t necessarily built to the greenest of standards, they are made to meet more exacting standards than the homes of years past, so they will likely be easier on your utility bills.  
  • Modern conveniences. It isn’t just the house itself that will be new; appliances, alarm systems, entertainment systems, and even lighting options will support a modern, tech-infused lifestyle.  
  • Customization. When you purchase a home before construction is complete, you may have the option to customize it the way you want. Depending on the stage of construction, you might not be able to move the bathroom or add a fourth bedroom, but you may have your pick of countertops, faucets, light fixtures, and paint colors.  
  • Open floor plans. Most older homes you see do not feature the open floor plans, large bedrooms, walk-in closets, and spacious bathrooms that you will find in a new build.  
  • Warranties. Most new homes come with at least a ten-year warranty, and even longer warranties on many aspects of the building.  

If low maintenance, energy efficiency, and modern design elements are a must, you might prefer to buy new. However, if you are more concerned about factors such as the neighborhood, having more land, the price point, or your home’s ability to accommodate some serious personalization, take a look at the benefits of buying a fixer upper:

  • Lower or no HOA dues. Fixer uppers are often found in neighborhoods that have very low or no Homeowners Association (HOA) dues.  In new builds, these dues can greatly increase the cost of owning a home and are often overlooked when considering a purchase.  Buying in an area with low HOA dues can help reduce the annual costs of owning a home.
  • Lower mortgage. When you buy a fixer upper, you will almost certainly get more house for the money, and end up with a lower mortgage payment to boot. Having a lower mortgage can free up cash flow or allow a smaller secondary loan to cover the cost of renovations or remodeling.
  • Better neighborhood. New construction homes tend to be in new developments, where houses are often cookie cutter and wall to wall. Fixer uppers can be found in just about any type of neighborhood, and it’s quite possible to buy into a better neighborhood than you could normally afford by choosing a fixer upper.  
  • More land. Older homes are often situated on larger lots with mature landscaping that offers more privacy than you can usually get in the newer communities.
  • Customization. New construction customization is mostly about the cosmetic aspect of the home. Fixer uppers have much more potential for knocking out walls, adding bathrooms, or setting the kitchen up exactly the way you want it.  

There are financial risks to making any big purchase, especially when you take out a mortgage. There are advantages and disadvantages to both new builds and fixer uppers. The most important consideration is to know specifically what you are looking for in your next home. Before you buy anything, talk to an experienced real estate agent, weigh the advantages and disadvantages of a new build versus a fixer upper, and contact Sharkey, Howes, & Javer to help you determine just how much house you can afford given your circumstances and other goals.