Please ensure Javascript is enabled for purposes of website accessibility

Tag: business finances

Four mid-year money moves to make right now

With the pandemic causing the past year to be anything but predictable, it’s understandable to feel unsure of where to start when preparing for the future, especially when it comes to finances.

But, with the half-year mark right around the corner, now is a great time to ask what’s next for you and your financial planning, beginning with a few key steps.

Have–and preserve–cash on hand

Knowing we’re not yet fully past the economic implications of the pandemic, cash is the best line of defense when planning for the unexpected. Liquid cash puts you in a safer, stronger position if there is disruption in the market or your career, helping you avoid the need to sell or rebalance your portfolio at an inopportune time. If and when the market corrects, you’ll also have cash available for a buying opportunity.

With the pandemic driving lower interest rates, consider debt consolidation or mortgage refinancing to add some extra cash to your pockets. While it may take time to receive approval, refinancing can help lower your monthly payments long-term. Any extra money you save through this financial decision can be put toward your cash reserve, including an emergency fund.

Another option is a home equity line of credit, which can provide you with cash on hand in the event of a possible job loss. While employed, request a line of credit from your bank, but hold on drawing from it. In the event of an unexpected impact to your income, you can tap into this to avoid pulling cash from other places, like your investments.

Prioritize portfolio review

As we approach mid-year, take some time to review your investments to ensure your portfolio is properly allocated, with an investment mix that aligns with your financial goals. For example, someone approaching retirement might consider updating their investment mix to own a smaller percentage of stocks, which offer growth over time, but can be less predictable day-to-day. An advisor can help to assess whether you are diversified enough in your investments and provide suggestions on how to rebalance if necessary.

Consider also taking a look at Roth conversions. While you can’t fund a Roth IRA beyond a certain income, a conversion is simply taking your traditional IRA that’s never been taxed and turning it into a Roth. You’ll pay tax on that amount now, rather than in the future, and never pay taxes on it again.

Revisit your budget

With the pandemic causing each of us to shift how we live our day-to-day lives, revisit your budget to confirm it still reflects the reality of where your money is going. Maybe you’ve consistently traded gas costs for a higher monthly utility bill, or cutting back on food and travel costs has freed up funds in your budget.

Review your purchases and expenses over the past few months to get a good sense of where your money is (or is not) going and restructure your budget accordingly. This is also a good time

to evaluate whether any money you’ve potentially saved by cutting costs can be put toward paying off student loans, bulking up an emergency fund or even saving toward a new financial goal.

Be sure your plan is up-to-date

If you haven’t already, schedule a mid-year check-in with your financial advisor. You’ll want to confirm the status of items like your retirement, education and charitable planning and benchmark progress against your goals. If you’ve had significant life changes in the past year, or are planning for changes in the near future, your advisor can help ensure the accompanying financial adjustments are incorporated into your plan.

While there’s no one “right” way to plan for what’s to come, an advisor can support you in staying on track to meet your financial goals this year and the years to come.

Royce Zimmerman is a Wealth Management Advisor with Northwestern Mutual Wealth Management Company. For more information www.roycezimmerman.com.

Where to save a rainy day fund for your small business

Have you ever considered an emergency fund for your business? The idea of small business owners setting aside emergency finances is not a new one.

A few years ago, a piece on “rainy day funds” described them as emergency safeguards that “provide peace of mind when there’s an unusual or catastrophic event in your life.” That benefit sounds all the more appealing after 2020, and the pandemic and financial crisis we’ve all lived through.

Between job losses, shuttered businesses, and a stagnant economy, it goes without saying that those who had rainy day funds set aside did have a bit more peace of mind. But this refers largely to benefits for an individual. In light of the difficulties just mentioned, it’s now worth considering whether small businesses themselves should also have funds set aside.

I know I wish I’d had those funds in 2020. In a sense I’m fortunate in that I don’t have many employees to worry about. But due to a pure cash-flow issue, I had to pause some of the planned growth steps I’d been hoping to implement in my business. Had I had a bit of spare cash on hand, on behalf of the business, I might not have faced this issue, and I’d be heading into 2021 ready to grow, rather than aiming to recover.

Now, this is not to suggest that your small business should have significant excess revenue simply standing by. However, I do now believe business owners should give some thought to developing plans that can yield emergency stability. Working a small amount of savings into a financial plan helps to generate a modest fund over time. That way if and when a next crisis comes, there will be cash. These savings should be as stable and conservative as possible, so as to protect assets while generating modest growth.

The following are just a few examples I’d consider to be in this vein.

Index Funds

Index funds represent the closest thing to stock market trading I’ll mention. However, we aren’t talking about active (and risky) management of a stock portfolio. Rather, investing in index funds is a form of passive investment.

In this case, that basically means buying into a fund, or bundle of assets, that doesn’t require management. One example is the S&P, which is actually an index fund bundling 500 of the United States’ biggest companies. And in a given year, passive buy-in to the S&P tends to yield modest gains that exceed those made by the average active trader (particularly if said trader is a part-time amateur).

Putting a small portion of business earnings into an index fund can thus result in growing savings over time.

High-Yield Savings Accounts

An ordinary savings account is about the most modest way to reliably grow wealth over time. You put money into a bank account, and over time it generates interest — very slowly. You’ll protect your funds, and strictly speaking they will grow, though often enough that growth barely outpaces inflation.

A high-yield savings account is a similar concept that produces better results. Indeed, the benefits of high-yield savings accounts are in the name: you earn a higher interest rate on the money you put away. That doesn’t mean it’s a lucrative investment, and there are sometimes minimum required balances and maintenance fees to be aware of.

But the bottom line is that through high-yield compounding interest, these accounts can expand on your small business savings.

Gold

This site discussed buying into gold not too long ago as a strategic practice for individual investors. That was actually on the basis that there are some indications now could be a strategic time to invest for long-term potential.

More generally though, gold is typically valued as a stable asset and a hedge against inflation.

Most investors don’t net a tremendous gain from gold. But it does often serve to protect assets, and its trajectory over multi-year stretches tends to be positive. So, for small business owners looking for protection and the potential for very modest gains, keeping some rainy day funds in gold is an idea worth exploring as well.

In the end, the hope is of course that a rainy day fund never becomes necessary, and that your small business is never in need of emergency cash. Following 2020 though, even a small chunk of savings will be reassuring.

Done strategically, business saving might just help you to build up a financial cushion that will come in handy down the line.

My Photo Lexi Holt is a small business owner and hobby blogger. After studying and getting her professional start in the UK, she now temporarily resides in her sister’s home in Boulder.