No products in the cart.

Financial Health Check Up

If your physical health has commanded most of the spotlight recently, it might be time for a financial checkup. That is especially true after a year filled with unanticipated shocks – economic and otherwise. 

“History has shown that the unexpected is always going to come along,” said Shelley Ferro, Founder and Owner of Ferro Financial, LLC. “Good financial planning is going to help people navigate those situations.”

We asked a panel of experts what good financial planning looks like at various life stages, from workforce newbie to retirement ready and everything in between.

Just starting out

According to the experts, it’s never too early to establish good financial habits. “They’re like muscles,” Ferro said. “If you keep using them, they will just get bigger and stronger through the years.” 

No surprise here – all the experts agree on the most important habit: saving, then saving some more. For many people, the pandemic offered a painful lesson in the value of an emergency fund. “It’s like the levee system in New Orleans,” Ferro said. “That is for protection against storm surges, and this is a financial surge.”  

This emergency fund should be safe, but accessible. Ferro suggests a money market or bank account: “It’s plain vanilla – not exciting, but very important.”

Once an emergency fund is established, the next step is building a long-term investment program. According to Mark Rosa, President and CEO of Jefferson Financial Federal Credit Union, a brokerage account offers the most reliable path to accumulating wealth. He suggests options like mutual funds for growth that outpaces the rate of inflation, something young investors don’t always consider when they begin socking away money for the long term. 

Though new savers may perceive investing as risky business, financial planners emphasize the fact that financial markets have weathered decades of crashes, recessions and pandemics, while continuing to rebound and grow.  

“You want to be positioned to have your foot in the door,” Ferro said. “Accept that there are setbacks, but the setbacks are temporary. The movement forward has always won.”

Early professional life often carries start-up costs, including debt from school loans, upgrading a car, or investing in a workplace wardrobe. The goal, Rosa advised, is for workers to eventually transition to a career stage where that debt dynamic flips and “the choo-choo is running up the track.” Employees might get promoted, pay off school loans and contribute to their company’s 401k plan. Along the way, Rosa encourages people to “save until it hurts.” 

He also suggests putting off major life transitions, like parenthood, until a financial cushion is in place. “Those first couple of fragile years when you’re taking on more debt, I see people feel pressure to get married, start a family…  It doesn’t permit them to start saving and build that cushion if they move too quickly in those other directions.”

Growing your family

It’s never too soon to start saving for higher education. “The child is born, and you’re starting a college savings account,” said Shelley Ferro. “If you do it then, you’re going to be fine. If you wait too long, you can’t get the compounding effect of money to work for you.”

Ferro recommends the Louisiana START savings program, a state-administered program that allows families to save for higher education with a tax-deductible benefit. The state commits to match a portion of that savings on a sliding scale based on the family’s income, with lower incomes receiving higher percentages. 

New parents also need to address other provisions for their children, like establishing guardians and securing life insurance. These considerations are especially important for single parents. “Things like an emergency fund and life insurance become even more important when you’re single because you just don’t have anybody to fall back on,” Ferro said. 

Buying a home

The turbulence of 2020 has also affected expert advice for prospective homebuyers. Drew Remson, President and Owner of America’s Mortgage Resource, Inc., now cautions buyers to take a more conservative approach. “Historically, first-time homebuyers come in, and the first thing they ask is ‘How much do I qualify for?’” Remson said. “They want to know the max, and they shop the max.”

Remson warns that this period of unexpected income changes is not a time to be “house poor.” Buyers should make their decisions based upon only stable income, rather than components like overtime or commission. He also encourages dual income families to take the conservative approach of qualifying on one income, which would protect their investment in the event that the other disappears.  

Because a savings cushion is so important today, Remson has also amended his typical recommendation for a sizable (e.g., 20 percent) down payment. “In this environment it may make sense for folks to put less down and have more in reserve,” he said. “Move forward with some money in the bank rather than being in a better position on a monthly basis but having no money in the bank after closing.”

Interest rates remain historically low, a trend Remson expects to continue through 2021. “From an interest rate standpoint, it’s an absolutely ideal time for people to get into the market that don’t own a home now,” he said. “Your buying capacity is so much higher at a 2.5 percent rate than it will be at a four or five percent rate.” 

Above all, Remson advises first-time homebuyers to work with a professional who can guide them through the process and the various programs available.

Readying for retirement 

When it comes to retirement planning, many people focus on a magic savings “number” that will allow them to retire with security. According to Mara Force, Professor of Practice at Tulane’s A.B. Freeman School of Business and retired Managing Director, J.P. Morgan Private Client Trust, “What you’re seeing now is a lot of people who don’t quite retire because finding that number is elusive.”

Several factors play into the equation, like the age at which someone wants to stop working and their plans for healthcare coverage. “If you’re not yet old enough for Medicare when you retire and have to cover your healthcare, that’s going to be a really big cost,” Force said. 

Force also reminds retirees-in-waiting to account for property taxes, which stick around even after a mortgage is paid off, as well as any taxes they will owe once they begin taking distributions from 401k accounts.

People who haven’t been able to reach their savings goal by retirement age often pick up secondary careers or “side hustles.” Those can be helpful for retirees who miss the routine, stimulation or other aspects of their former career. “There are a lot of people who retire and then quickly unretire because they say, ‘Oh my god, I’m bored out of my mind,’” Force said. 

As retirement nears, people should evaluate the riskiness of their investment assets and reduce volatility in their portfolio. “You want to make sure you’re not putting your retirement at risk by investing in something that’s too potentially risky,” Force said.

Mark Rosa advises people to use time to their advantage when saving for retirement – and not wait too long to start putting away money. “You’re not going to get from age 55 to 60 with any growth capability,” he said. “Then you’re relying on the Social Security process, anything you’ve accumulated at work and in savings accounts. It’s not a strong financial position.” 

For people approaching retirement with a mortgage, Drew Remson advises them to refinance while they’re still employed. “If you’ve got a mortgage out there, you can cut your long-term payments by refinancing,” he said. 

Given current low interest rates, retirees might also opt to borrow against the value of their home through a reverse mortgage. Remson believes there is a lot of misinformation out there about reverse mortgages, but he finds them to be a good answer for certain clients. “It is the right product for a lot of people to age in place and be able to stay in their home for their lifetime without having to sell their property and downsize significantly to survive.”

Estate planning

Through a career spent working with high-net-worth clients and their beneficiaries, Mara Force has seen the full gamut of estate planning (including trusts for pets). According to Force, many people set up trusts because they want to ensure that their offspring are cared for and won’t “go off the rails,” to have their basic needs met in a tax-efficient way or to provide for certain types of enrichment or philanthropic activity. 

Trusts are often created to fund children’s education or with plans for legacy building that will involve heirs in philanthropy. Force suggests people set up a donor advise fund, which can be done with a relatively small amount of money, for grandchildren or others to administer and provide recommendations for charitable giving after the donor’s death. “The money has to go to charity, but those whom you designate can recommend the charity to which it goes,” Force said. “That will cause them to be engaged in philanthropy, and your money will continue to give and give and give until it runs out, as opposed to just one gift upon your death.”

Force also reminds people to think about where their investments are sitting to minimize any tax burden for their heirs. “You can designate that the money you would give to charity come out of an IRA or 401k plan, and money that you had free and clear [already taxed] in a checking account goes to your kids.”

Pandemic takeaways for every stage

The COVID era has led Mark Rosa to move from a one-size-fits-all recommendation for savings to a more job-specific approach. “If your job is waiting tables, there’s nothing wrong with that, but it’s fragile to downturns,” he said. “You might need more savings than most folks. if your job is medically related, those people have been employed eight days a week, so they could have money flowing out of their pockets.” Rosa adds that people working jobs with no benefits or retirement plans should try to build a sizable savings stash – as much as twelve to eighteen months of net income. 

Shelley Ferro encourages everyone, especially young people, to have an accurate handle on their expenses and income. “It seems basic, but you’d be surprised at the number of people who just don’t do it,” Ferro said. “I knew a 90-year-old woman who had literally millions of dollars, and she was really scared she was going to run out of money. I was like, ‘It’s mathematically impossible. You can worry about other things, but not that.’”

That example shows the role of psychology in a person’s financial health, a subject known as behavioral finance. Ferro focuses on this dynamic in her work as a money coach. “What I’ve seen in my career is that so much of what goes on is behavior that’s based on beliefs,” she said. “If you can work with someone to help them uncover that, then they have the ability to change that behavior and create a more peaceful state with their finances.”

As we emerge from a time of uncertainty, there is little doubt that the pandemic era will leave lasting financial impressions on people across careers and life stages. For everyone, Ferro offers some timeless advice: “Life is what it is. Enjoy the happy times and prepare yourself for the times that are more challenging.” 

Eight Common Money Missteps

1. Racking up credit card debt

“The biggest mistake people make is when you’re just starting out and you get your first credit card,” said Mara Force. “You’re so excited, and you impulse buy things you shouldn’t and rack up early debt on stuff you just didn’t need to own.”

2. Neglecting the snail mail

Force sees this trend among younger people. “This can be a really big problem if someone is sending you a bill and you don’t pay it – it can really damage your credit,” she said. “People should remember to open their mail and at least glance at it before throwing it out. I admit opening bills is not my favorite thing to do, especially when we are so used to paying things online, but once a week you’ve got to bite the bullet and do it.”

3. Not questioning fees

 “If you have a financial advisor, when you go to a bank, get a mortgage, ask somebody ‘How much am I paying for this?’” said Force. “Because a lot of times fees are deducted from places you wouldn’t notice or called something that doesn’t scream ‘fee.’ Ask: ‘How much are you charging for this? What are your rates? is this market standard?’ Know how much you’re paying for something and feel like you’re getting the value for what you’re paying.” 

4. Missing out on refinancing opportunities

“Right now, the first and foremost mistake people make is not taking the time to refinance if it makes sense,” said Drew Remson. With today’s low interest rates, many people could secure a rate that would allow them to decrease their interest payments over the life of a loan by nearly fifty percent. “On a $200k-plus loan, we’re talking about hundreds of thousands of dollars over the life of a loan,” he said.  

Remson also sees people missing out on refinancing because they have taken mortgage payment deferments, now easily obtainable from most lenders servicing a loan. “One of the mistakes I see is people taking them that don’t need it, and then they can’t get a refinance because they took the deferment,” he said. “The rules on deferment state that you have to be out of deferment and make at least three payments after you come out before you’re eligible for a Fannie Mae/Freddie Mac-type loan, so people are getting frustrated that they are in deferment and can’t refinance.” 

5. Using the wrong financial advisor

Ferro points out the difference between advisors selling products and fiduciary advisors, who, like attorneys and CPAs, are legally obligated to look out for the client’s best interest. “A fiduciary is in a process-driven relationship with clients, whereas people on the sales side are in a product-driven relationship where they are trying to sell products in the best interest of a corporation.” She encourages people to understand these distinctions when choosing an advisor and to consider that different advisors may be appropriate for different life stages. 

Ferro also disputes the notion that financial advisors are only for wealthy people. She recommends Garrett Planning Network, which offers advisory services on an hourly basis, to people beginning their search for financial planning guidance. To people hesitant to spend hard-earned money on advice, she says, “If you have to spend a couple of hundred dollars to ask someone a question, it’s probably worth it if it’s going to save you the cost of a mistake or non-action in the long run.” 

6. Investing prematurely in retirement

Shelley Ferro doesn’t like to see people putting retirement savings ahead of more pressing needs. “It doesn’t help to contribute to retirement if you have no savings and then you run into problems and you’ve got to go to your retirement,” she said. “It’s all got to be done when you’re financially ready. I don’t like when people jump the gun. I’ve seen on more than one occasion couples who have started to save in 401k but don’t have any money saved up – for anything.”

7. Not paying off the monthly credit card balance

Mark Rosa is discouraged to see people “getting creamed” by keeping a balance on a credit card. “You never get a reprieve,” he said. “That’s the downside to credit – getting ahead of yourself and not paying attention.”

8. Underestimating the task of building wealth

Mara Force knows it can be challenging to accumulate wealth and wants to encourage empathy. “Some people think it’s easy and America is the land of opportunity, but it’s hard, and not everyone gets to start from the same place,” she said. “People often think those who don’t have savings have done something wrong or didn’t work hard, but it’s a bigger issue. A significant percentage of the population just doesn’t have the type of income to allow them to have savings. That’s not because they’re not trying but because we have some significant gaps between rich and poor in this country. If someone is making enough to subsist, you can’t ask them to be saving for retirement and then telling them they’re lazy if don’t save enough. That said, I would also tell us to take a life lesson from 2020 and not buy a bunch of needless, worthless crap. The things are not going to fill the emotional void in the way we want them to, so don’t waste the money.”

Digital Sponsors

Become a MyNewOrleans.com sponsor ...

Sign up for our FREE

New Orleans Magazine email newsletter

Get the the best in New Orleans dining, shopping, events and more delivered to your inbox.