Category: Financial Advisors

How to Know if You Can Afford for One Parent to Stay Home

Quitting your job to stay at home with your growing family can have both positive and negative impacts on your finances. If you and your spouse or partner are considering stay-at-home parenthood as an option for your family, it can be tough to know whether or not you can afford it. Let’s go over how to determine whether or not staying home is financially feasible for your family.

Know Your Consistent Expenses

The first step to knowing whether or not having one parent stay home is affordable is to list your current consistent expenses. These should include (but might not be limited to):

  • Rent or mortgage
  • Utilities
  • Car payments
  • Groceries
  • Insurance premiums
  • Monthly bills
  • Monthly debt payments
  • Contributions to retirement accounts or education savings accounts (outside of contributions made through your employer)
  • Emergency fund contributions

You should also list predictable expenses that may happen less frequently, but are still consistent. These might be:

  • New clothing for growing kids
  • Date nights or family entertainment
  • Family vacations or trips
  • Holiday and birthday gift or travel expenses

It’s also a good idea to take a few weeks or months to track your spending to make sure the list of expenses you’ve made is actually realistic. You may be spending more on a daily trip to the coffee shop, or on weekly date nights, then you realize. It’s important to have an honest idea of your expenses – even if they’re bigger than you originally thought they were!

Once you know what you’re spending monthly (or annually) on things that are consistent and recurring, you have a better idea of what type of income you need to cover these expenses. 

Struggling to put together a list of your expenses? Using a stay at home parent calculator like this one might help.

What Expenses Will Go Away?

Now that you have a solid understanding of your family’s current expenses, you can start to map out what expenses might look like if one parent stays home. Anytime there’s a change in jobs or a lifestyle shift for your family, expenses are going to change – and having one parent stay home is no different! First, you might have a few expenses that go away when one of you starts to stay home full-time. These might be:

  • Commute-related expenses
  • Lunches out with coworkers 
  • Childcare expenses that you’re currently paying for
  • Cost of work clothes or dry cleaning

You may also have a few unexpected expenses that are added to the mix when one parent decides to stay home. These might be:

  • A gym membership if theirs was previously covered by an employer
  • Increased grocery expenses 
  • Increased utility expenses
  • Additional lifestyle expenses – like coffee out with friends to keep in touch

Figuring out your baseline expenses, and how those might change when you have one parent start staying home full time, can help you start to determine exactly how much income your family will need to thrive financially.

Living on One Income

After you’ve looked at your current expenses, and what your expenses might be after one parent starts staying home full-time, you’ll have a better idea of what your family needs to cover those expenses. Unfortunately, for many parents, the numbers don’t add up. Too often, when we’re used to living on a dual-income, paring expenses down to fit under one income can be a challenge. If you’re working to cut expenses to make stay-at-home parenthood a possibility for your family, I encourage you to look at the process in two different ways:

1. You can cut small expenses.
2. You can limit large, recurring expenses.

Cutting small expenses, like your daily latte from the local coffee shop, or a monthly cable bill can be helpful. However, figuring out how to limit your big, recurring expenses will have the biggest impact on your new budget. Take a look at your family’s list of expenses – which of these are eating up the biggest chunk of your monthly cash flow?

Usually, the culprits are your mortgage (or rent) and debt payments. To make a big impact on your family’s budget, and to make staying home a reality, you might need to prioritize cutting down these expenses before taking the leap to full-time stay-at-home parenthood. This might look like downsizing, or moving to a less expensive neighborhood. It might also look like focusing on paying down your debt, or refinancing, to eliminate or minimize monthly debt payments before you have one parent stay home.

Increase Cashflow

The other way that you and your family can successfully live on one income is by finding ways to increase your cash flow. This is a great option if you’ve gone through the process of limiting expenses, and still aren’t going to be able to make it work on the current single income that a full-time employed parent is bringing in. If the employed parent in this scenario hasn’t recently talked to their boss about a raise, now’s the time to start negotiating

Before going into that conversation, have a clear idea of how much of a salary increase you’ll need to make it possible for one parent to stay home, and outline what that salary increase will do for you and your family. Employers are generally more flexible when they understand how a pay increase will impact you. It’s also a good idea to outline why performance merits a raise. Gather up some data about how recent initiatives have positively impacted the company, and ways that future projects will continue to do so.

Not sure if a raise is feasible in a working parent’s near future in their current role? It may be time to start looking for a higher-paying position or to look for promotion opportunities within their own organization. 

You can also look at ways a stay-at-home parent might be able to contribute financially. For example, many stay at home parents continue to take on freelance work from their field or industry to bring in a small additional income. This can be especially helpful if the “gap” between the income you need and your expected expenses is relatively small.

Remember Your Benefits

If one parent is quitting their job to stay home full time, it’s possible that your family will lose several benefits that you need. Health care coverage, life and disability insurance, and other perks like gym memberships or auto insurance discounts might be benefits that you take for granted right now as a full-time member of the workforce. Make sure that you know exactly what benefits you lose by switching to being a stay-at-home parent, and how you plan to recover some of those benefits in a financially responsible way.

A few easy options would be to check the employed parent’s insurance coverage to make sure a comparable option is available, to have the employed parent increase their life and disability insurance coverage, and to research affordable life and disability insurance options for stay at home parents. If you’re going to lose any other benefits that you regularly take advantage of, you’ll need to decide whether you want to find an affordable replacement, or if your family is comfortable foregoing that particular benefit. 

Understand the Impact on Retirement Saving

It’s easy to forget one of the biggest benefits you have as a full-time employee – your workplace retirement savings account. If one parent stays home, you’re giving up the opportunity to save for retirement with a dual-income household. In 2019, the maximum contribution is $19,000 to a Traditional 401(k), while a Traditional IRA’s maximum contribution is $6,000 (if you’re under 50 years old). Even if you aren’t contributing up to the maximum in your 401(k) right now, many employers offer an employee match program, which helps you to boost your savings over time. It’s also important to remember that the retirement savings you’re giving up isn’t just the annual amount you and your partner were putting away in your respective workplace retirement accounts – you’re also giving up years of compound interest added to ongoing contributions. 

Let’s Look at an Example:

You are considering becoming a full-time stay-at-home parent at 35 years old. You currently make $60,000 at your job as a marketing manager, and you contribute 6% of your salary to your 401(k) each year. To keep things simple, we won’t take into account any employer match program – just the 6% you’re saving. 

You have $10,000 in your account right now. Assuming you leave your job without making any more contributions, and you roll that $10,000 over to an IRA to grow while you’re a stay-at-home parent, you will have close to $76,122 in 30 years (assuming a 7% growth compounded annually). 

If you stayed at your job and continued to contribute 6% of your $60,000 salary each year on top of your current $10,000 savings, earned 7% interest, and retired in 30 years, you would have had close to $416,181 saved. 

Compound interest and the value of that interest on top of ongoing contributions can’t be overlooked. That’s not to say that one parent can’t stay home if that’s what’s best for your family right now, but it’s important to reevaluate your retirement savings strategy before taking the leap. 

You and your partner might look at increasing the contributions you make as a team to either the 401(k) you’re left with when one of you stays home or opening separate retirement savings account to continue contributing outside of the workplace. This might mean your budget adjusts, as well, because any “extra” contributions are coming out of the single salary you and your family are using to live. 

Make a Plan

Deciding to be a stay-at-home parent can be a big lifestyle shift for your entire family, so it’s important to plan ahead. Creating a financial plan that helps move you toward your family’s goal of having one parent stay home full-time, and carries you through the years ahead can be incredibly helpful. 

Not sure whether financial planning is a fit for you in this new phase of your life? Reach out! I’d love to talk to you about how a fee-only financial planner can help you build a strategy for making stay-at-home parenthood an option for your family without sacrificing education or retirement savings, or long-term financial and lifestyle goals.

The post How to Know if You Can Afford for One Parent to Stay Home appeared first on Workable Wealth.

How to Analyze a New Job Offer

You got the job – congratulations! Going through an application process is never easy, and when you get an offer letter, it can be emotional – and give you a sense of validation. 

Whether you’ve just landed the job of your dreams, or you’re switching career paths and excited for a new opportunity to rebuild, it can be challenging to hit “pause” and evaluate your offer before accepting. However, as exciting as your new opportunity is, it’s important to take a step back. First, you should consider the financial (and non-financial) pros and cons of your offer before taking the leap.

The Financial Side of a New Job Offer

When you take a closer look at your new job offer, it’s easy to start with something tangible – the dollars and cents. There are a few pieces of a job offer that impact your personal finances, and they’re all equally important. 

Your Income

It’s easy to get swept away by the annual salary listed in a job offer, but that’s not going to be your actual take-home pay. Before you accept, you’ll need to know whether or not the salary the hiring manager is offering you is going to meet your needs, and help you achieve your other financial and lifestyle goals. You might want to think about how an increased income will impact your taxes, or whether or not there are additional income-earning opportunities (like bonuses or stock options) available. 

Employee Benefits

If you’ve been a full-time employee at your current company for a while, you may take some of your employee benefits for granted. For example, when your insurance coverage stays consistent for a long period of time, you might not think about how low copays or specific prescription coverage impacts your budget. 

Don’t stop at asking your employer about health insurance coverage, either. Make sure that the benefits you’ll receive in your new role, from daycare or commuting stipends to financial planning support, are going to meet your needs.

Retirement Savings Options

How will your new employer help you to save for retirement? Whether they offer a company match through a 401(k) or another retirement plan or they have a pension in place, understand what they offer to their employees so that you can start taking advantage of saving options as soon as you start.

New or Additional Costs

Sometimes your dream job comes with a few new or additional costs. For example, if your new job is moving you to a new city in California from your midwestern hometown, you’re going to face different and additional costs – even if you’re thrilled with the change of pace. Be cognizant of the cost to commute to and from your new job, or the average price of rent or buying a home in a new area. 

Even if you’re not relocating for your new job, there could still be cost changes for your family. Different hours may mean adjusted childcare needs, or working in a different part of town may require you to drive and pay for parking rather than take public transportation. 

Continuing Education

What is your potential new employer doing to help you grow in your role and your career? Continuing education is expensive to pay for yourself. If your employer is willing to front the cost of going back to school, attending conferences, or furthering your human capital, that’s a big benefit that can’t be ignored. Not only will it positively impact you in your new role, but it could also benefit you in your future career, as well.

The Non-Financial Side of a New Job Offer

Even if all of the numbers add up, and this is an incredible financial opportunity for you and your family, it’s important to make sure that your new job offer is still an ideal fit when you look at the non-financial side of your new employer. 

Company Mission or Atmosphere

This might be tough to determine if you’ve only seen the positive side of the business through your application and interview process. It might be useful to request to job shadow for a day, or even half a day, before accepting the offer. This can give you a feel for what the corporate atmosphere might be like, and how an average day at work could look. 

If the position you’ve applied for is remote, or if it’s not possible for you to job shadow for a day, you can do two things:

1. Ask if there are employees who would be on your team who would be willing to speak with you. Interviewing them about their experience, and the pros and cons of the job, can offer some insight. 
2. Ask the hiring manager, or your future boss, what their goals are for the company. Knowing where they want to grow to, and how your role will help further their mission, can give you a sense for not only what your day-to-day might look like, but what big-picture decisions you can expect down the road.

Job Description and Expectations

If you’ve received an offer, the organization you’ve applied to obviously thinks you fit their needs – which is great! What’s not so great is that many companies fail to clearly outline job roles and expectations during the hiring process. They may know what type of expertise they want you to bring to the table, or duties they want you to fulfill, but haven’t communicated those in their job description or interviews. 

The last thing you want is to walk into a new job that you’re super excited about, only to realize that your day-to-day is going to look significantly different than you had imagined. Even worse, you don’t want to accept this new job offer if you aren’t able to meet the company’s expectations. For example, if they expect you to be 100% familiar with a software or business process that you’ve never practiced, you may need to speak up and request training as part of your onboarding.

Career Path Options

Even if this role is your dream job, you probably won’t be satisfied in this role for forever. Most Workable Wealth readers are high-achievers, and that means that you’ll be looking for opportunities to continue your education and further your career over the next several years. If your career path wasn’t already discussed in the interview, now’s the time to ask. You don’t need to look for a clearly built promotion or career path process – but the company who’s offered you a job should have some idea of how you can grow in your new role, financially and professionally.

Vacation Time and Work/Life Balance Priorities

This can be an awkward topic to tackle, but it’s just as important as salary negotiation! If your job offer doesn’t come with the type of time off, or work/life balance flexibility you want or need, don’t be afraid to speak up. A dream job might be incredibly fulfilling, but without the flexibility, you need in your personal life, you may end up unhappy in the long run. 

Take some time to think about what sort of vacation time or schedule flexibility will support your lifestyle goals or your family’s needs. If you’re going to negotiate for either a more flexible schedule, or different vacation time benefits, it can help to approach your future employer with clear reasoning behind your request.

Is the Job Right For You?

Taking the time to analyze a new job offer can help you make sure you’re signing on for a role that will be financially beneficial and personally fulfilling. Keep in mind that you won’t have an unlimited amount of time to review the job offer, so prioritize asking questions, or requesting changes to the offer, within a few days or a week of receiving your offer letter. 

Want help analyzing your job offer, or knowing what to look for in an offer while you’re applying for new jobs? Schedule your free, 30-minute consultation today

The post How to Analyze a New Job Offer appeared first on Workable Wealth.

What Should I Do With My Restricted Stock Units

Restricted Stock Units (RSUs) can be an excellent way to grow your wealth. However, like everything with investing, it’s important to understand how they work, and how they fit into your comprehensive financial strategy before moving forward with them. 

The truth is that RSUs aren’t as cut-and-dry as traditional investing opportunities. They have vesting schedules to keep in mind, and can impact your tax planning, as well. Let’s go over what RSUs are, how they work, how they’re taxed, and whether or not they’re a good fit for you!

What Are RSUs?

RSUs are something that a company offers employees as part of their compensation. When an employee is offered RSUs, they’re being offered common stock units from their employer. However, these units don’t actually “become” your stock until they vest. So, when RSUs are first offered to you as an employee, they’re technically just a promise. Your company is promising to give you shares of company stock, or the cash value of those shares. 

These stock units have a vesting schedule, and once they vest, they’re considered part of your income. That’s because, when your RSUs vest, they officially become stock that you own. Understanding at what point you own your stock means understanding your company’s vesting schedule for RSUs. Let’s take a look at how some vesting schedules work:

Your vesting schedule is going to be time-based. It’s another way that your company is incentivizing you to stick it out with them for the long-haul. This time-based vesting schedule might be graded, or it could be a cliff vesting schedule. Graded vesting means that your stock is vesting at a few different time periods. 

As an employee, graded vesting means a certain percentage of your RSU award will vest after each year of service. For example, if you have a five-year graded vesting schedule, 20% of your RSU grant will vest each year. After year one, you’ll have 20%, after year two, you’ll receive another 20% (for a total of 40%), and so on. This means that after five years, you’ll be fully vested.  Alternatively, in this example, you’d earn 25% of your RSUs after your first year anniversary. Then, up until your 4 year anniversary with the company, you’d earn a small percentage of your RSUs each month, until you were fully vested at year 4. 

A cliff vesting schedule, on the other hand, is much more straightforward and is a bit all or nothing. 100% of your RSUs vest after a predetermined period of time. For example, you may receive 100% of your RSUs after you’ve been employed with the company for 5 years (meaning if you quit before the 5 year mark, you get nothing). 

Ultimately, if you quit your job, or are let go, before your RSUs vest, you lose them. However, if you have other reasons (financial or otherwise) for quitting your job, don’t necessarily let RSU incentives be the only thing that holds you back. You need to weigh the pros and cons of changing jobs or careers carefully.

How Are RSUs Taxed?

RSUs aren’t taxed as part of your income until they vest. Then, when they vest, they’re valued based on the current market price of your shares. This value is part of your taxable income, which means you’ll pay:

  • Federal taxes
  • Employment taxes
  • Social Security & Medicare
  • State and Local taxes

Most of the time, companies offer to help make paying taxes on your newly-vested RSUs a little bit easier by giving you the opportunity to surrender a portion of your stock back to the company. This covers any taxes you’d owe under a net-settlement process.

Now that your RSUs have vested, you’re playing a bit of a different ballgame. You officially have stock – which is exciting! – but that also means you need to decide whether to hold your shares or sell them. Holding your shares might mean you’ll owe capital gains taxes on the appreciation of your stock if you sell at a later date. 

How Do RSUs Fit Into My Financial Plan?

Having RSUs can be an exciting employee benefit and it’s important to have a plan for how you want to leverage them. When it comes to your RSUs, there are a few things you’ll need to think about:

Remember Trading Windows

Most companies have specific windows where employees can trade company stock. This helps protect them (and you!) against insider trading, and a number of other potential problems. If you have trading windows for your vested RSUs, it’s important to understand when they are, and whether you’ll be notified that you’re in the all-clear to sell or trade your shares. 

Focus on a Balanced Portfolio

Although RSUs are a fantastic way to grow your wealth, and can be a great incentive for companies to offer their employees, they pose one big problem:

When you hold too much company stock, you no longer have a balanced portfolio.

Even if your company is doing really well, and your stock values continue to climb, that doesn’t necessarily mean you want to have too much of your portfolio relying on your company’s success. The truth is that nobody can control or predict the stock market. One way you can protect yourself against market ups and downs is by having a well-diversified portfolio. If you have RSUs, make sure they fit into a balanced plan for your investing strategy.

Know How You’ll Pay Your Tax Bill (And If You Have Other Tax Implications)

If your company offers an option to pay taxes on your RSUs up front, that’s great! This can be a helpful way to plan for a potentially large income tax bill come filing season. In cases where this option isn’t available, you’ll need to make a plan for how you’ll cover increased income taxes. 

You’ll also need to think through whether or not your newly vested RSUs will push you into a higher income tax bracket. If you’re being offered RSUs, there’s a good chance that you’re already a high-income earner. While that’s great news for you, it can be not-so-great news when it comes to your income taxes. 

Many people are at the upper edge of their tax bracket without realizing it. Then, when their RSUs vest and are counted toward their income, they’re surprised when their tax bill increases. Don’t fall into this trap! Understand how your RSUs will impact your taxable income, and what you need to do to plan ahead. This might mean adjusting your withholdings to make sure you’re covered come filing season. It might also mean teaming up with a CPA to discuss your unique tax situation.

RSUs and Planning For the Future

RSUs can be a useful part of your financial plan. Once you move past some of the more technical decisions about your RSUs, like when to sell or how you’ll cover taxes, you can start thinking about how they impact your big-picture financial plan. Let’s say you sell your shares after your RSUs vest, and you now have $45,000 in cash from the sale. How do you want to use this money? 

It’s easy to look at RSUs as a kind of incentive or investing tool, but I prefer to look at them as a cash windfall. When you sell (whether it’s immediately after vesting, or several years later), you’re going to wind up with a lump sum of cash. Take some time to determine how you want that money to positively impact your life. A few ideas might be:

  • Boosting your retirement savings
  • Using the money to fund your child’s college education
  • Topping off your emergency savings
  • Paying down debt
  • Leveraging the cash to start investing beyond traditional retirement savings vehicles

Having a plan for the money that comes from your RSUs before you sell them can help to set you up for long-term financial success. 

Need help creating a plan for your RSUs? Contact me today! I’d love to point you in the right direction.

The post What Should I Do With My Restricted Stock Units appeared first on Workable Wealth.