Tag Archives: Tips Finance

Understanding Interest Rates and Your Financial Situation

interest.jpg Untitled-logo trustWhen discussing bank accounts, investments, loans, and mortgages, it is important to understand the concept of interest rates. Interest is the price you pay for the temporary use of someone else’s funds; an interest rate is the percentage of a borrowed amount that is attributable to interest. Whether you are a lender, a borrower, or both, carefully consider how interest rates may affect your financial decisions.

The Purpose of Interest

Although borrowing money can help you accomplish a variety of financial goals, the cost of borrowing is interest. When you take out a loan, you receive a lump sum of money up front and are obligated to pay it back over time, generally with interest. Due to the interest charges, you end up owing more than you actually borrowed. The trade-off, however, is that you receive the funds you need to achieve your goal, such as buying a house, obtaining a college education, or starting a business. Given the extra cost of interest, which can add up significantly over time, be sure that any debt you assume is affordable and worth the expense over the long-term.

To a lender, interest represents compensation for the service and risk of lending money. In addition to giving up the opportunity to spend the money right away, a lender assumes certain risks. One obvious risk is that the borrower will not pay back the loan in a timely manner, if ever. Inflation creates another risk. Typically, prices tend to rise over time; therefore, goods and services will likely cost more by the time a lender is paid back. In effect, the future spending power of the money borrowed is reduced by inflation because more dollars are needed to purchase the same amount of goods and services. Interest paid on a loan helps to cushion the effects of inflation for the lender.

Supply and Demand

Interest rates often fluctuate, according to the supply and demand of credit, which is the money available to be loaned and borrowed. In general, one person’s financial habits, such as carrying a loan or saving money in fixed-interest accounts, will not affect the amount of credit available to borrowers enough to change interest rates. However, an overall trend in consumer banking, investing, and debt can have an effect on interest rates. Businesses, governments, and foreign entities also impact the supply and demand of credit according to their lending and borrowing patterns. An increase in the supply of credit, often associated with a decrease in demand for credit, tends to lower interest rates. Conversely, a decrease in supply of credit, often coupled with an increase in demand for it, tends to raise interest rates.

The Role of the Fed

As a part of the U.S. government’s monetary policy, the Federal Reserve Board (the Fed) manipulates interest rates in an effort to control money and credit conditions in the economy. Consequently, lenders and borrowers can look to the Fed for an indication of how interest rates may change in the future.

In order to influence the economy, the Fed buys or sells previously issued government securities, which affects the Federal funds rate. This is the interest rate that institutions charge each other for very short-term loans, as well as the interest rate banks use for commercial lending. For example, when the Fed sells securities, money from banks is used for these transactions; this lowers the amount available for lending, which raises interest rates. By contrast, when the Fed buys government securities, banks are left with more money than is needed for lending; this increase in the supply of credit, in turn, lowers interest rates.

Lower interest rates tend to make it easier for individuals to borrow. Since less money is spent on interest, more funds may be available to spend on other goods and services. Higher interest rates are often an incentive for individuals to save and invest, in order to take advantage of the greater amount of interest to be earned. As a lender or borrower, it is important to understand how changing interest rates may affect your saving or borrowing habits. This knowledge can help with your decision-making as you pursue your financial objectives.

ART-PF-U-RATES

SYB-Logo_

fmex

Advertisements

Investment Insights, Q4: 2018

invest 1We Always Bring Something to the Table

KathyBy Kathy Thompson, J.D.

A table has several different meanings. It can refer to a set of facts and figures displayed in rows and columns. It can also indicate postponing consideration of something, as in, “Let’s table this discussion for another time.” But frequently the first image that comes to mind when hearing the word “table” is a piece of furniture that can be used for such purposes as eating, writing, or working.  Gathering around a table is conducive to discussion, problem-solving, and teamwork. For us, the table symbolizes this team-oriented, synergistic approach to wealth management that makes our collaborative method so effective.  We call our experienced and knowledgeable professionals our Table of Experts and we’re pleased to announce that it’s growing!  We’ve added three new place settings, and they all bring something valuable to the table. ♦

laura georgeLaura George, CTFA, CFP®

Wealth Advisor

With more than 20 years of extensive experience in wealth management with several major regional banks and asset management firms, Laura concentrates her efforts on the planning and administration of personal and institutional trust accounts and estates.  After receiving her Bachelor of Science from the University of Kentucky, she earned a master’s degree at Bellarmine University and is a Certified Trust and Financial Advisor and certified financial planner® professional.

(502) 625-9132    Laura.George@syb.com

 

j steStephen Turner II

Investment Advisor

Stephen provides professional investment advice for the successful accumulation, distribution, and transfer of wealth across generations.  Prior to joining Stock Yards Bank & Trust, he worked for a large, regional brokerage and money management firm, and holds various professional licenses in the investment and brokerage industry.  Stephen received his Bachelor of Science in Finance from Murray State University, and his MBA from Southern Illinois University Carbondale.

(502) 625-1010    Stephen.Turner@syb.com

maria.jpgMaria Tipton, JD

Wealth Advisor

Building relationships and working collaboratively with clients to achieve their goals and protect their financial future, Maria is responsible for the administration of personal trust accounts and client relationship management.  After receiving her Bachlor of Arts degree magna cum laude from the University of Louisville, Maria earned her Juris Doctor magna cum laude from the Louis D. Brandeis School of Law at the University of Louisville.

(502) 625-9904    Maria.Tipton@syb.com


 

Economic Update Q4: 2018
Oct. 5, 2018

markThe stock market as measured by the Standard & Poor 500 turned in a quiet but very positive return in the third quarter gaining 7.7% for the three months ending September 30th.  Year to date the domestic market has provided investors with a return of 10.6%.  Bond investors were not as fortunate.  The return from the Barclays U. S. Aggregate Bond Index was +0.02 and -1.6% for the quarter and first nine months respectively.

The United States domestic economy continues to build momentum.  The latest revision to second quarter Gross Domestic Product estimates came in at a 4.2% rate.  The increase in economic activity has surprised many economists and strategists.  This has been one of the longest periods of economic expansion in post-World War II history.  Generally, growth tends to slow as an economic expansion ages.  Accelerating growth in an economy that has been expanding this long is a rarity.    Because of the duration and slow pace of the recovery, market strategists and economists have been worried that the recovery could end abruptly.  This economy has gotten very little respect.  However, the pace of economic growth continues to accelerate.   What happened to cause this growth?  Two primary factors were responsible for the increase in growth.

  • Consumer and business confidence is soaring resulting in increased spending and consumption.  This is primarily the result of the recent tax law changes that lowered corporate and individual tax rates and reduced regulation which lowered some key barriers to investment in the United States.  Giving businesses and consumers more money to save, invest, and spend has always been a positive for economic growth.
  • The unemployment rate has dropped dramatically.  Most economists consider our current level of unemployment to be full employment because a small portion of the labor market is either between jobs or temporarily or permanently unemployed at any given point in time.  A high employment rate is very positive for economic activity.  People receiving paychecks are much more likely to spend money, and consumption accounts for over two thirds of our economy.

We expect economic growth to continue to improve in 2018 from the anemic 2% growth we have experienced for the last ten years to something north of 3% both this year and next.

Capital Markets

What does this mean for the capital markets the remainder of this year and next?  Addressing the stock market first, we believe that we are in a secular bull market for stocks.  What does that mean?  It means that the general trend of the stock market is up with higher highs and higher lows for an extended period of time.  It does not mean we will not have corrections or volatility.  What is driving our positive outlook for stocks?  The corporate profit picture is the main reason we are positive about the stock market.  Earnings are the fuel that drive stock prices higher.  The impact of faster economic growth and lower taxes will have a positive impact on corporate earnings in 2018 and beyond.  In fact the growth in corporate profits has exceeded the growth in the market for the last three years.  This has reduced valuation levels to much more reasonable ranges.  The combination of lower valuations and higher profit growth have historically given us very good long term returns from stocks.

The fixed income markets may not be so fortunate.  The bond market had a negative total rate of return in the first nine months of this year.  We expect fixed income returns to be meager for the next eighteen months or so for several reasons.   Generally, faster economic growth increases the demand for capital which results in higher interest rates.  In addition, the Federal Reserve has promised that it will continue to increase short term rates and unwind its quantitative easing program.  The Fed will shrink its balance sheet by not reinvesting the income or proceeds from maturing bonds and by beginning to sell bond holdings outright.  This reduction in demand and increase in supply is generally not good for bond prices.  Lastly, wage pressure appears to be increasing as the economy operates at full employment.  Wage pressure has been a precursor to inflationary pressure in the past.  Bond prices are negatively impacted by inflation as investors demand higher rates of interest to compensate for the loss of purchasing power that inflation creates.

What could blow this up and make us change our economic and capital markets outlook?  The first problem is the Federal Reserve and rising interest rates.  The Fed could normalize interest rates too quickly which would undo many of the positive economic initiatives.  The high debt level in the United States will leverage any increases in rates by immediately increasing the cost of servicing that debt.  This could disrupt economic growth.   If the Fed moves too slowly to unwind the quantitative easing they could create inflationary pressures especially in a full employment environment.  We are already seeing some wage pressure because of the increasing demand for workers.  This has been an early sign of increasing inflation in past economic cycles.  The second problem is tariffs.  Tariffs are essentially taxes placed by countries on imported goods.  These taxes are imposed to make the cost of locally produced goods more attractive and to punish low cost producing countries.  However, countries seldom sit idly by and allow their exports to be taxed.  They retaliate with tariffs of their own which can escalate to the extent that global trade is diminished and world economic growth is negatively impacted.  Some of you will remember from history that this was one of the reasons for the severity and length of the Great Depression in the 1930’s.  Finally, the shape of the yield curve is flashing a warning signal.  The yield curve graphically represents the yields available from fixed income investments at different maturities.  It is traditionally upward sloping meaning that shorter term fixed income investments yield less than longer term investments.  When the reverse is true, short term rates yield more than long term rates or the yield curve becomes inverted, it has been a very good indicator of a recession on the horizon.  Right now the yield curve is very flat.  If the Federal Reserve increases short term interest rates one more time this year and all other yields remain the same we will have an inverted yield curve.  The yield curve has inverted anywhere from ten months to two years before each of the last five recessions.

What could go right over the next year to six months that may not be factored into the markets?  What economic or political factors could provide a catalyst for higher stock prices for the remainder of this year and into 2019?  I want to mention a few possible scenarios because they are things you will probably not see or hear in the financial press or on the nightly news telecasts.

  • The Federal Reserve signals an end to rate hikes after the December increase in the Fed Funds Rate calling a time out on future rate hikes.  They could do this for several reasons.  The need to unwind the quantitative easing bond purchases on their balance sheet while interest rates remain relatively low would be the first reason.  Secondly, the Fed is also very much aware of the dilemma they have placed themselves in.  The last thing they would want to do is disrupt the economic growth that we are currently experiencing by increasing interest rates too quickly or to disrupt the supply and demand equation for bonds.
  • Trade negotiations could end positively with renegotiated agreements and no trade war.  This would be very positive for consumer and business confidence and global growth.   Right now the headlines could not be any worse.  Economists here and overseas are expecting a trade war that will slow global growth and lead to the next recession.  We have said all along that this might just be an art of the deal strategy to coerce our trading partners back to the table.  What if the unconventional methods used by the President result in continued successes like the recently announced USMCA that replaced NAFTA with positive results for Canada, Mexico, and the United States?  That is certainly not priced into the current stock markets here at home or abroad.
  • The economy and corporate profits could continue to expand.  This economy has been suspect because of the length of the economic expansion with few strategists expecting the recovery to last let alone accelerate.  What if the tax cuts continue to boost economic growth that translates into better earnings and cash flows for corporations for the next several years?  What if the economic expansion goes on through 2020?  A larger than expected earnings surprise resulting from faster and/or longer economic growth would be very positive for the stock market.
  • Investors might also come to realize that we may have already had our correction.  Market volatility has become more intense since January.  We have talked a lot about how normal a 10% correction is in a secular bull market.  Federated Investments recently noted that an astounding 83% of the stocks in the Standard & Poor 500 have had a correction of 10% or more year to date; just not all at the same time.  Does it matter that the market has not had the 10% correction when most stocks seem to have already experienced one?

ratioThe combination of lower valuation and faster corporate profit growth will eventually kick start the market.  The combination of faster profit growth and reasonable valuations has historically been a prescription for above average stock market returns.  If any one of the above unanticipated events happens, it could provide the catalyst for a much better second half and positive stock market returns in 2019.

Thank you again for the confidence you have placed in the Wealth Management and Trust team at Stock Yards Bank & Trust.  Please contact us at any time to discuss our outlook in more detail. ♦

Source: FactSet, FRB, Robert Shiller, Standard & Poor’s, Thomson Reuters, J.P. Morgan Asset Management. Price to earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months as provided by IBES since December 1989, and FactSet for June 30, 2018. Average P/E and standard deviations are calculated using 25 years of FactSet history. Shiller’s P/E uses trailing 10-years of inflation-adjusted earnings as reported by companies. Dividend yield is calculated as the next 12-month consensus dividend divided by most recent price. Price to book ratio is the price divided by book value per share. Price to cash flow is price divided by NTM cash flow. EY minus Baa yield is the forward earnings yield (consensus analyst estimates of EPS over the next 12 months divided by price) minus the Moody’sBaa seasoned corporate bond yield. Std. dev. over-/under-valued is calculated using the average and standard deviation over 25 years for each measure. *P/CF is a 20-year average due to cash flow data availability.Guide to the Markets –U.S.Data are as of June 30, 2018.


Paving the Road to Retirement: “Prudent” Spending Matters

laura georgeOne of the milestones on the road to retirement is reaching an understanding that you will be able to achieve the lifestyle and legacy you want with the assets and income you will have.  Developing dependable and/or varied sources of income gives strength to part of the retirement equation. The other part of achieving one’s retirement dreams lies in understanding how much you will personally need and working toward that goal through “prudent” spending.

The financial media provides a plentitude of recommended savings rates based on age and income level. We have also been educated that our current national savings rate hovering just above 3% will not adequately prepare most families for this special time of their lives. Rules of thumb like saving 10-15% of your annual income are less relevant to those nearing retirement since they are based on starting young and having a longer time horizon to “fill the bucket” through contributions and compounding.  Those beginning to develop a savings plan later in life will likely find they need to accumulate even more to maintain their current lifestyle, especially higher income individuals for whom Social Security will replace less of their income.

Understanding how much of your current income needs to be replaced is best achieved by breaking down what you will actually need in retirement. Rather than throwing a dart and accepting an arbitrary 60-80% income replacement guideline which may not be accurate for you, it is far better to undergo a simple assessment and understand the inputs to your personal retirement budget.

One way to consider what will be needed is to break retirement life down into spending categories-an easy mental walk with your favorite drink in hand or relaxing in your favorite space. Do what you need to do in order to make this process a rewarding one, but let your imagination take you to a place where every day you can choose how you spend your time and how robust your activity level will be.

Remembering that most of us will be in retirement for around 20 years, lean back, relax, and consider these categories:

Food and Dining Out:  What is your preference on eating in or dining out? Do you enjoy cooking, and for reduced numbers of people? If you dine out, how often and at what average cost?

Digital Services: What subscriptions or information access do you currently have personally or through your employer? Will you have the same needs/desires for access at retirement? What change in costs, if any, will be related to your needs for news, online, courses, or any retirement activity to supplement your income?

Recharge: What personal or recreational services do you wish to have in retirement?  Are hard copy or audiobooks, trips to the spa, mani-and-pedicures part of your vision? Are you planning to join or continue your country club membership?

Travel: Do your retirement plans include travel to places yet unseen? How frequently do you plan to get away, and how far will you travel by air or another vehicle?  Will you purchase or continue to maintain a vacation home?

Entertainment: What sort of sports activities, fine arts events, or classes do you like to attend?  Will you continue these or add to/subtract from the list during your retirement years?  Do you enjoy these activities with friends and will they continue into your twilight years?

Shopping and Gifts: Do you like to shop and give gifts to friends and family?  Are you charitably inclined?  How much change to your current spending on clothing and household goods do you imagine?

Basic Needs: What essential spending needs to occur to bring you happiness?  Utilities, and replacement appliances are not exciting, but are a necessary part of life. Housing and transportation are likely the two biggest parts of your current budget.  Do you plan to create more or less space for you and your family in retirement? Will you splurge on the luxury car you have worked hard to enjoy? How much will your healthcare costs change with age and when any employer subsidies are gone?

As you can see, there are many inputs to formulating an accurate retirement budget, and often handing the answers to these questions over to a professional can be a very rewarding experience. Quality financial advisors are trained to be your partner in constructing an easy-to-understand plan which includes tax implications and investment return projections. There is also no replacement for an objective opinion which highlights issues that can throw you off track, like assessing excessively high risk in your portfolio needed to achieve unrealistic goals.

Once you have worked the puzzle of what expenses you will have in retirement, it is an easy bridge to understand how much your current asset mix will support and any shortfall of income which needs attention between now and the time you retire.  For the average family, greater headway toward building the proper sized nest egg will be achieved by placing the focus on controlling “prudent” spending rather than attempting to target an arbitrary savings rate.

Examination of consumer spending for U.S. households clearly shows that transportation and housing monopolize the largest shares of overall spending.  It is highly probable these categories also consume the largest portion of your personal household budget as well.  Focusing your efforts on prudent spending in categories with the highest potential to increase savings for retirement clearly makes sense. Will reducing home expenses over the long term get you closer to your retirement dreams than eliminating your occasional stop at the coffee shop? It sounds all too simple. But what does it really mean to “live within your means”?

Distinguishing between “saving what is left over” and “prudently controlling flexible spending” to achieve your long-term goals is important. How often do any of us have something left over with no added attention given to our spending habits? If we are being good stewards of our resources and paying attention to high impact items, there are opportunities to make headway toward long-term goals as fixed expenses change from time to time. Focusing on prudent spending decisions even during periods when fixed expenses are lower provides greater positive results than curbing expenses with less budget impact. Although we sometimes feel hit with one outlay after another, indeed there are many expense decisions we can control and holding ourselves accountable for making those with a long-term mindset is key to making your retirement dreams a reality.

Given your new understanding of exactly what will be needed in retirement from the exercise above, there is no need to accept that simply being within acceptable debt ratios will keep your spending at the proper levels. In fact, consumer debt ratios are set by lenders to satisfy a different set of criteria, not to help average families select a level of debt in line with their long-term family goals. Prudent spending is actually the key driver to controlling what you can and reducing the risk of missing your retirement target.  Let us help you create a baseline plan and talk through the obstacles you see to reaching your ideal retirement.  With a quality conversation about a prudent spending plan, you may be closer than you think! ♦


Wealth Management & Trust

KATHY THOMPSON, Senior Executive Vice President, (502) 625-2291
E. GORDON MAYNARD, Managing Director of Trust, (502) 625-0814
MARK HOLLOWAY, Chief Investment Officer, (502) 625-9124
SHANNON BUDNICK, Managing Director of Investment Advisors, (502) 625-2513
REBECCA HOWARD, Managing Director of Wealth Advisors, (502) 625-0855

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE


We provide the information in this newsletter for general guidance only. It does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, investment, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, expressed or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

SYB-Logo_

Betting, Hoping and Planning

by Neil Byrne, JD, LLM, CPA Stock Yards Bank Wealth Management & Trust


It is almost Derby time. So what better topic to discuss than betting?

According to the dictionary, a bet is defined as “an act of risking a sum of money on the outcome of a future event.” Hope is defined as “a feeling of expectation and desire for a certain thing to happen.” Finally, a plan is defined as “a detailed proposal for doing or achieving something.”

All of these concepts are wonderful in their own right, and can bring joy to individuals in the right context. It is fun to bet on the Derby, or to hope your tournament bracket wins your office pool. Unfortunately, too many people are unnecessarily making a bet on retirement security by simply hoping their savings, Social Security, and other resources will be enough.

Most people choose their career, their college major, and their home, not to mention their spouse, among various other important items in their life. What about retirement? How many people are hoping to be able to retire “one day” but haven’t put together a detailed plan for actually retiring? If you have not put together a plan, then you likely are not planning for retirement, but rather, are betting on retiring – one day.

Below are a couple of items to consider when putting together a retirement plan. While things like investment returns, basis, and tax rates are unquestionably important, for a moment, we suggest that you think “bigger picture,” and ponder how some more basic considerations can affect your successful retirement plan.

Your Needs and Wants
Even the age at which you retire is up for consideration. After all, setting a uniform retirement age is said to have been started in Germany by Chancellor Otto Von Bismarck, at least partially as a way for him to force troublesome government employees into retirement. Germany initially set it at 70, and then lowered it to 65*. Of course, whether that is true or not, neither Chancellor Von Bismarck, nor anyone else should really dictate when you retire. Naturally, taking retirement benefits that are only available at certain ages into account is an important part of the plan. But, with a little foresight, you can retire when it is appropriate for you.

After all, retirement is about you. To ensure that you are making the best decisions, you will want to have a good handle on your family dynamics, as well as your budget, assets, and liabilities. Do you have robust savings that can withstand unforeseen expenses? Have you considered what your wants and needs truly are? It may be appropriate to “bet” or “hope” for a dream item down the road, but we want you to plan for your true needs and wants in retirement.

Your Biases
Personal biases can have long-term consequences, and so, many people have a critical need for objective retirement advice. A 2008 book by Professor Dan Ariely, Predictably Irrational, explains many of our biases and how they affect several facets of modern life. Two sections of the book, however, are especially relevant here.

First, people like to procrastinate – big surprise. But, it is true, and it can harm your retirement readiness.

Second, people like to keep all their options open for as long as possible, even when inaction produces a negative outcome. Undoubtedly, financial planning can be complicated. Moreover, retirement planning forces you to make an avalanche of choices – when should I draw Social Security? When should I stop working? Is Long Term Care Insurance for me? And on and on . . .

These two biases can work together to turn a plan into a bet before you even realize it. Betting may be fun on the first Saturday in May, but leave the betting for the track, and the hoping for your tournament bracket. Let’s plan for your retirement.

*See: https://www.ssa.gov/history/age65.html AND http://mentalfloss.com/article/31014/why-retirement-age-65

The Importance of Financial Planning at Any Age

DISCLAIMER: THIS ARTICLE WAS WRITTEN BY ADVICENT SOLUTIONS. ALL RIGHTS RESERVED. ©2013, 2016 ADVICENT SOLUTIONS, AN ENTITY UNRELATED TO STOCK YARDS BANK & TRUST. THE INFORMATION CONTAINED IN THIS ARTICLE IS NOT INTENDED TO BE TAX, INVESTMENT, OR LEGAL ADVICE, AND IT MAY NOT BE RELIED ON FOR THE PURPOSE OF AVOIDING ANY TAX PENALTIES. STOCK YARDS BANK & TRUST DOES NOT PROVIDE TAX OR LEGAL ADVICE. YOU ARE ENCOURAGED TO CONSULT WITH YOUR TAX ADVISOR OR ATTORNEY REGARDING SPECIFIC TAX ISSUES.

It’s easy to think that a financial plan is only necessary when you need to make a big purchase or rearrange your portfolio. However, financial planning affects much more than your bank account, and a successful plan should follow you through all the stages of your life. In a financial climate where more than half of Americans don’t have a budget and just over 40 percent of baby boomers don’t have a will, it seems that many could benefit from planning. Yet the fact remains that just one out of three household financial decision-makers say they have any kind of comprehensive financial plan. Prevalent among the reasons to avoid planning are “I’m too young to need a financial plan,” “I’m too old to get a financial plan,” or “I’ve made it this long without one, so why get one now?” When these doubts are raised, it’s important to consider that your financial plan isn’t something that can be made and then forgotten about, nor should it only be remembered when you find you’re low on funds; to succeed, it will need to be fluid and change as your situation changes. Read on to discover the importance of financial planning at any age.

ON YOUR MARK, GET SET, GO! PLANNING IN YOUR 20s

As a 20-something, you probably think that you’re too young and have too few resources to warrant a financial plan. Before you write off financial planning using this logic, consider that your 20s are when you establish the financial base for the rest of your life. You’re likely earning your first salary and dealing with your first large sources of debt in student loans and car payments. You may be faced with buying your own insurance and investing on your own for the first time. You also have the widest range of financial goals in your 20s, as most of your major life events are still ahead of you. Meeting with a financial planner during this time can improve your financial literacy, helping you learn things like how to set up an emergency fund, make a spending plan and establish good credit. It can also help you set up a basic estate plan, something that’s easy to overlook in your 20s. It can be overwhelming when you’re starting out to be bombarded with all of the things you could be putting money toward. A financial plan can help you prioritize where your money should go by determining your most significant money goals and how to reach them.

Not only are these years a crucial time for financial education, but disregarding a financial plan could cause you to unintentionally squander the biggest asset of your 20s—time. With the power of compound interest, the money you save or invest now can grow exponentially, but wait another 10 years and you may have to contribute a lot more to achieve the same end result. Bottom line? The earlier you start saving and the longer you give your money to grow, the better. There’s no better time to start establishing good money habits than in your 20s, and that all starts with a financial plan

TAKE IT TO THE NEXT LEVEL. PLANNING IN YOUR 30s

If your 20s are to build a foundation for your own financial literacy, your 30s teach you how to cope when that foundation shifts and you find yourself dealing with new and larger challenges. A financial plan at this age can help you deal with some of life’s biggest transitions, such as starting a family or becoming a homeowner. These can bring on newer and bigger sources of debt, so a crucial aspect of financial planning at this time is to eliminate non-mortgage debt, such as paying off your car and student loans and paying down credit card debt. These big life changes may also trigger a need for expanded insurance coverage on your home or extended life insurance, if you have a family depending on you. For the same reason, you should review your estate plan, making sure you have a will, living will and power of attorney. You set up the basics of a financial plan in your 20s, and it’s time to reevaluate now that your earnings power has likely increased. You should set a more definite plan for retirement and focus on contributing a set amount each month rather than just maintaining an account. A financial plan can help you review and understand your asset allocation among various types of investments, aligning your investment decisions with your lowered risk tolerance and time horizon. It’s also a good time to check on your emergency fund, and make sure you have three to six months’ worth of income saved should an unforeseen crisis affect your life. Finally, a financial plan can help you direct some of your increased earnings to charity, as you may be approaching a time in your life when you feel stable enough to give back.

MAKE IT OR BREAK IT. PLANNING IN YOUR 40s

Your 40s are a crucial decade for building up retirement savings, and a financial plan can help you make sure you’re on track. While many will start a retirement account on their own, it can be hard to budget for both retirement and non-retirement savings. In fact, roughly one out of three U.S. adults have no form of nonretirement savings. Without financial planning, it can be hard to focus on saving for multiple goals and prioritizing the importance of those goals at different times in your life. For example, although paying for your children’s education may be a factor during your 40s, remember that while there are loans and scholarships available for college, the same is not true for retirement. So, while it’s important to save for both goals, you may have to put your own savings first by allotting more money to a retirement fund than to your child’s education. This can be difficult, especially since most parents are used to putting their children’s needs before their own. Having the third-party perspective of a financial advisor can be especially on the best way to reach multiple financial goals. Your 40s are also a good time to do an overall review of your plan. You may need to increase your insurance coverage, as the insurance offered through your employer may no longer be enough to cover you and your family in the case of a crisis. You will also want to review your estate planning documents and make sure your beneficiaries are up to date. And, since your earnings are likely peaking and this is truly the “make it or break it” time for your retirement savings, your plan should help you determine how to allocate more money toward your IRA or 401(k).

IN THE HOME STRETCH. PLANNING IN YOUR 50s/60s (preretirement)

During this phase of your life, retirement stops being a far-off, abstract concept and becomes real. You should engage in retirement planning with your spouse, including choosing a retirement age and discussing the types of activities you’d like to pursue during retirement. You may want to evaluate your health, as health and insurance needs can factor heavily into your retirement budget. You should be estimating your Social Security benefits and maximizing contributions to your retirement account, including catch-up contributions that you are now eligible for. Since many large expenses, such as your mortgage payment, may soon be behind you, you can push to eliminate a lot of your debt so you can head into retirement debt-free. To stay on top of all of these tasks, you can think of your financial plan during this time as a preretirement checklist, ensuring you’ve covered all of your bases so that you can enjoy the relaxation you deserve during retirement. In addition to checking off your preretirement tasks, it’s likely that a large part of your financial planning will focus on protecting the retirement savings you already have and creating an income strategy for retirement. Because you now have a lower risk tolerance and less time to recover from a dip in the market, your investment strategy will probably need to be more conservative. Ultimately, your financial plan can help you cross-reference your retirement needs and goals with your retirement income, and your financial advisor can help you project whether this income can provide for you throughout your retirement.

KEEP ON KEEPIN’ ON. PLANNING DURING RETIREMENT

You may think that once you reach retirement, you no longer have to worry about financial planning. After all, you’ve made it this far, right? However, there are many unique financial considerations for retirees, not the least of which is how to effectively transfer your wealth to the next generation. You should review your estate plan to make sure that everything is up-to-date and correct, and determine how you want your wealth to be allocated upon your death. Depending on your situation, this may include providing for family and/or friends, setting up trusts or making arrangements for an after-death charitable donation.

As your health needs change during retirement, a financial plan can also help you consider the impact of different senior living options on your budget and evaluate what kind of health care and insurance you need and are eligible for. Similar to your younger years, you will likely have a lot of planning surrounding cash flow issues and how to make the most of your income. Far from being over, financial planning can play a large role in your retiree years, helping you live out the remainder of your life comfortably and with peace of mind.

Stock Yards Wealth Management & Trust wants to be your partner in your financial journey. Our team of Financial Planners provides a process that is complete, from start to finish. We provide a comprehensive set of solutions that are customized to fit your individual needs. No matter what phase of life you are in, we provide the plan and the guidance to help ensure that you are on track to achieve your financial goals.

 

8 Money Tips Every College Freshman Should Know

With Labor Day behind us, most colleges are underway with the fall semester. The American Bankers Association encourages college students to get an early start on securing their financial future. Check out these eight tips on how to avoid expenses now and reduce financial burden upon graduation.

  • Create a budget.  You’re an adult now and are responsible for managing your own finances. The first step is to create a realistic budget or plan and stick to it.
  • Watch spending. Keep receipts and track spending in a notebook or a mobile app.  Pace spending and increase saving by cutting unnecessary expenses like eating out or shopping so that your money can last throughout the semester.
  • Use credit wisely. Understand the responsibilities and benefits of credit.  Use it, but don’t abuse it.  How you handle your credit in college could affect you well after graduation.  Shop around for a card that best suits your needs.
  • Lookout for money. There’s a lot of money available for students — you just have to look for it. Apply for scholarships, and look for student discounts or other deals. Many national retailers offer significant discounts for those with a valid student ID.
  • Buy used.  Consider buying used books or ordering them online.  Buying books can become expensive and often used books are in just as good of shape as new ones.  Dedicate some time and research to see what deals you can find.
  • Entertain on a budget. Limit your “hanging out” fund.  There are lots of fun activities to keep you busy in college and many are free for students. Use your meal plan or sample new recipes instead of eating out. If you do go out, take advantage of special offers that occur during the week, like discount movie ticket days or weekly restaurant specials.
  • Expect the unexpected.  Things happen, and it’s important that you are financially prepared when your car or computer breaks down or you have to buy an unexpected ticket home.  You should start putting some money away immediately, no matter how small the amount.
  • Ask. This is a learning experience, so if you need help, ask.  Your parents or your bank are a good place to start, and remember—the sooner the better.

For more tips and resources on a variety of personal finance topics such as mortgages, credit cards, protecting your identity and saving for college, visit aba.com/Consumers.

Budgeting 101

Rainy-day funds, savings for college, or just making your rent payment can all be made easier with a budget. Although a simple and oftentimes overlooked strategy, budgeting your finances will help make the difference in managing your money. Putting together a household budget requires time and effort. Stock Yards offers the following steps to create a budget:

• Be a Spending Sleuth. Track every penny you spend for a month. Keep receipts and write everything down. This will be an eye-opening experience and will help you see where you can cut back.

• Count Your Money. Determine the total amount of money coming in. Include only your take home pay (your salary minus taxes and deductions). Your income may also include tips, investment income, etc.

• Itemize, Categorize, and Organize. Review the records and receipts you’ve been collecting over the last month. Categorize your spending using a budget sheet. You can utilize the free templates in Microsoft Excel to create a budget sheet that is fit for you and your family.

• Achieve Your Goals. Set a realistic financial goal and develop your budget to achieve that goal. Subtract your monthly expenses from your monthly income. Find ways to cut spending and set limits on things like entertainment expenses.

• Save, Save, Save. Make one of your financial goals to save a certain dollar amount each month. Start an emergency fund if you don’t already have one. You never know when you may need it.

• Stick to it. Keep track of your spending every month. Update your budget as expenses or incomes change. Once you achieve your financial goal, set another.

Resource information provided by American Banker’s Association.