Financial Planning

Clean Energy Tax Credits: What to Know Before You Buy

Inflation Reduction Act & Clean Energy Tax Credits

The Inflation Reduction Act introduces several clean energy tax credits and rebates that may benefit environmentally conscious taxpayers.

As a California-based financial advisor who works primarily with women, I frequently have conversations with clients about socially and environmentally responsible investment strategies. But with the recent passage of the Inflation Reduction Act, many environmentally conscious investors are seeking new ways to put their values into action while potentially benefiting financially in the process.

If you’re considering making climate friendly upgrades to your home or vehicles, you may be eligible to claim thousands of dollars in potential tax credits and rebates. However, before purchasing a rooftop solar panel or electric vehicle, it’s important to understand the various clean energy incentives available—and how to use them to your advantage.

Clean Vehicle Credits

The Inflation Reduction Act extends the Clean Vehicle Credit through 2032. It also introduces new credits for purchasing used electric vehicles.

Specifically, if you buy a new electric vehicle (EV), you may be eligible for a tax credit worth up to $7,500. For a used EV, your tax credit may be worth 30% of the purchase price or $4,000, whichever is less. You may also qualify for additional incentives from state and local governments, depending on where you live.  The caveat is that the new credits don’t go into effect until 2023. So, if you’re planning to purchase a used electric vehicle, you’ll likely want to wait until after the new year to maximize your potential tax benefit. 

For new EV purchases, it’s a little more complicated. If you purchase a new EV in 2022, the Inflation Reduction Act stipulates that the final assembly of the vehicle must take place in North America. However, purchases of General Motors and Tesla car models aren’t eligible for a tax credit until 2023.

Car manufacturers must also meet two battery-related requirements for consumers to receive the full credit in 2023 and beyond. That means some EVs won’t immediately qualify for a tax break as manufacturers work to meet these rules.

Lastly, beginning in 2024, car buyers can transfer their tax credit to dealers at the point of sale. That way it directly reduces the purchase price. This can be particularly valuable for two reasons:

  • First, you won’t have to wait until you file your tax return to benefit financially.
  • In addition, transferring the credit to the dealer at the point of sale ensures you’ll receive the full benefit since the credit amount can’t exceed your tax liability. Meaning, if you owe $6,000 in taxes for the 2023 tax year and take the Clean Vehicle Credit worth $7,500, you lose the remaining $1,500.

Keep in mind there are new adjusted gross income (AGI) thresholds to be eligible for a new EV tax credit. In 2023, the AGI limit is $150,000 for single taxpayers and $300,000 for married couples filing jointly.  

Residential Clean Energy Credit

The Residential Energy Efficient Property Credit was previously set to expire at the end of 2023. Now the Residential Clean Energy Credit, the Inflation Reduction Act extends it through 2034 and increases the credit amount, with a percentage phaseout in the final two years.

The Residential Clean Energy Credit is a 30% tax credit that applies to installation of solar panels and other equipment that makes use of renewable energy through 2032. The percentage falls to 26% in 2033 and 22% in 2034.

In addition, the credit is retroactive to the beginning of 2022. That means if you install a solar panel or similar equipment this year, you can qualify for the 30% tax credit on your 2022 tax return.

Energy Efficient Home Improvement Credit

The Inflation Reduction Act also extends the Nonbusiness Energy Property Credit and renames it the Energy Efficient Home Improvement Credit.

This is a 30% tax credit on the cost of eligible home improvements, worth up to $1,200 per year (as opposed to the previous $500 lifetime limit). The annual cap jumps to $2,000 for heat pumps, heat pump water heaters, and biomass stoves and boilers. In addition, roofing will no longer qualify for a tax credit.

Specifically, the annual tax credit limits for qualifying improvements are as follows:

  • $150 for home energy audits
  • $250 for any exterior door (up to $500 total) that meet applicable Energy Star requirements
  • $600 for exterior windows and skylights that meet applicable Energy Star requirements
  • $600 for other energy property, including electric panels and certain related equipment

The enhanced credit is available for projects you complete between January 1, 2023 and December 31, 2033, with some exceptions. Any projects you finish in 2022 aren’t eligible for new incentives. However, if you incur costs in 2022 for a project that you complete in 2023, these costs can count towards your tax break.

Additional Financial Incentives for Investing in Clean Energy  

Finally, the Inflation Reduction Act creates two rebate programs to incentivize clean energy and efficiency projects. Unlike many clean energy tax credits, these rebates are offered at the point of sale. Thus, consumers can reap the financial benefit immediately.

The HOMES rebate is worth up to $8,000 for consumers who make energy efficient upgrades to their homes—for example, HVAC installations. Ultimately, the rebate amount depends on the amount of energy you save and household income.

Meanwhile, the High-Efficiency Electric Home Rebate Program offers taxpayers up to $14,000 for buying energy efficient electrical appliances. This rebate is only available to lower income households, and the rebate amount varies by appliance.

The timeline for these rebates to go into effect is less clear than the three tax credits mentioned above. Many experts believe they won’t be broadly available to taxpayers until the second half of 2023 as the Energy Department issues rules governing the programs.

How to Invest in Clean Energy Strategically

The Inflation Reduction Act creates a variety of financial incentives for taxpayers to invest in clean energy and energy-efficient projects. Those who take advantage of these clean energy tax credits and rebates can potentially save thousands on their taxes while doing their part to fight climate change.

However, to maximize these incentives, it’s important to time them correctly and use their constraints to your advantage. A trusted financial advisor like Curtis Financial Planning can help you incorporate these purchases and investments into your financial plan, so you can reap the greatest benefit. We invite you to connect with us to find out more.

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7 End-of-Year Tax Planning Tips for 2022

End of Year Tax Planning Tips for 2022

With the end of the year fast approaching, Tax Season may be the last thing on your mind. Yet in many ways, the final months of 2022 may be your last chance to reduce this year’s tax liability. To avoid overpaying Uncle Sam and preserve more of your hard-earned income, consider the following end-of-year tax planning tips for 2022.

To minimize your tax liability, consider these end-of-year tax planning tips for 2022:

Tip #1: Identify Changes to Your Tax Situation

In 2022, the standard deduction is $12,950 for single filers and $25,900 for married taxpayers filing jointly. The standard rule of thumb is if you can deduct more than the standard deduction amount in eligible expenses from your taxable income, you should itemize. Otherwise, it’s generally easier and more valuable to take the standard deduction. 

If your income and circumstances have been relatively stable since last year, you likely know already if you plan to itemize or take the standard deduction this year. However, if you’re on the fence, there are end-of-year tax planning strategies you can utilize to reduce your taxable burden.

For instance, consider pre-paying certain deductible expenses—for example, charitable donations or out-of-pocket medical expenses—this year so that itemizing makes more sense.

Let’s say you plan to donate $5,000 to charity each year for the next several years. If you have extra cash on hand this year, you may want to consider donating $10,000 or more to your charity of choice so you can itemize your deductible expenses. Then, next year, you can skip your regular donation and take the standard deduction.

The same is true for out-of-pocket medical expenses. If you know you have certain expenses looming for 2023, you can pay them this year to make the most of the associated tax benefit.

Tip #2: Harvest Capital Losses

Capital gains taxes can eat away at your investment returns over time—specifically in non-qualified investment accounts. Fortunately, the IRS allows investors to offset realized capital gains with realized losses from other investments.

That means you can realize profits on your top-performing investments while selling poor performers to reduce this year’s tax bill. If you have substantial losses, you may be able to completely offset your gains and potentially reduce your taxable income. And in years like 2022 when markets have struggled, you may have more losses than you think.

Keep in mind if you work with a financial advisor, you may not need to initiate this strategy on your own. Most fiduciary financial planners proactively take advantage of tax-loss harvesting to help clients with end-of-year tax planning.

Tip #3: Review Your Charitable Giving Plan

Currently, taxpayers who itemize deductions can give up to 60% of their Adjusted Gross Income (AGI) to public charities, including donor-advised funds, and deduct the amount donated on this year’s tax return.

You can also deduct up to 30% of your AGI for donations of non-cash assets. In addition, you can carry over charitable contributions that exceed these limits in up to five subsequent tax years.

When it comes to end-of-year tax planning, donor-advised funds (DAFs) can provide opportunities to meaningfully reduce your tax liability relative to other giving strategies. For example, if you plan to donate $10,000 each year to your favorite charitable organization, it may be more beneficial to take the standard deduction when you file your taxes.

On the other hand, you can front-load a donation of $50,000 to a donor-advised fund and request that the DAF distribute funds to your chosen charity each year for five years. In year one, you can receive a more favorable tax break by itemizing on your tax return. Meanwhile, you’ll still be meeting your charitable goals each year via the DAF. This strategy can be particularly beneficial in above-average income years.

And better yet, you can donate non-cash assets like highly appreciated stock to a DAF and avoid paying the capital gains tax. This strategy can also help you diversify your investment portfolio without triggering an unpleasant tax bill. Plus, you can take an immediate deduction for the full value of the donation (subject to IRS limits).

Tip #4: Look for Opportunities to Reduce Income

Maxing out your qualified investment account contributions is indeed important for meeting your future financial goals like retirement. However, this can also be a valuable end-of-year tax planning strategy.  

First, be sure to check the contribution limits on your employer-sponsored or self-employed retirement plans for 2022. You can also contribute up to $6,000 to an individual retirement account in 2022 (or $7,000 if you’re age 50 or over).  

In addition, individuals with qualifying high deductible health plans are eligible to contribute to a health savings account (HSA). An HSA can be a great way to save and grow your money on a tax-advantaged basis.

In fact, these accounts offer triple tax savings. Contributions, capital gains, and withdrawals are all tax-free if you use your funds for eligible healthcare expenses. And like qualified retirement accounts, you can deduct your contributions from your taxable income in most cases to reduce your overall tax liability.

Meanwhile, depending on your compensation plan, you may want to consider deferring part of your income to reduce your taxable income in 2022.

Employees with deferred compensation agreements typically pay taxes on the money when they receive it—not as they earn it. That means if your employer pays you a lump sum per your distribution agreement, you could potentially get hit with a hefty tax bill.

There are different ways to structure income from a deferred compensation plan. Your options typically depend on your agreement with your employer. The distribution schedule can usually be found in your plan documents. So, if you haven’t reviewed your plan details recently, you may want to revisit them during end-of-year tax planning to avoid any surprises.

Tip #5: Take Advantage of Lower Income Years and/or Down Markets with a Roth Conversion

The IRS allows individuals to convert a traditional IRA to a Roth IRA via a Roth conversion. A Roth IRA conversion shifts your tax liability to the present. As a result, you avoid paying taxes on withdrawals in the future. In addition, Roth IRAs don’t require minimum distributions.

With a Roth conversion, you pay taxes on the amount you convert at your current ordinary income tax rate. That’s why it can be a particularly powerful end-of-year tax planning strategy in tax years when your income is below average.

At the same time, a down market can be an opportune time to take advantage of a Roth conversion. Since account values typically decline in a negative market environment, so does the amount on which you pay taxes when converting to a Roth. Meanwhile, there’s greater potential for future appreciation and withdrawals that tax-free.

After you convert your traditional IRA to a Roth, any withdrawals you make in retirement will be tax-free. However, you must be over age 59 ½ and satisfy the five-year rule. And since Roth IRAs don’t have RMDs, you can leave your funds to grow tax-free until you need them.

While Roth conversions can be beneficial for many, they don’t make sense for everyone. Be sure to consult with a trusted financial advisor or tax expert before leveraging this strategy.

Tip #6: Strategically Transfer Wealth

If you expect to leave significant wealth to your heirs, proper estate planning is key. Fortunately, there are end-of-year tax planning strategies you can leverage to help minimize your estate’s potential tax burden.  

In many cases, gifting is one of the simplest ways to efficiently transfer wealth while reducing your estate. Each year, the annual gift-tax exclusion allows you to gift a certain amount (up to $16,000 in 2022) to as many people as you like without incurring the federal gift tax. Moreover, spouses can combine the annual exclusion to double the amount they can gift tax-free.  

Indeed, cash gifts are most common. However, you can also use the annual exclusion to transfer personal property or contribute to a 529 college savings plan. Alternatively, the IRS allows you to pay educational and medical expenses on behalf of someone else without incurring federal taxes. However, you must pay the institution directly.   

Trusts can also help you transfer wealth strategically while reducing your family’s taxable burden. However, trusts are varied and complex. It’s important to consult your financial planner or estate planning attorney to determine if a trust may be an appropriate end-of-year tax planning strategy.

Tip #7: Donate Your Required Minimum Distribution (RMD)

To keep people from using retirement accounts to avoid paying taxes, the IRS requires individuals to begin taking minimum distributions from certain qualified accounts once they reach a certain age. As of 2020, required minimum distributions (RMDs) kick in at age 72.

You can withdraw more than your RMD amount in any given year—but be prepared for the potential tax consequences. On the other hand, the IRS imposes a penalty of up to 50% if you fail to take your full RMD before the deadline.

Both scenarios can be costly. Fortunately, careful end-of-year tax planning can help you manage your RMDs to avoid high taxes and other penalties.

For example, if you don’t need the extra income, you can donate your RMD to charity. This is a tax planning strategy called a qualified charitable distribution (QCD). A QCD allows IRA owners to transfer up to $100,000 directly to charity each year.

QCDs can satisfy all or part of your RMD each year, depending on your income needs. You can also donate more than your RMD amount up to the $100,000 limit. And since QCDs are non-taxable, they don’t increase your taxable income like RMDs do.

It’s important to note that the IRS considers the first dollars out of an IRA to be your RMD until you meet your requirement. If you take advantage of this tax planning strategy, be sure to make the QCD before making any other withdrawals from your account.

For More End-of-Year Tax Planning Tips, Consult a Trusted Financial Advisor

This isn’t an exhaustive list of end-of-year tax planning strategies. However, these tips can help you determine if there are opportunities to reduce your taxable burden in 2022.  At the same time, a trusted financial advisor or tax expert can help you identify which strategies are right for you within the context of your overall financial plan.

To learn more about how Curtis Financial Planning helps our clients take control of their finances, please explore our services and client onboarding process.

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S4E5: The Insurance Lady Ruth Stroup Answers Your Biggest Questions About Insurance

The Insurance Lady Answers Your Biggest Questions About Insurance

Your Biggest Questions About Insurance Answered

My guest on today’s episode is Ruth Stroup. Ruth, AKA “The Insurance Lady,” is a Farmer’s agent in Oakland, California. Voted Best of Oakland seven times, The Ruth Stroup Insurance Agency is a community-oriented agency offering customized insurance solutions to businesses and families.

In this episode, Ruth and I discuss all things insurance, from what it covers and doesn’t cover to choosing the right policies and the obstacles that can get in the way of that. Specifically, we talk about wildfire risk in Northern California and how it may cause you to lose your homeowner’s insurance or your premiums to skyrocket. We also discuss what Ruth can and can’t do as an agent to help her clients navigate claims.

Later in the episode, Ruth provides a helpful overview of umbrella insurance, including common misconceptions about what it covers and how to determine if you need additional coverage. She also shares a little-known strategy she uses with her high-earning clients to protect their personal assets.

And be sure to listen to the end, when we talk briefly about earthquake insurance, another potential risk factor for California residents, and many of the common misconceptions surrounding it. Ruth also shares her tips for how she believes people should approach earthquake insurance and how to decide if it’s worth the high premiums.

And lastly, Ruth offers her response to people who believe insurance is just a racket. I learned so much during this conversation and Ruth shared so many great gems that I believe will benefit a lot of you listeners. I hope you enjoy the episode as much as I did.

Episode Highlights

  • [04:02] Ruth Stroup explains what homeowner’s insurance covers and doesn’t cover if someone burglarizes your home.

  • [07:03] How to insure different types of jewelry, whether it’s costume, gems and metals, or fine jewelry.

  • [12:31] What people can do to mitigate the damage if they get burgled or their home is destroyed by fire.

  • [16:22] What to do if your policy goes into non-renewal because you live in a high-risk zone for wildfires.

  • [19:51] How reinsurance companies impact the insurance industry.

  • [22:29] Ruth Stroup shares the reasons besides wildfire danger that a policy may be non-renewed.

  • [26:45] What Ruth can and can’t do as an agent when helping her clients navigate claims.

  • [33:11] Cathy asks Ruth Stroup to give a mini tutorial on liability and umbrella insurance.

  • [38:54] Ruth Stroup shares what she believes is the best kept secret in the insurance business.

  • [42:02] Cathy and Ruth talk earthquake coverage.

Links Relevant to this Episode

Ruth Stroup Insurance Agency’s website

Enjoy the Full Episode

Other Ways to Enjoy this Episode

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S4E5 Transcript: The Insurance Lady Answers Your Biggest Questions About Insurance

[00:02:50] Cathy Curtis: Ruth Stroup, thank you so much for being on my podcast, Financial Finesse. I can’t wait to talk to you about all things insurance.

[00:02:56] Ruth Stroup: I’m so glad to be here. Thanks for inviting me, Cathy.

[00:03:00] Cathy Curtis: So, Ruth, as you being an insurance person, and I know being a financial planner, that many times we prepare for one thing and then something different happens. And so we are gonna talk about things like that and what could go wrong.

[00:03:16] Cathy Curtis: And I’m gonna tell a short, personal story that we could start with. So I live up in the Oakland Hills, which is a beautiful woodsy neighborhood. Very quiet, peaceful. And, but the homes are separate from each other, lots of foliage around the homes, et cetera. And what we worry about most up here is fire.

[00:03:40] Cathy Curtis: And, but unfortunately, I was away on vacation recently and our home got burglarized. So of course we had to make a claim. And even though I am a financial advisor and I know a lot about insurance, when it happens to you, you realize that you don’t know everything. And one of those things is what is covered and what isn’t.

Ruth Stroup explains what’s covered and what isn’t covered by homeowner’s insurance if your home is burglarized.

[00:04:02] Cathy Curtis: So I thought maybe you could talk to that a little bit. I know you have a ton of experience in this area. And give our listeners an idea of what they can expect if this happened to them.

[00:04:14] Ruth Stroup: Great, Cathy, that’s such a great question. I find all the time that people think insurance, when we, when it comes to having a claim, we think insurance covers everything.

[00:04:24] Ruth Stroup: And when it comes to purchasing insurance, we’re trying to find all the ways to save money on our insurance. And those two things can be at odds. So when I work with clients, one of the things that’s the most important to me is to find out what matters to them. For example, if someone has a lot of jewelry or fine art or firearms for that matter, if they have things that they collect, they need special insurance for that.

[00:04:52] Ruth Stroup: And nobody really thinks about it because we don’t go out and buy the full collection at one time. We buy once, this birthdays, anniversaries, a special treat, a celebration of some sort. And so collections don’t come to us fully formed. They’re created over time, and we don’t think about how much they’re growing in value because we’re spending our cash flow on them.

[00:05:18] Ruth Stroup: Years ago, I had a client. This was back when I worked as an investment advisor over at Charles Schwab. He was in Castro Valley, he lived on a cul-de-sac. He was the survivor of three or four brothers, sisters, extended family members had passed away. And in his basement he had multiple sets of silver tea service, silver flatware, golf clubs, hobby things, tools. And somebody broke into his house, filled up the car.

[00:05:51] Ruth Stroup: He had parked in the garage with all the items that were in the basement. Drove away with them to sell them for 10 cents on the dollar, whatever else they were gonna do. He lived on a cul-de-sac. The neighbors saw his car come and go multiple times. But because it was his car, they never questioned it.

[00:06:12] Ruth Stroup: And I think, and he was talking about filing for the insurance claim. But in his case, in the world of what can go wrong around theft, which we’re seeing more and more of here in the east bay and in California, in general, all the items he had were sort of family inheritance. And it’s not like they got to be in the centerpiece of the dining room table.

[00:06:34] Ruth Stroup: They were in the basement. So if he had asked me as an insurance agent today, what I would think about insuring those items, I would ask him, did it have sentimental value? Which means I’ll be sad when it’s gone, but I won’t replace it. Or does it have financial value? Which means I’m gonna wanna replace this.

[00:06:56] Ruth Stroup: And when we have a fire, we have much more of a, of our things that we definitely want to replace.

How to insure different types of jewelry, whether it’s costume, gems and metals, or fine jewelry.

[00:07:03] Cathy Curtis: Yeah. Ruth, let me step back a minute. I wanna share my personal story on a collectible, a collection I had before we go into fire. So in my case, and a lot of women do this. I’ve been collecting jewelry for years and I’m not talking fine gold and gem jewelry.

[00:07:20] Cathy Curtis: I’m talking artisanal. Unique pieces that I find when I’m in Europe or on a weekend getaway in Sonoma or Napa or whatever. And I could tell you every piece I had, where I got it, and the story behind it. So I didn’t insure it because each piece was not a lot of value. And I didn’t worry as much about it as my fine jewelry.

[00:07:46] Cathy Curtis: Again, each piece was, every single piece of that collection was stolen. The thieves dumped out my jewelry chest and stole every single earring, bracelet, necklace that I had been collecting over the years. And that hurts. It really does. And I’m not gonna be able to replace it. It was probably worth about $15,000 in total.

[00:08:07] Cathy Curtis: And insurance doesn’t cover that. Cause I didn’t have any of it appraised. It, it wasn’t worth appraising any of it. So that’s a really good example of something you’re talking about. Now, if I had, if you were, if I had come to you and said, can I insure that? I really wanna insure that collection. Could that have been done?

[00:08:24] Ruth Stroup: It can. People don’t really, I, there’s a way I always ask the difference between is it costume jewelry, which is in the under $100. Is it fine jewelry? So $500 to $2,500. Or is it gems and metals? And I know people who insure none of it. I know people who insure all of it. There’s a way to insure them a little bit differently.

[00:08:49] Ruth Stroup: So a collective amount for smaller items and a, an itemized amount for larger amounts. But the jewelry company we work with. If it’s special enough to add it, it’s inexpensive to have, you can either have your most important pieces insured. Or if you collect stuff, you can insure it all. And then, and then you have to, the thing is to get replacement cost and insurance, you have to replace things.

[00:09:18] Ruth Stroup: And the items you have are more of a what’s the market value than what’s the replacement value. Because there are, they are all artisanal. But I see lots of ladies, I say, do you sparkle? And they do. Then I ask if they have special insurance for that. And most don’t, and then nobody knows what it costs.

[00:09:39] Ruth Stroup: So they don’t know what they’re saying. Yes or no to the men and their watches are exactly the same. Got a bonus, buy myself a $10,000 watch. My stocks vest, got myself a $10,000 watch. Had a baby, got myself a $10,000 watch. And over a decade, somebody might have 3, 4, 5 watches because they had occasions to, to mark with the watch.

[00:10:04] Ruth Stroup: Maybe one watch is not such a big deal, but $50,000, a hundred thousand dollars’ worth of watches. Many men have that much in their closet.

[00:10:11] Cathy Curtis: And it, and insurance does not cover watches. Is that correct?

[00:10:15] Ruth Stroup: It treats them as jewelry.

[00:10:17] Cathy Curtis: Yeah. Okay. What about silver sets of silverware? That’s not covered either, unless you have a rider.

[00:10:24] Ruth Stroup: Silver’s different because silver has limits on the policy.

[00:10:30] Ruth Stroup: But in the old days back when the flea market was the thieves market, what people went to buy back was their family silver. There was definitely a market for it. Today, grandma’s silver, every, every millennial’s, worst nightmare to have grandma’s silver delivered to them. To be the caretaker of dusted tarnished silver.

[00:10:58] Cathy Curtis: Oh man. Yeah, my aunt’s, my favorite relative in the whole world. I cannot believe that they took it because I know what you’re saying. You could find it in any consignment store, flea market.

[00:11:15] Ruth Stroup: And you can insure silver collectively without an appraisal.

[00:11:19] Ruth Stroup: It, it just the issue with the theft of silver, silver tableware, where it’s so much less. Your people either, they were either, they know, like when they get that personal on what they take. They’re looking for something or something bigger. That’s very malicious. And I’m so sorry that happened to you.

[00:11:39] Cathy Curtis: Yeah. I know it was strange to think some of the things that they took for.

[00:11:43] Ruth Stroup: Usually what they do is they go through all your drawers and all your closet and all the known, hiding places that people think that thieves don’t know about. And they look for cash, especially cultures that keep cash at home.

[00:11:59] Ruth Stroup: Yeah. They look for things that they can sell easily. So they like shoes and they like, they love handbags. They also like handbags because the handbags can hold stuff as they’re taking things away. Uh, I got broken in two years ago. They used my luggage to steal my stuff. Yeah.

[00:12:18] Cathy Curtis: Yeah, they, I got several bags stolen that were obviously used to carry, cart things.

[00:12:24] Cathy Curtis: But they knew to take my nicest bags though.

[00:12:27] Ruth Stroup: Yeah. These were designer shoppers. Oh my gosh.

What people can do to mitigate the damage if they get burgled or their home is destroyed by fire.

[00:12:31] Cathy Curtis: Oh, given that, let’s, what is some good? You can’t prevent everything, but what, what are a few things people can do to try and mitigate the damage if they do get burgled?

[00:12:44] Ruth Stroup: So in any kind of claim you wanna do almost like a fire drill for your claim.

[00:12:52] Ruth Stroup: And the first question is, would I replace that? So believe it or not, most people have more money in clothes than anything else and most of us could pair our closets down by half. The first thing to say is if the insurance company did not pay me for this, would my life be the same? Like I might be sad.

[00:13:16] Ruth Stroup: but would my, would I change? Would it, would I be able to pay my housing or rent? Would I be able to pay my taxes? Or would I be able to eat the same way I ate? Will I have enough cash reserve for the long term? And I get very existential about things because if your quality of life wouldn’t change, if you don’t have the item and if you would not replace.

[00:13:42] Ruth Stroup: It’s terrible that someone took it, but it doesn’t have any financial value. It only has very high sentimental value, like your silver set from your aunt. And so I tell people that I really focus my insurance dollars on things that I want to replace. Okay, because then it has real financial value.

[00:14:06] Ruth Stroup: So for example, most people’s wedding rings, they would really want to replace. But an inherited wedding ring, hard to know. A wedding ring that has value after a divorce, hard to know.

[00:14:18] Cathy Curtis: Let’s take example, eBikes, which mine was going by the way. So Rob and I love eBikes. And it does enhance the quality of our life in a big way.

[00:14:32] Cathy Curtis: We take road trips with them, et cetera. So those were stolen. We definitely wanna replace those. So that’s a good example. Whereas my leather coat collection, am I gonna miss it? Yes, but am I, do I have to have all those? No, it’s a really good distinction because a lot of the stuff is just material stuff that you’ve collected that is not gonna change your life in any way.

[00:14:58] Cathy Curtis: So I, I think that’s a really excellent way to think about what to insure and to use your dollars wisely when you’re buying insurance. Yeah.

[00:15:06] Ruth Stroup: And I segue then, Cathy, too, people who are having a hard time getting insurance because they live in a location that’s now difficult to insure due to the wildfires we’ve seen over the last five years, since 2017. And with those policies, what should I, my first question to the people is would you rebuild?

[00:15:26] Ruth Stroup: I’ve worked with lots of seniors who are 70+ years old. They don’t wanna build another house. I talked to other people, they’re like, we love where we live. We would absolutely wanna rebuild. And so we set up the insurance based on what they expect the outcome to be. So sometimes I ask people what’s your next house and how soon in the future is it?

[00:15:51] Ruth Stroup: And for somebody who lives, let’s say in a house with a couple of stories worth of stairs and their next house is something with no stairs, potentially in an area with much less fire risk or closer to family or closer to medical, then a fire might only accelerate that move. What you want in a fire insurance policy is replacement cost, but that means you replaced your home.

[00:16:20] Ruth Stroup: You’re not required to rebuild it.

What to do if your insurance policy goes into non-renewal because you live in a high-risk zone for wildfires.

[00:16:22] Cathy Curtis: Okay. Now the insurance world in California has changed a lot because of the fires. So what in, especially in areas like Napa or here in Oakland and other areas, and some people’s insurance policies have been canceled due to that. What do you, what do you do in that case?

[00:16:45] Ruth Stroup: In the insurance business, we call it non-renewal. Canceled is like when I don’t make a payment and then they cancel me midterm.

[00:16:53] Cathy Curtis: Okay. Thank you for correcting me. Non-renewal.

[00:16:55] Ruth Stroup: Super important distinction because of the timeframe. If the insurance company is going, the insurance cycle if a policy is issued.

[00:17:04] Ruth Stroup: The insurance company does an inspection in the first 60 days. And if they find deficits in the property condition, they give you 30 days to remediate that. And at the end of that 30 days, if you don’t show proof of the updates, then the policy will cancel at any time until the next renewal. The only reason the insurance company could cancel coverage is if there is a, is if there’s non-payment. So assuming the payments have been made, then when it comes up to renewal, that’s the only time the insurance company can evaluate the risk and decide if it fits their current profile or not.

[00:17:47] Ruth Stroup: And this will change year by year, carrier by carrier. And it’s con, it creates a lot of confusion and a lot of bad feelings.

[00:18:04] Cathy Curtis: But I brought this up because that is definitely a distinction. So policies cannot be canceled just one day. They say, sorry, we can’t insure you anymore.

[00:18:19] Ruth Stroup: Nope. Insurance companies have to wait till the renewal date, and they must give you 90 days to shop for your new coverage. So if they miss the win, so if this is not taken lightly, insurance companies are, they wanna grow just like any other business. And they have lots of masters. They have to have a certain amount of reserve to be able to issue a new policy.

[00:18:42] Ruth Stroup: And the regulators really watch the insurance company’s capacity to pay claims. And some of the way we get that capacity is we buy insurance on our book of business in the industry. We call this reinsurance, right, that’s a big business. The reinsurance companies for years, they would collect money every year.

[00:19:05] Ruth Stroup: And then once in about 20 years, something really terrible would happen and they’d have a big payout. They’ve had record payouts in four of the last five years, they have changed their criteria. And if an insurance company needs the reinsurance in order to have capacity to pay, we don’t just have to pay by the regulator’s rules.

[00:19:27] Ruth Stroup: Now we don’t have to just pay by trying to run a good business rules, our own internal things. We also have to pay by the rules of the reinsurance. And it’s that number of constituencies that get involved in things that make insurance complex and that make insurance companies sometimes have to change their guidelines more quickly than you might expect.

How reinsurance companies impact the insurance industry.

[00:19:51] Cathy Curtis: So the reinsurance companies are really dictating a lot of what’s going on.

[00:19:56] Ruth Stroup: They have a pretty big impact. But you have to understand that it’s not just, they don’t just pull a lever and say, hey, insurance company, make a change. It’s, we go to them to get capacity. We have to have capacity to pay in order to maintain a certain book of clients.

[00:20:15] Ruth Stroup: The regulators look at the reinsurance companies for years, it was a very profitable business on the idea that you’d pay out big every once in a while. But every once in a while has become every year. And so they’re looking for their, the comp, their clients, the insurance companies to qualify for reinsurance.

[00:20:34] Ruth Stroup: We have to do, we have to do things a little bit differently in terms of our, the big data. And what’s in our book of businesses and we have to pay more for it too.

[00:20:44] Cathy Curtis: Okay. So let’s, let me just give an example. Let’s say in your book of business, whoever does this, I identify five homes in your book of business that are fire, big fire risk.

[00:20:56] Cathy Curtis: And so you notify at the renewal date, you notify the homeowner. These are the things they need to do to mitigate fire danger?

[00:21:09] Ruth Stroup: No, sometimes it’s this location no longer qualifies, hard and fast.

[00:21:13] Cathy Curtis: Ah, okay.

[00:21:14] Ruth Stroup: So in, and it could be a client that just signed up last year. It could be a client who’s been with you for 40 years.

[00:21:21] Ruth Stroup: We don’t get to pick his agents.

[00:21:22] Cathy Curtis: Okay. So then that homeowner by law has 90 days to shop for new coverage.

[00:21:32] Ruth Stroup: Correct. And the marketplace is everchanging and every insurance company has their own data modeling for risk. So you might be with an insurance company that can’t shop for other policies for you.

[00:21:48] Ruth Stroup: So you need to find both a new agent or broker. And a new carrier. And then as well as a new policy, other people you might be with the agent or broker may be able to place you somewhere else within their suite of carriers that they offer. So the shopping experience is different for everybody.

[00:22:07] Cathy Curtis: I’ve had clients experience both of those ways that you’re describing. Okay, so that, and then what is the average rate increase in that case? Is it quite large?

[00:22:19] Ruth Stroup: It, when people are non-renewed due to wildfire risk, the new policy can cost between two, two times to five times more than the current policy.

Ruth Stroup shares the reasons besides wildfire danger that an insurance policy may be non-renewed.

[00:22:29] Cathy Curtis: Okay. Okay. Are there any other reasons besides fire danger that a policy would not be.

[00:22:37] Ruth Stroup: Absolutely. Okay. And unfortunately, and claims is a major reason that insurance companies will non-renew clients. So yeah, some clients like whenever somebody has a potential claim, I’m like, let’s look at this and make sure it’s worth it to file this claim.

[00:22:59] Ruth Stroup: And worth it means things like how much will impact my. And will it impact whether or not I can get insurance with you? And if I’m going to sell my house in the next five years, will it impact the new buyer’s ability to get insurance?

[00:23:16] Cathy Curtis: Oh, that’s really critical. So let’s dig into these a little bit. So do you know, you can tell how much more it will cost on the next renewal date. If they make a claim of so much dollars?

[00:23:32] Ruth Stroup: I have an idea. So every carrier has its formula for rate surcharges. And I get Farmers. We have a surcharge for a claim as well as we have a discount, if your claim’s free. So I tell, my formula for whether or not to consider filing a claim is your current deductible plus your current premium. And if it’s less than that, you shouldn’t file a claim.

[00:24:02] Cathy Curtis: Okay. All right. But that doesn’t sound like it could be, like let’s say your deductible’s $2,500 and your current premium’s $3,000.

[00:24:12] Ruth Stroup: You wouldn’t even consider reporting it until it’s $5,500 or higher there.

[00:24:19] Cathy Curtis: Okay. All right.

[00:24:20] Ruth Stroup: Now, a lot of people, the number one, you know, we’ve talked about theft. We’ve talked a little bit about fire. But the real, most common claim we see in the home insurance industry is water damage. And water damage is one of those things, like what was the source of the water?

[00:24:38] Ruth Stroup: How long was the water damage? How long, was it a slow leak or a burst pipe? There are so many variables in water damage that I invite all my clients to call me if there’s anything going on with water in their house. Because just like that example where I said, even a former owner can impact the insurability of the house.

[00:24:58] Ruth Stroup: It’s those water damage claims. And what happens is someone calls to say, oh, we need to get the house ready for the market. So let’s send it to Oz and get, give it a good fluff and, and a contractor. Will we need to replace his pipes or here’s this old leak? And they tell the owner, who’s usually a retired person downsizing.

[00:25:20] Ruth Stroup: Oh, let’s see if your insurance company will pay for some of this. But oh, it’s wear and tear, old routine maintenance. So the homeowner calls the insurance company. And the insurance company declines the claim, but it’s water. So it’s given a red flag to the next insurance company that there’s a water, a potential water loss at this property because somebody called in and had a concern about water damage.

[00:25:47] Ruth Stroup: And since water damage is the number one cause of loss, some insurance companies won’t even touch a $0 claim.

[00:25:56] Cathy Curtis: Whoa. So I’ve often I know this, that you have to be really thoughtful and careful about when and why you call your insurance company. This is a perfect example.

[00:26:06] Ruth Stroup: And you also have to understand who you’re speaking to at the insurance company.

[00:26:12] Ruth Stroup: So I’m an agent. If somebody calls me and says, hypothetically, how will the policy respond? We can run through all the hypotheticals, but if you have insurance with a company where you call directly into an 800 number all in, they say, let’s have you talk to claims. Every claims call is recorded.

[00:26:32] Cathy Curtis: Okay. So am I right on this, that you as an agent and not just you, even though I know you’re great are an advocate for the client.

What Ruth can and can’t do as an insurance agent when helping her clients navigate claims.

[00:26:45] Ruth Stroup: I’m a navigator. So I can’t tell claims to pay or not to pay. I can’t tell them how much to pay. I can’t do any of that, but. And every carrier has its rules. In my carrier, Farmers, I’m allowed to review hypotheticals with anybody, any time. Will it make, how will the insurance company respond to this set of circumstances?

[00:27:09] Ruth Stroup: And I cannot tell them not to file. Like I sometimes I’m like, I personally think that the insurance company is likely to decline this claim. But the only way you’ll know if it will be declined is if you, it’s up to you. People are regularly asking me in the name of optimizing their insurance. What’s that little magic dollar limit where yes, I absolutely should file a claim.

[00:27:34] Ruth Stroup: What I find is many people think that they won’t file a claim until it’s say, over $50,000. And it might be in their best interest to file a claim for $20,000. And so in this market where insurance rates have become so high, the folks sometimes just give me the highest deductible. But the price difference between the highest deductible and something that’s a little more user friendly may not be very much. So in the sales process, when reviewing the coverage and getting ready to purchase or to renew, I use this formula I call bank the difference.

[00:28:08] Ruth Stroup: And so if there’s a difference in deductible, let’s say between I’m gonna use numbers so I can do the easy math. Between $5,000 and $10,000, right? That’s a $5,000 difference. Now let’s say I save $500 for taking additional $5,000 of risk. It would take me 10 years, $5,000 divided by 500, to bank the difference if I took the savings.

[00:28:39] Ruth Stroup: In the difference of the cost of the insurance policy and put it in the bank every year. It doesn’t in my world. My, I tell people in home insurance, the average claim is about once a decade. So if you can bank the difference in five to, and under five years, absolutely take the higher deductible.

[00:29:00] Ruth Stroup: Five to seven years, maybe seven years or more, consider the lower deductible. Ten years, absolutely. The lower deductible is giving better value. And in car I have a little shorter timeframe, three years for absolutely take the higher, three years where you absolutely take the savings. In about five years where you probably are be, get better value with the lower deductible.

[00:29:28] Cathy Curtis: I love it. That you have all these formulas you use. I’m sure you’ve developed those over the years of being.

[00:29:35] Ruth Stroup: I’m terrible at math. It’s what I call chunky math. It helps me. Describe a concept without getting too technical.

[00:29:44] Cathy Curtis: Yeah. Ruth let’s, I wanna just segue just a tiny bit and just ask you, you’ve been doing this for a long time.

[00:29:50] Cathy Curtis: Just talk a little bit about yourself for a minute.

[00:29:53] Ruth Stroup: Sure. I am 16 years in the business now. My agency is with Farmer’s Insurance. We do Farmer’s Insurance, and then we broker things that Farmer’s doesn’t offer. So that’s one of the reasons why we’ve become such experts in the high fire risk. Because farmers doesn’t offer that.

[00:30:12] Ruth Stroup: So I’m not in a compete situation. This is my third career. I was a cook for a decade. I worked for Charles Schwab for a decade. And now I’ve been doing insurance for longer than anything else. I love it because the insurance is pretty much the same day in and day out. You could think it was boring, but the people are all special and unique and different.

[00:30:36] Ruth Stroup: And I just love all the different people I get to meet when I was at Schwab. We slowly but surely, we’re only serving the more and more affluent. It’s a great American dream to own a home and more people participate in that than might use services like yours, Cathy, like a financial advisor. Because it’s just a more ordinary thing people do.

[00:30:57] Ruth Stroup: So I serve a much broader clientele than I had exposure to at Schwab. Which means that I get to work with a much more diverse clientele and I get to be Oakland-based and really serve this community. We serve the entire state of California, but the lion’s share of our clients are here in Oakland.

[00:31:16] Cathy Curtis: Okay. Well, I wanna make one comment about the insurance thing as far as I’m concerned as a financial advisor. I am an investment advisor, but I’m also a financial planner, and insurance is absolutely the bedrock of any good financial plan. And yes. People, I think people make a mistake thinking it’s boring. When I talk to you about it, it certainly doesn’t seem boring.

[00:31:37] Cathy Curtis: And it is so important to know all the different layers of your insurance policy. And I think people, when they’re talking to their agent, like you, they’re getting the information they need and their questions answered. But then they get the policy, they file it away. They never read it. And they’re not really aware of their coverages until they have to make a claim.

[00:31:57] Cathy Curtis: And maybe not, all of them have good insurance. You called it navigator. So I’ll call it navigator. I like to think of it as an advocate too, but they may not have that.

[00:32:08] Ruth Stroup: So most people, their first insurance, they buy on the internet or an 800 number where they don’t have anybody that advises them.

[00:32:17] Ruth Stroup: And then from watching your own clients that most people, especially if they’re planning and they have goals, their life expands and they have more money and more at stake. And sometimes they also have more in terms of debt because they use debt in order to build their assets, especially if they’re investing in real estate.

[00:32:37] Ruth Stroup: So. We, I regularly see people who have just the bare minimum limits for liability on their car insurance, because they bought it when they had nothing, and they just renew it. And nobody says, hey, what is your job today? What do you earn today? Do you have savings and money in the bank? Do you own real estate?

[00:33:00] Ruth Stroup: And so people will have just the bare minimum limits and not think twice about it because it’s a bill they pay. It’s not a policy they count on.

Cathy asks Ruth Stroup to give a mini tutorial on liability and umbrella insurance.

[00:33:11] Cathy Curtis: Let’s talk liability now that you’ve brought it up. In particular, buying an umbrella policy. Can you do like a mini tutorial on that? Because I have to explain umbrella quite often.

[00:33:22] Ruth Stroup: Sure. So with umbrella we see that the most common misunderstanding about umbrella is that people think it covers gaps in their coverage for their own personal property. And that’s the one thing it doesn’t cover is your personal property. What umbrella does is it provides money for a legal settlement.

[00:33:46] Ruth Stroup: And the attorney that comes with it in the event that you’re sued usually for an injury to a third party, the most common use of the umbrella policy is a car accident. For a business, the most common use for any kind of liability coverage is just a simple slip. And there are, what people don’t realize is that they can host a social gathering in their home or in a restaurant or a rented facility, like a country club or a social hall and their guests.

[00:34:24] Ruth Stroup: Any one guest could have a terrible accident on the way home. And if they had alcohol at your event, you can be added to the number of people who are named in a lawsuit for the person who was injured. That’s big. So the four categories I look at for where your money is to see, do you need more protection for your money?

[00:34:48] Ruth Stroup: So the umbrella insurance impacts, it protects your assets. So the first is anything not in a retirement account. So if you’ve got somebody at a company that’s getting company stock, if you’ve got somebody that’s always saved and has a couple of CDs that, no matter what it is, the non-retirement. Stocks bonds, mutual funds, CDs, bank accounts.

[00:35:12] Ruth Stroup: That’s the first layer of things we wanna make sure we protect.

[00:35:15] Cathy Curtis: That’s all the non-retirement things that I call them. Taxable accounts. They beat people’s brokerage accounts, things like that. Okay.

[00:35:24] Ruth Stroup: And then the next thing that people have no idea about is that their wages could be garnished.

[00:35:29] Ruth Stroup: So you can be fresh outta school, have a big student loan, have a big career in front of you. And maybe you’re making $150,000 a year, but you’re still driving on minimum car limits, like $15,000 per person injured. And if you had an accident that you couldn’t pay for, they could garnish your wages even for as much as a decade.

[00:35:53] Ruth Stroup: And that would change your quality of life forever. So even people who don’t have stuff, if they have wages, they need better coverage. And I really like the umbrella policy for them.

[00:36:04] Cathy Curtis: Okay. Let me clarify something. Are IRAs at risk to judgment, to creditors in California?

[00:36:11] Ruth Stroup: They are not technically, nothing in the retirement suite is technically at risk of creditors.

[00:36:18] Ruth Stroup: How I always look at the OJ Simpson case, civil case. OJ’s money was primarily in the NFL pension, every pension payment could be garnished. Every, like it’s not technically at risk. But if that’s where your money is and you have to pay a settlement, you may end up taking the money out plus taxes, potentially plus a penalty in order to do that.

[00:36:48] Ruth Stroup: So I always round up. And if a person has significant retirement assets, I wanna at least think about them. And then I feel the same way about home.

[00:36:59] Cathy Curtis: It’s up to the judge in some cases, right?

[00:37:01] Ruth Stroup: If they, or they might say the judgment is half a million dollars and you have a hundred thousand in coverage.

[00:37:08] Ruth Stroup: So now you have to figure out where to get the other 400, and you make an arrangement with the, I will liquidate assets and pay a hundred thousand. I will accept wage garnishment for this period of time. I will this or that. And the insurance company wants so much to settle within your policy limits, but you have to give them some tools to be able to do that.

[00:37:33] Cathy Curtis: Is this a really common claim? What percent?

[00:37:37] Ruth Stroup: It’s not a, so this is one of those funny insurance things where it’s, you don’t wanna play the odds. You don’t wanna gamble with it. If you have the assets at risk, you want to have coverage. Because here’s what happens. An attorney in the bay area costs about $500 an hour.

[00:37:57] Ruth Stroup: A $1 million liability policy with the attorney coverage that comes with it costs, depending on what you have to cover, plus or minus $500. So it’s like having an attorney on retainer, right? It’s some of the best, and it’s inexpensive because it’s rarely used. But do you wanna be the poor soul who needs it and doesn’t have it?

[00:38:22] Cathy Curtis: I sure don’t. Now let me ask you this. There are some technical things like you have to have so much in your liability limits on your auto and home before you can add umbrella. Is that correct?

[00:38:35] Ruth Stroup: That’s correct. So one of the reasons umbrella is expensive is because the small things are handled by the underlying policy. The cars, the motorcycles, the boats, the houses, the income, the rental property, the vacation house. All of it needs to have a certain level of coverage.

Ruth Stroup shares what she believes is the best kept secret in the insurance business.

[00:38:54] Ruth Stroup: And it’s normal to, to like to have those coverages. It’s not high coverage. And then for my high earners, I like to add an, I have the opportunity to add an additional $1 million, uninsured/underinsured motorist coverage to their policy. And this is the best kept secret in the insurance business.

[00:39:22] Ruth Stroup: Most of my clients who are going to be in a terrible accident. It’s not going to be their fault. They’re not going to be the one paying. They’re gonna be the party that’s injured. And the person who injures them is likely to have terrible insurance because they’re expensive to insure. They’re a new driver, bad driving record, possibly a DUI record, maybe even uninsured, maybe stolen car they didn’t have a right to drive.

[00:39:53] Ruth Stroup: And your policy can, the uninsured motorist pays when your loss is above the amount of coverage available in that other party’s policy. So if that other policy is only paying $15,000 per person, or maybe the boiler plate policy is paying a hundred thousand per person, but your combination of medical loss wages and lingering effects is more than a million dollars.

[00:40:27] Ruth Stroup: It makes a big difference to have uninsured motorist on your umbrella policy. And it’s very inexpensive and it’s a really good protection for people who have a high income, because it’s that wages piece.

[00:40:43] Cathy Curtis: Yeah. That’s so important. Now, why is this such a secret?

[00:40:44] Ruth Stroup: Because it’s inexpensive. I regularly see policies where the insurance companies sold the client, less uninsured motorists from the regular liability.

[00:40:56] Ruth Stroup: Maybe a lease required 100, 300 limits of liability, the person was trying to control costs or cut a corner. The agent sold them $30,000, $60,000 and the insurance company only has to pay out if your coverage is greater than that, of the party that injured you. So it’s a very inexpensive coverage.

[00:41:19] Ruth Stroup: It’s misunderstood if you’re in a car accident and you’re a pedestrian. A bicyclist. A passenger of any vehicle or a driver of any vehicle. And it’s another driver’s fault. You can use this coverage if their insurance is inadequate for what your needs are.

[00:41:38] Cathy Curtis: Do all carriers offer this option? Do you know?

[00:41:41] Ruth Stroup: It’s required by law to, it’s required by law to offer it. And we have to make, you have you sign a disclosure if you take less than what we give, the way people DocuSign these days that do it blind. They don’t even know they’re being offered less.

[00:41:55] Cathy Curtis: No, it’s true. Thank you. That is an awesome tip, Ruth. Thank you so much for that one.

Cathy and Ruth talk earthquake insurance.

[00:42:02] Cathy Curtis: Let’s talk earthquake insurance. Now, most of the people I think that listen to this podcast are in California. They may not, but everyone knows the risk of earthquake in California. So what could go wrong there?

[00:42:15] Ruth Stroup: Most people don’t buy earthquake insurance. And they don’t realize what their responsibilities might be to their lender.

[00:42:25] Ruth Stroup: And in order to, if their house has severe damage from earthquake coverage, most people also don’t realize that they can shop around for earthquake coverage. That there’s more carriers than the earthquake authority. And lastly, most people think the earthquake authority is part of the California state government and receive funding from the state.

[00:42:46] Ruth Stroup: And they do not. They receive funding from policy holders and insurance companies. And then lastly, many people have the belief that FEMA or some other federal organization will help them after an earthquake loss. And they do not realize how limited those funds are and that they shouldn’t be relying on them.

[00:43:09] Cathy Curtis: Okay. So, what do you advise your clients to do in California?

[00:43:15] Ruth Stroup: There are several profiles of clients who I feel really need to buy earthquake insurance. What we learned during the mortgage crisis back in 2008 to 2010 is many people walked away from a mortgage, took a break and restarted their lives.

[00:43:34] Ruth Stroup: And they did not. If anything, they, they didn’t experience a big financial loss. They may have hurt their credit for a while, but it wasn’t impossible in our agency. The people we see who really care about having an earthquake policy are people who have over a quarter million dollars in home equity. For a lot of people, that’s a down payment the bank would not let them walk away from.

[00:44:06] Ruth Stroup: Their loan, even if the house was severely damaged and uninhabitable, that’s. People, if your income is so high there, you’re not gonna be able to do, to just walk away the way people walked away in the mortgage crisis. Because the people who walked away in the mortgage crisis didn’t have that much skin in the game.

[00:44:24] Ruth Stroup: They like, they may not have had the high paying jobs.

[00:44:29] Cathy Curtis: Well, yeah, they may not have had income. You didn’t have to document income on a lot of those loans that were done in those days.

[00:44:36] Ruth Stroup: But today’s buyers go in and buy a house over a million dollars very often and with 20% down or more. So they start with quite a bit of skin in the game.

[00:44:47] Ruth Stroup: Many of those people to afford their mortgage have a very high income. Too high to be able to justify a quick claim on a property that still owes hundreds of thousands of dollars. The third is a category that has more to do with you and me, Cathy. There are some professions where you could pick up and move and go live somewhere else.

[00:45:11] Ruth Stroup: But if you don’t have good credit, you can’t get a job. So we both work in financial services, and if I hurt my credit rating, because a bankruptcy or a quick claim on a house after an earthquake, I might not be able to be employed. Some people in the federal government have the same issue. So people who need to keep clean and good whose employment requires good credit.

[00:45:37] Ruth Stroup: They absolutely wanna make sure with an earthquake policy that they won’t lose their credit because they had to walk away from a house that was badly damaged in an earthquake. And so those are the three money reasons. And then there’s site specific issues. There’s some houses that the type of construction they are, they’re top.

[00:45:58] Ruth Stroup: And the more top-heavy your house is, the more you need really good retrofitting so your house doesn’t come separate from your foundation. And the more potential you have for damage. So the earthquake carriers set the rates based on the site specific risk, proximity to fault lines, and then the, the configuration of the house and the age of the home.

[00:46:23] Ruth Stroup: If the policy is expensive, the bad news is you probably need it because you’re a higher risk client. Or your property, your location is higher risk. And I have clients who do one of the three following things, they retrofit and skip the insurance. They feel like they’ve done enough site improvement to feel safe and secure.

[00:46:47] Ruth Stroup: And that’s what they, how they wanna spend their money by mitigating risk. Some people buy the insurance and don’t do the retrofit because they have insurance. Some people do both. The majority of people by and large don’t buy earthquake insurance. And the challenge we’re gonna have in the bay area is if we have a serious earthquake, we will have very local, highly localized changes to our economy.

[00:47:16] Ruth Stroup: The bay is one of the largest economies, not just in the country, but in the world. Being prepared for an earthquake is really important.

[00:47:25] Cathy Curtis: Yes. One of the arguments I hear about buying earthquake or not is, oh, the deductible’s so high. It just doesn’t make sense to buy it. What is your response to that?

[00:47:33] Ruth Stroup: I always, whenever anybody says something’s expensive, I always say compared to what? Right?

[00:47:37] Ruth Stroup: And then you could even plan for a high deductible, and people will take money from places they might not ordinarily take money from if they need to pay its deductible. So for example, you won’t be able to get a home equity line. If your home is badly damaged from an earthquake, but you would be able to borrow from cash value, life insurance, maybe take an unexpected 401k loan. Maybe take an actual withdrawal from your, from an IRA account.

[00:48:10] Cathy Curtis: Or a margin loan on your investment portfolio.

[00:48:12] Ruth Stroup: A margin loan on the investments. People will have money from places they didn’t expect. You might get a family loan.

[00:48:18] Ruth Stroup: So the question I have for people who have, let’s say a hundred thousand dollars deductible, is what they still will have up to $700,000 of insurance. After they exceed the deductible, what’s their plan to access a hundred thousand dollars? And the people have money in their house.

[00:48:40] Ruth Stroup: Have good incomes who need to keep good credit. Those people have more access to money than they might realize if they sat down and thought about it. And people like you, Cathy, will be super important to those folks when it’s okay. If I had to come up, if you’re like, what could go wrong? Let’s find out like, where do we have a hundred thousand dollars squirreled away for an emergency?

[00:49:05] Ruth Stroup: Is it a margin loan? Is it a loan against cash value life insurance? Is it a family member? Let’s just assume it’s a not a traditional source.

[00:49:14] Cathy Curtis: Yes. So I, what you’re saying about earthquake, and I agree with you a hundred percent is again, like a lot of things. You look at each person’s situation, financial details, and you determine whether financially it makes sense.

[00:49:30] Cathy Curtis: The risk/reward to buy earthquake or not, basically.

[00:49:34] Ruth Stroup: Well insurance doesn’t have a risk reward, Cathy. It never gets you a reward. It only gets you back to where you were at the time of loss. So we don’t think about it this way. I think about it very simply in terms of what would your life look like if this asset wasn’t contributing to your long-term financial goals?

[00:49:54] Ruth Stroup: And if you’re comfortable not having that, then insurance is less of an issue for you than the next person.

[00:50:03] Cathy Curtis: Yeah. When you’re putting it that way, in the case of a total loss of a house in an earthquake, it’s pretty clear the decision you should make.

[00:50:13] Ruth Stroup: And what people wanna do is they wanna negotiate with the possibility of the risk or the potential loss.

[00:50:22] Ruth Stroup: I have a friend who lives up in Napa and he said his neighbor just bought earthquake insurance the month before the earthquake. Didn’t that guy get lucky. He only had to pay for a month of insurance before you actually got a payout.

[00:50:39] Ruth Stroup: The day people buy the earthquake insurance or any insurance is the day when the thought of loss of the entire asset is a, puts a bigger pit in their stomach than the guaranteed loss of writing a check to the insurance company and maybe never getting that money back.

[00:50:51] Cathy Curtis: Okay. Gosh, Ruth, great info on earthquake. What other, is there anything else that you’d like to add to this podcast thus far?

[00:51:01] Cathy Curtis: Important things that could go wrong? Any gems that you like? You’ve already shared with us a few real gems on insurance. I’ll give you the floor.

[00:51:12] Ruth Stroup: Sure. My, the thing I know the most about insurance is that you have to have a policy in force to be able to make a claim. That’s car insurance, home insurance, life insurance, business insurance.

[00:51:26] Ruth Stroup: So you want to test drive that insurance. And say, how will this benefit me at the time of loss? You’d never base this on return on investment. I think about it a little bit like the way I think about when I go to a casino. Will the money I put in that I spend in this casino provide me enough fun that I won’t be sad that I don’t have that money at the end of the night?

[00:51:55] Ruth Stroup: And so the money I spend on insurance needs to me, give me the confidence that if something happens, I have financial support to solve problems. And so I would say most people underinsure. Most people see insurance at, we hear all the time. People think insurance is just a racket. And I’ve lived a life where I’ve seen large claims fade out and where insurance made a meaningful difference to somebody.

[00:52:26] Ruth Stroup: And that’s been, insurance does its best work when it’s able to make a meaningful difference in your life or the life of your family.

[00:52:39] Cathy Curtis: Okay, Ruth. That’s great. And like I said earlier in the podcast. I really believe that having the right insurance is the bedrock of any good financial plan. And Ruth, you’ve offered an amazing amount of great information.

[00:52:55] Cathy Curtis: Can you share with the listeners where you can be reached and whether you write a blog or any information about you that we could share? And I’ll put it in the show notes.

[00:53:06] Ruth Stroup: Fantastic. So I serve the state of California. Most people reach me with a simple phone call at 510-874-5700. If you Google Ruth and the word Oakland, you will find me.

[00:53:25] Ruth Stroup: I am not hard to find. And on purpose, we are working on a soon-to-be-released newsletter that will be called Tuesday Tidbits. It will be 100 to 250 words of a sort of insurance focused life hack, really focusing on people who are looking to, who are in a growth mindset and wanna make sure that they have the matching protection to their assets as they grow.

[00:53:52] Ruth Stroup: It will answer those simple questions. Do I have to take the insurance with the rental car or is it a waste of money? And then it will also talk about things like creating legacy with life insurance, thinking about, you know, how philanthropic you want to be. What does your, I’m 60 years old. So I think about, I think a lot more about legacy and meaning. But I still think a ton about growth.

[00:54:12] Ruth Stroup: So we’ll have that. And I have a team here that works with me. I spend the majority of my day training my team. And so if you can’t reach me for any reason, I have great people who work with me, and any one of them would be happy to help.

[00:54:29] Cathy Curtis: Okay, Ruth. Thank you again for taking the time to talk with me on my podcast.

[00:54:34] Cathy Curtis: It’s been an invaluable discussion.

[00:54:37] Ruth Stroup: Thanks, Cathy. It was really fun.

[00:54:38] Cathy Curtis: It was fun. I’d love to do it again.

[00:54:42] Ruth Stroup: Okay. Thank you so much. We’ll talk to you.

[00:54:43] Cathy Curtis: All right. Okay. Bye bye.

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How Will Student Loan Forgiveness Affect You?

Student Loan Forgiveness

After months of discussion and debate, President Biden announced on August 24, 2022 that many federal student loan borrowers will be eligible for some type of debt forgiveness. Those who didn’t receive a Pell Grant may be eligible for up to $10,000 in forgiveness. Meanwhile, Pell Grant recipients may see as much as $20,000 of debt forgiven.

President Biden’s student loan forgiveness plan comes as welcome news to many Americans drowning in debt. Yet many—voters and politicians alike—oppose the program.

In fact, many Republican leaders are threatening legal challenges in an effort to block the bill. If this happens, the plan’s future may be in jeopardy.

Nevertheless, borrowers who are eligible for student loan forgiveness should be prepared to take advantage of the program if and when it begins. Here’s what you need to know about Biden’s student loan forgiveness program, including how it works and how it may benefit you.

What’s Included in Biden’s Student Loan Debt Relief Plan?

The Student Loan Debt Relieve plan forgives $10,000 of student loan debt for federal student loan borrowers. In addition, borrows who received a Pell Grant may be eligible for up to $20,000 in student loan forgiveness.

The plan also includes:

  • An additional (and possibly final) extension on federal student loan payments until December 31, 2022
  • A push for borrowers who may be eligible for the Public Service Loan Forgiveness Waiver (PSLF) to apply for the waiver before it expires on October 31, 2022
  • The creation of a new income-driven repayment plan (IDR) that would lower monthly payments and potentially reduce the time period required for loan forgiveness for eligible borrowers.

Who’s Eligible for Student Loan Forgiveness?

To be eligible for forgiveness, borrowers’ income levels must be under $125,000 for single borrowers and $250,000 for married couples and head of household filers. Borrowers may use their 2020 and 2021 tax returns to determine their income. They only need to meet the income requirements in one of these tax years.

In addition, only Federal loans funded by June 30, 2002 are eligible for forgiveness. This includes consolidated debt.

Federal loans for graduate school are also eligible for forgiveness, as are Parent Plus Loans. However, if a parent has more than one Parent Plus Loan for multiple children, they’re only eligible for total forgiveness up to $10,000.

Current students are also eligible for student loan forgiveness if they have debt. But if the student is a dependent of their parents, the parents’ income will determine eligibility for forgiveness.

Lastly, it’s important to emphasize that student loan forgiveness only applies to federal loans. Borrowers who refinanced their student loans with a private lender cannot take advantage of the program.

What Do Borrowers Need to Do?

Some parts of the student loan forgiveness plan will go into effect automatically. For example, many borrowers with IDR plans who have already recertified their income with the US Education Department will be eligible for loan forgiveness automatically.

Meanwhile, other aspects of the plan may require borrowers to take more action. One example applies to borrowers who made payments on their student loans since the start of the Covid-19 pandemic.

Since the government paused federal student loan payments in March 2020, borrowers can request a refund of any payments they made after that date. This makes most sense if a borrower’s loan balance is less than $10,000, and a refund would allow those payments to be forgiven instead.

Is Student Loan Forgiveness Taxable?

Thanks to the American Rescue Plan Act of 2021, most student debt discharged through 2025 will be tax-free—at least at the federal level. At the state level, income tax consequences will vary by state.

Currently, 13 states may treat forgiven student loan debt as taxable income. These states include Arkansas, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, New York, Pennsylvania, South Carolina, Virginia, West Virginia, and Wisconsin.

The Tax Foundation estimates that borrowers could incur anywhere from $300 to over $1,000 in state taxes, depending on where they live, if they receive the full $10,000 in student loan forgiveness. These figures could double for Pell Grant recipients, since they’re eligible to receive up to $20,000 in student loan forgiveness.

Planning Considerations for Those Who Haven’t Filed a 2021 Tax Return Yet

Indeed, most taxpayers have already filed their 2020 and 2021 tax returns. However, if you filed an extension for your 2021 return, there are a few strategies you may be able to leverage to help you qualify for student loan forgiveness.

  • First, consider contributing to an eligible retirement plan if you haven’t reached your contribution limit yet. This strategy makes sense is the contribution is enough to reduce your AGI to a level that’s eligible for forgiveness.
  • Income thresholds for married couples filing separately are still unclear. However, if the thresholds for single filers apply to married couples filing separately, you may want to see if changing your filing status will help you qualify for forgiveness.

As you consider these strategies, keep in mind that the extension deadline is October 17, 2022.

Student Loan Forgiveness: Next Steps

The forgiveness process will be relatively easy for most borrowers. For example, federal student loan borrowers already have income information on file with the US Department of Education. Thus, those who are eligible are likely to receive forgiveness automatically.

Of course, there are still many unknowns, including how a potential challenge by Republicans will affect student loan forgiveness. In any event, the official application should be available soon. The U.S. Department of Education sent out a notice recently that it could be available as soon as early October, 2022.  In the meantime, eligible borrowers can receive updates from the Department of Education by signing up here.

Lastly, a trusted financial advisor can help you better understand how student loan forgiveness may impact your financial plan. They can also help you identify other strategies to pay down your debt and reach your financial goals.

To learn more about how Curtis Financial Planning helps our clients take control of their finances, please explore our services and client onboarding process.

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3 Tips for Successfully Navigating Gray Divorce as a Woman

3 Tips for Successfully Navigating Gray Divorce as a Woman

Women tend to face a variety of unique financial challenges when separating from a partner. When it comes to successfully navigating gray divorce, preparation and the right team of advisors are key.

Divorce over age 50—commonly referred to as “gray divorce”—is becoming increasingly common in the United States. Although the overall divorce rate has been declining since the 1990s, there’s been an upward trend in gray divorces over the same period, according to the U.S. Census Bureau.

No one gets married with the intention of divorcing. Yet the reality is that divorce happens—and it happens more often than we’d like to admit. And while divorce can be devastating at any age, the financial consequences for those who divorce later in life tend to be far worse for women than for men.

If you’re a woman navigating gray divorce, protecting yourself financially is critical. Here are a few tips to help you obtain an equitable settlement and maintain your financial independence post-divorce.

When it comes to navigating gray divorce, consider the following tips:

#1: Get Organized

Data shows that the average person spends two years thinking about divorce before taking action. If you’re considering divorce, be sure to familiarize yourself with the household finances. This is especially important if you’ve let your spouse take the lead for most of your adult life.

On the other hand, if your spouse is considering divorce, you may not have ample time to prepare. But if you sense any shift in your marriage, getting financially organized can’t hurt—even if divorce never comes to fruition. Indeed, researchers estimate that 90% of all women will be solely responsible for their household finances at some point in their lives.

Here are a few organizational tips for navigating gray divorce and taking charge of your financial life:

  • Keep a record of all financial accounts, property, and other assets owned by you and your partner. You should also classify all assets as separate or marital property.
  • Be sure to save copies of all corresponding documents so they’re readily available if you need them.
  • Do your best to locate all estate planning documents, prepaid funeral arrangements, and premarital agreements, if applicable.  

Other examples of information you may need during the divorce process may include:

  • Personal balance sheet/financial statements
  • Inventory of joint and separate property
  • Bank and investment account statements
  • Real estate deeds
  • Mortgage/loan documents
  • Credit card statements
  • Wills/trusts
  • Insurance policies

In addition, keep track of your login credentials for online access to all relevant financial accounts and information. Creating an organizational system in advance can help make the process easier for you and your team of advisors if you find yourself navigating gray divorce.

#2: Assemble Your Team of Experts

Once divorce is on the table, you’ll want to begin assembling a team of legal and financial experts. Many people immediately tap their network for help once navigating gray divorce becomes their reality. However, taking your time to carefully select a team of experts can ultimately save you time, money, and unnecessary stress.

As you assemble your team of advisors, consider the following specialists:

  • A divorce attorney or mediator to help you navigate the legal aspects of divorce and advocate on your behalf.
  • A Certified Divorce Financial Analyst (CDFA) who can help you gather and document household financial details, as well as determine a fair division of assets.
  • An estate planning attorney, especially if you have young children. You’ll need to recreate all relevant estate planning documents after you divorce.
  • A divorce coach or therapist to help you navigate the emotional aspects of divorce.

If you don’t have recent appraisals for real estate and other highly valued property, be sure to obtain your own professional appraisals. In addition, consider adding a financial planner or tax professional to your team to help you determine the tax consequences of various settlement scenarios.

Finally, beware of the unpleasant possibility that your partner may try to hide assets from you during the divorce process. Finding hidden assets can be challenging, but it’s not impossible.

If there’s no obvious paper trail, past tax returns can be a helpful place to start. Alternatively, if you suspect your partner may be hiding a substantial amount of money or property from you, you may want to consider hiring a professional who specializes in asset search and investigation. 

#3: Choose Your Divorce Process

There’s no one-size-fits-all approach to divorce. The best approach typically depends on your family dynamics, as well as your personal and financial circumstances. Nevertheless, you typically have four options when it comes to navigating gray divorce.

  • Do It Yourself. With this approach, you and your spouse work out the details of your divorce without the assistance of legal advisors and other experts. A DIY approach may save you time and legal fees if you and your spouse are divorcing amicably. However, you may also leave yourself open to an unfair settlement, since you don’t know what you don’t know.
  • Traditional Representation. You can retain an attorney for the length of your divorce or hire a consulting attorney to assist you when necessary. With either option, you’re at the mercy of the law and the court system. This can be time-consuming and expensive. But it can also protect you if the divorce is complicated and/or contentious.
  • Mediation. With this approach, you have a neutral facilitator—typically an attorney who specializes in family law. Their only role is to listen and make sure both parties are heard. That means they can’t advise on financial matters related to navigating gray divorce. This may be problematic if there’s a power imbalance or one party isn’t acting in good faith.
  • Collaboration. Rather than a winner versus loser approach to divorce, collaboration aims to troubleshoot and problem-solve. Importantly, both parties and their attorneys agree not to litigate. Instead, the teams bring in whoever is needed to help make the process run as smoothly as possible. If either party goes back on their agreement, the party who litigates must find new counsel.

A Trusted Advisor Can Help You Take Ownership of Your Finances After Navigating Gray Divorce

Unfortunately, navigating gray divorce doesn’t end once the divorce proceedings conclude. As you adjust to your new life, it’s important to take ownership of your finances so you can thrive independently.

It’s possible that your divorce settlement may be all you need to sustain your lifestyle post-divorce. Nevertheless, you’ll want to develop a personal budget and long-term financial plan that reflect your new circumstances.

Additional post-divorce considerations may include:

  • Social Security benefits. If you’re divorced but your marriage lasted at least 10 years, you can still collect benefits on your ex-spouse’s record. This is true even if they have remarried, but not if you remarry.
  • Insurance needs. The two primary types of insurance that typically come into play during a divorce are health insurance and life insurance. Be sure to revisit your policies and ensure you have proper coverage post-divorce.

Lastly, if you haven’t worked with a financial planner in the past—or your partner took the lead in the family finances—consider engaging a trusted financial advisor. Your advisor can help you take control of your finances, identify your blind spots, and secure your future.

If you’re navigating gray divorce and looking for a financial partner to help you maintain your financial independence and make smart decisions for your future, Curtis Financial Planning may be able to help. To see if we’re a good fit, please start here.

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Women: Take Control of Your Financial Future

Take Control of Your Financial Future

Recently, Business and Tech asked me to participate in a panel of experts for an article called “Taking Control of Your Financial Future.” Below are some of the key points I shared during our discussion, which focus on the specific personal finance issues women often face.

I think all women can benefit from working with a trusted financial advisor if they need help managing their personal finances. A fiduciary financial partner can help you set financial goals, allocate and invest your money, and develop strategies to grow and preserve your wealth. However, there are certain things all women can do to take control of your financial future, whether you choose to work with an advisor or not.

#1: Take Ownership of Your Finances

My first piece of advice for women is to take ownership of your finances. Don’t depend on a relative, significant other, or spouse to make financial decisions on your behalf. 

If you’re married, consider taking a team approach to managing the household finances. Ultimately, being looped into these key financial decisions will give you peace of mind, especially if you lose your spouse.

#2: Seek Feedback from Other Women

Another way to take control of your financial future is to talk to other women about how they handle their money. Find trusted friends or create a money circle to talk about money issues and financial topics. Or there are money coaches that you can hire to work through your money issues.

#3: Be Your Own Advocate

Women need to be our own advocates. Despite the progress we’ve made, we still earn less than men, on average. In addition, we often must choose between being a caretaker and pursuing a career. These factors can significantly impact your ability to retire on your own terms, especially if you’re the primary earner in your household.

To ensure your compensation is fair, ask for more benefits or a pay raise when you feel you’ve earned it. Keep a record of your contributions and any metrics that demonstrate the value of your work.

And most importantly, don’t be afraid to negotiate your salary and benefits when accepting a new job. In many cases, negotiating your starting salary is your best opportunity to meaningfully increase your income.

#4: Find the Right Balance

If you have a family, juggling your home life and work life can feel like a never-ending challenge. To ensure your financial future doesn’t suffer as a result, you need to find a healthy balance.

First and foremost, seek out employers who have family-friendly employee benefits. Look for organizations that have good gender diversity among management and employees. These types of employers typically offer work-from-home, tele-commuting, family leave benefits, and even daycare. In some cases, they may even offer part-time work to support working parents.

In addition, talk to your spouse or partner about sharing childcare and household duties. Set up systems and schedules so each person knows their role to keep things working smoothly. If possible, ask local family members if they are willing to help.

It’s often helpful to set strict boundaries for your time at work and set expectations accordingly. Let your employers know it’s important for you to attend certain family events, which will keep you from working overtime. And be sure to stick to these boundaries yourself, even if you’d love to work just one more hour on that project.

#5: Invest in Your Future

Lastly, educate yourself about investing and be willing to invest to secure your financial future. Keeping cash in a bank will not beat inflation over the long run but buying stocks will. You don’t have to invest beyond your comfort level. However, it’s critical to find the right mix of investments to stay on track towards your financial goals.

For more personal finance tips, you can read the full Business and Tech article here.

Curtis Financial Planning specializes in the unique financial planning needs of independent women and women who take the lead in their household finances. If we can help you develop a plan to take control of your financial future, please schedule a call.

In the meantime, check out our personal finance resources, including The Happiness Spreadsheet, a fresh, inspiring approach to budgeting for women.

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Why We Should Talk About Women’s Financial Empowerment Now More than Ever

Women's Financial Empowerment

This article was originally published June 16, 2018. In celebration of National Financial Literacy Month and our ongoing commitment to women’s financial empowerment, we thought we’d give it a refresh for 2021.

Millions of women worldwide took to the streets on January 21, 2017, one day after former President Trump’s inauguration. The Women’s March, now regarded as the largest single-day protest in U.S. history, was primarily aimed at the threat the Trump administration represented to hard-won reproductive, civil, and human rights.

The energy of the first Women’s March was contagious. I was thrilled to be a part of the sea of knitted pink hats and hand-made signs in San Francisco with clever slogans such as, “Tweet women with respect,” “Without Hermione, Harry Potter would have died in book 1,” and, “I’m a girl, what’s your superpower?”

In 2018, women marched again on the first anniversary of the original Women’s March. But this time, the marches were fueled by the anti-sexual assault and women’s empowerment movements #MeToo and Time’s Up.

The Women’s March has since become an annual tradition, with protestors assembling every January in various parts of the world around critical issues. This year, which would have marked the fifth annual protest, the movement went virtual. Not even a pandemic could stop it.

A Big Step Towards Women’s Empowerment

These coordinated protests have elevated the global consciousness surrounding women’s obstacles to success, both personal and professional. Women desperately want to be empowered—not diminished—in the workplace and in their own lives.

The definition of empowerment is compelling: the process of becoming stronger and more confident, especially in controlling one’s life and claiming one’s rights. As a financial advisor who works with many women, my greatest satisfaction is watching a client go from feeling anxious and confused about her finances to clear and confident about her future. Taking responsibility and control of your money is a big step towards feeling empowered.

Taking Control of Your Financial Future

Recently I met with a young woman in her early 20s who wanted to get her finances on track. She started working full-time a couple of years ago and made enough money to know she needed to get educated and set up a savings plan.

We sat down for an hour and a half and quickly decided the first steps:

1. Increase her student loan payments,
2. Open a Roth account, 
3. Boost her contribution to her 401(k) plan.

After she fully funded her emergency savings account, she planned to begin saving in a taxable account toward future goals, such as buying a home.

A few days later, she sent me an email and told me that she had completed the to-do list we put together before she left my office. This young woman is empowered, and her financial future is assuredly going to be bright.

Financial Empowerment is Available to Everyone

The people marching each January are diverse. For many, it’s a family affair—multi-generational mothers, daughters, and grandmothers channeling determination and commitment, with supportive husbands and male friends in tow. I tell my clients that financial empowerment is attainable at any age, especially with that same commitment and determination to become financially literate, independent, and secure.

As Martin Luther King, Jr. said, “Faith is taking the first step even when you don’t see the whole staircase.”

Want to feel more financially empowered?

Download The Happiness Spreadsheet, a fresh, inspiring approach to budgeting that aligns your spending with your value

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Simple Truth #3: Contrary to Popular Opinion, You Were NOT Born to Shop

You Were Not Born to Shop

We originally published this article on February 20, 2010, and it remains one of our most popular blog posts to date. In the spirit of ongoing financial wellness, we thought we’d give it a refresh for 2021 as many of us adjust to new habits—including how we shop.

I’m a financial advisor. But I’m also a normal person just like you. I know how difficult it is to be an American and somehow not feel it’s our duty to shop.

Our economic and social systems are based on capitalism. Consequently, economists watch consumer spending like hawks, and no wonder—it fuels about two-thirds of total economic output in the United States. Talk about pressure!

This also puts a lot of pressure on you, the consumer. If no one buys our goods and services, then what happens to our economy?

Advertising Only Fuels Your Shopping Habit

The advertising industry is the perfect agent for promoting consumption. According to the ANA, advertising is linked to the bedrock principles that shaped our nation—free speech, competition, and individual choice—and is a driving force in fueling economic activity.

As such, advertisers have one role: to make us want us to consume. Their mission is to make products and services seem as enticing as possible, so we buy them whether we need them or not. Just watch a few episodes of Mad Men to learn the tricks of the trade.

And it’s almost impossible to escape from the influence of advertising unless you live like a hermit. Watch TV, drive down the freeway, listen to the radio, log on to a website, and you’re bombarded with advertising messages. No wonder we feel like we were born to shop!

Only You Are in Control of Your Shopping Habit

The problem is, economists and advertisers aren’t concerned about your personal bottom line. Just like you, they’re concerned about their jobs, their families, their standard of living, and their ability to retire comfortably.

Therefore, you need to adopt a “me vs. them” mentality when it comes to kicking your shopping habit. In other words, before you open your wallet to buy something, stop and think: Do I want “them” to have my money, or do I want “me” to have my money? The person on the other side of the cash register certainly doesn’t know if you can afford the item you are about to purchase—nor do they care.

Think of shopping as a psychological battleground—that’s how advertisers think of it.  Do you want to be the victor or the vanquished? Remember: you were not born to shop!

Don’t Be the Vanquished When It Comes to Your Personal Finances

Feeling vanquished about your personal finances isn’t a good thing.  It probably means you’re in debt, or you’re anxious about your future and feel stuck. Is all the “stuff” worth it? Probably not.

Excess stuff also clutters your environment. Coupled with your excess debt, this can ruin your credit score and your relationships.

Like anything psychological or emotional, it isn’t easy to change. But there are things you can do to take control of your spending. It’s time to denounce popular opinion, admit you were not born to shop, stop spending more than you earn, and live within your means.

First, Balance Your Budget

Using an excel spreadsheet, list all of your expenses categorized as follows:

  • Fixed and necessary expenses. These expenses are the same every month and/or are necessary to keep you housed, clothed, groomed, healthy, fed, and mobile.
  • Other committed expenses. These may include child-related expenses, pet care, fees to professionals, adult education, gym membership, insurance premiums, and debt payments.
  • Discretionary expenses. Includes vacations, dining out, entertainment, hobbies, electronics, gifts, home improvements, furnishings.
  • Auto-savings. Includes your retirement contributions and other savings.

Next, total the subtotals for each category to come up with your total monthly expenses. Then subtract this amount from your total monthly income. The outcome will either be a positive or a negative number.

If it’s a positive number, congratulations. You are living within your means. If you know you’re saving enough for retirement and other financial goals and have no debt to pay off, then you have some discretion as to how you use your money. However, if the outcome is negative, go back and rework your expenses until it comes out even or positive. Once your cash flow is neutral or positive, you now have a working budget.

Hint: You will have the most flexibility to adjust your discretionary spending, but you can also try and negotiate savings with service providers or increase deductibles on insurance policies to save on premiums. In addition, you should try to eliminate any high-interest credit card debt before adding to your discretionary spending account.  

Some Tips for Staying the Course

  1. Print out a copy of your budget. Post it somewhere that is visible to you regularly, so it stays top-of-mind.
  2. Track your spending. Mint.com is a free online tool that tracks all of your expenses, income, and savings. You can enter your budget, and Mint will send you an email any time you overspend on a budget item.
  3. Try the envelope system. Place your budgeted amount for discretionary items like clothing and food in an envelope in cash. When the cash is gone, you can’t spend on those items again until the next month.
  4. Leave your credit cards at home. Become more conscious that the money you spend is from a finite source. Try paying cash or using your ATM card whenever possible.
  5. Walk away. If you’re tempted to buy an item that you don’t really need, leave the store, walk around the block, and think about it. Nine times out of ten you won’t buy the item. Remember: It’s “me vs. them.” Who gets your money?
  6. Reward Yourself. Each month that you stay within budget, reward yourself in some small but significant way. For example, indulge in a nice lunch out, get a pedicure, or order a nice glass of wine with a meal.

Maybe You Were Not Born to Shop, But You Still Want To

After completing the budgeting exercise, you may find it’s impossible to balance your cash flow. Even though you realize you were not born to shop, you don’t want to live frugally, either. If this is the case for you, look at the income side instead. Can you ask for a raise at work? Find a higher-paying job?  Freelance?  Start a small business? Rent a room out? Sell belongings to raise cash?

Explore all avenues. Exercise your capitalist gene by thinking about all the ways you can produce goods and services for profit—for yourself!

Feel Happier While Spending Less

If you want to think differently about the relationship between your spending, your values, and your happiness, download The Happiness Spreadsheet. In addition to giving you a more inspiring approach to budgeting, our free eBook includes a number of resources you can use to get your shopping habit and spending under control.

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Women and Long-Term Care Insurance: Preparing for Your Future Well-Being

Women and Long-Term Care Insurance

Long-term care insurance is important for a wide variety of individuals to have. But women face a unique set of challenges that often makes it even more important. For starters, women tend to live longer than men after retirement age, which often means women should be financially prepared for more years than the average.

Long-term care insurance can help you become more financially and emotionally prepared for the future. But that’s not the only reason you might consider it. Women are also more likely to suffer from Alzheimer’s disease or dementia, making it crucial that long-term care insurance is there to fall back on when you need it most. The same is true when your partner falls ill, since women often become caretakers for their husbands later in life.

But the truth is that long-term care insurance is complicated, and it isn’t necessary for everyone. So, let’s talk about who needs and qualifies for it, how it works, and the benefits and downsides.

How to Determine if You Need Long-Term Care Insurance

70% of people turning age 65 will need some type of long-term care services in their lifetime. Long-term care services include assistance with activities of daily living. Activities like bathing, eating, medication management, and dressing are some of the most common. There are many different reasons that someone might need this type of assistance. Often, it’s due to an injury, degenerative health condition, or a cognitive disorder like Alzheimer’s.

When you are working with a professional to determine what types of insurance coverage you need, their first question in terms of long-term care insurance might be: is there someone who will take care of you in the unfortunate circumstance that you may no longer be able to care for yourself? As a result, individuals without spouses or children often seek long-term care insurance earlier in life than others.

Who Qualifies for Long-Term Care Insurance?

This may come as a surprise, but not everyone is eligible for long-term care insurance. There are no age requirements for purchasing long-term care insurance. But getting the timing right is crucial because several pre-existing conditions will render you ineligible. A few of these include:

  • AIDS
  • Alzheimer’s
  • Parkinson’s
  • MS
  • Any dementia or progressive neurological condition
  • A stroke
  • Metastatic cancer

If you’re in good health and eligible, the optimal age range to shop for long-term care insurance is between 57 and 65.  Keep in mind that premiums go up as you get older.

How Does It Work?

The benefits and specifics of your long-term care insurance will vary depending on the policy. Some policies involve direct payments to care providers, while others offer reimbursement to the policyholder. Most policies require that a professional service take place to receive the benefit, regardless of the way it is paid out. This means that individuals can’t receive care from a family member and then request compensation. However, if this family member is part of a home care agency, that is a different story.

Benefits and Downsides

There are several benefits to obtaining long-term care insurance. Typically, these types of care plans are flexible, making it easy to structure them to meet a variety of unique needs. Long-term care can take place in a nursing home, assisted living facility, or in your home, depending on your comfort level and other individual factors.

And having long-term care insurance in place when you need it can help you avoid having your post-retirement budget derailed by exorbitant and unexpected nursing home bills. But there are downsides to consider here, too. Primarily, the health restrictions and cost-prohibitive long-term care policy options.

The best way to determine whether long-term care insurance is right for you is to speak with a professional. Everyone is different, and your needs are different, too. If you’d like to speak with a financial planner about how long-term care insurance may fit into your retirement plan, we’d love to chat.

Download your free guide: What Issues Should I Consider When Purchasing Long-Term Care Insurance?



For more information on women and long-term care insurance, check out our recent Financial Finesse podcast episode:

What Every Woman Needs To Know About Long-Term Care Insurance.


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