SoMN Financial Guide 2022

SoMN

Financial Guide February 2022 | SouthernMinn.com

Tips, tricks and information from local professionals inside!

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SOMN FINANCIAL GUIDE

February 2022

Let’s partner for life’s moments.

Together, we’ll help you prepare for the next one - big or small.

Faribault Tom Klemer

Jim Harding

Cate Grinney, CFP®, ChFC®

200 NW 8th Ave Ste 7 Faribault, MN 55021 507-334-3149

112 NE 3rd Street Faribault, MN 55021 507-332-6972

404 Heritage Place Faribault, MN 55021 507-334-1666

Greg Lee

Jacob L Womeldorf

1645 Lyndale Ave N, Ste 101 Faribault, MN 55021 507-334-9936

318 NW 4th Street Faribault, MN 55021 507-332-2957

Christian Lockner, ChFC®, CRPS®

Brian T Panettiere

Financial Advisor

Financial Advisor

Greg Pierce, CRPC®

1250 Highway 3 South Northfield, MN 55057 507-645-0270

205 West 3rd St Ste B Northfield, MN 55057-1756 507-664-1191

509 Division St P.O. Box 664 Northfield, MN 55057 507-663-8809

Ben Van Vooren

Jon M Snodgrass, CFP®

158 North Water Street Ste 4 Northfield, MN 55057 507-663-0325

158 North Water Street Ste 4 Northfield, MN 55057 507-663-0325

Financial Advisor

Financial Advisor

Financial Advisor

Financial Advisor

Financial Advisor

Northfield

Financial Advisor

Financial Advisor

Financial Advisor

February 2022

SOMN FINANCIAL GUIDE

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Personal Finance Basics: Financial moves you’ll be thankful for later

By DANIEL HUMMEL Guest Columnist Your financial future is in your hands — making just a few adjustments and taking Hummel some small steps can set you up for financial success down the road.

Whether your goals include traveling, funding a child or grandchild’s education, purchasing a home or retiring comfortably, taking a few actions to improve your financial well-being in the next few months can lead to significant strides toward your goals.

Here are 16 personal finance tips that you can start using today: Create a budget — and stick to it! Budgeting is about determining your priorities and honoring those priorities.

It may also be enlightening to determine your “survival number” — the monthly costs of just your essentials, like housing, food, health care, utilities, etc. — to help inform you of how you can balance saving and spending.

Build your savings. If 2020 has taught us anything, it’s that we can’t predict the future. If you don’t have 3-6 months of your expenses saved, you should make that a priority. If you have a savings account, consider switching to a high-yield savings account where you can earn more in interest.

Max out your retirement savings match opportunities. If your company-sponsored retirement plan (such as a 401(k) or 403(b)) includes a match from your employer, always take full advantage of that. It’s free money!

Review your subscriptions.

Do you have cable but also pay for multiple streaming services?

Are you still getting a clothing subscription box but have nowhere to wear your new threads?

You may be able to cancel some subscription services to save money.

Do some research to determine if refinancing your home loan is a smart financial move.

This year has brought historically low interest rates and you may benefit from refinancing.

Plan your meals. From a purely financial perspective, not only will this keep you on track at the grocery store, it will also help you avoid going out to eat or calling for delivery because you’re not sure what you have at

home.

Reuse. Utilize thrift stores (in-person and online) to buy and to sell. Look for refurbished electronics when you buy and be sure to trade-in or sell your old electronics when you upgrade.

Keep on top of updating your will and your beneficiary information. While you won’t directly benefit from this, you can rest easy knowing your wishes are known and your loved ones are cared for.

Put pay increases toward your retirement. Unless you aren’t able to make ends meet, it’s unlikely that a 2% increase in your salary will make much difference in your day-to-day. However, when you take into account compounding interest, that $1,000 a year pay increase can pay off big later in life.

Conduct regular maintenance on your home appliances and vehicles to save on costly repairs down the road. A $20 filter or $100 repair could extend the lives of your costly machinery and appliances.

Open a 529 plan to start saving for education expenses. The cost of secondary education is increasing every year. To prepare your children for success, start saving now.

Meet with your financial advisor to review your portfolio.

SoMN

Financial Guide February 2022 | SouthernMinn.com

This year has been a whirlwind in the market and your portfolio may look very different now than what you intended. Reviewing this regularly with your financial professional ensures that you’re working toward your goals in a way that best fits you.

Explore free resources, like

Pay off your high-interest debt as soon as you can. Interest payments take a significant chunk out of your wallet — and that’s money that doesn’t do anything to serve your future interests.

Institute regular no-spend days. Pick one day a week to commit to not spending any money. You’ll be surprised at how easy it is — and how much you can save!

Finally, ask for help. Connecting with a financial advisor may be the best thing you can do for your financial future because they can help you build on your strengths and overcome your weaknesses when it comes to planning for your goals.

your local library, and double check benefits of your membership organizations. You might be surprised that your insurance company provides discounts to hotel chains or your membership to your local museum also gets Daniel Hummel is a financial adyou into the historical society for visor for Farm Bureau in Northfree. field. Reach him at 507-412-0658.

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*APR is Annual Percentage Rate. Rates shown are effective 01/01/2022. 1.99% APR is an introductory rate, fixed for the first 12 months, to clients who establish a new Home Equity Line of Credit (HELOC) or advance on their existing HELOC prior to 05/31/2022. After 12 months, loan converts to a variable rate as low as 3.50% APR. Primary residences only. Refinanced Home Federal loans will not qualify. Maximum loan amount is $250,000. Maximum rate is 18% APR. Property insurance is required. Closing costs include bank fees of $140 and 3rd party fees ranging from $313.50 to $865.50. Interest-only payments during 2-year draw period are followed by a 10-year fully amortizing repayment period. Other home equity lines may be available. Consult a tax advisor regarding deductibility of interest. Subject to normal credit criteria, other restrictions may apply.

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SOMN FINANCIAL GUIDE

February 2022

6 ways retirement has changed in the past 8 years

By DANIEL HUMMEL Guest Columnist Retirement funding can seem like something to deal with later in life, but setting a strategy in place in your Hummel early working years is the key to a comfortable life in retirement. Find out how we can help you determine the strategy that’s best for you!

Eight years ago the United States plunged into a financial situation later dubbed the Great Recession. Stocks plummeted, home prices dropped, and un-

employment skyrocketed. The comparisons to the Great Depression of the pre-World War II era came about quickly, but the generations that lived and worked through that recession had a positive attitude about the outcome.

Flash forward to today. The country is bracing itself for a shift in the workforce as the Baby Boomer generation makes its move into retirement. This shift makes way for the highlyanticipated, even larger generation of the Millennials.

In 2015, the Millennials, who are between the ages of 18 and 34, became the largest share of the American workforce. Raised by the Baby Boomers and old enough to remember the impact

of the recession, this generation has an interesting set of beliefs that steer the idea of retirement in a new direction. See below for a list of considerations Millennials take into account regarding retirement and how the Great Recession of 2008 is affecting their retirement funding.

1. People aren’t retiring as early as they used to. Baby Boomers have had to deal with job losses, falling home prices, and investment portfolio losses, so retirement has been delayed for many Boomers. Of those over 50, 44 percent plan to work part-time in retirement and 33 percent plan to delay retirement. Implementing a retirement strategy early can ensure you’re prepared to retire at an age you choose.

End of Life Planning Brick-Meger & Medford Funeral Homes are offering a booklet outlining Pre-arrangement and Record of Personal Affairs.

Call 507-451-1457 to request your complimentary copy today.

Let us help you make your arrangements.

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2. You can’t rely on Social Security. The Social Security Administration’s Trustees Report of 2015 states that total expenditures have exceeded non-interest income of its trust funds since 2010, and they anticipate that the cash-flow deficit will continue.

Depending on Social Security as retirement income is no longer a wise plan. It’s going to be up to individuals to ensure they have planned for their future financial needs.

3. Selling your home isn’t a good way to get money for retirement. Many areas of the U.S. continue to reflect home prices that have not recovered from the recent depression. The continually rising home values that retirees counted on in the past are no

longer guaranteed. Retirement funding should consider this reality.

4. Living a healthy lifestyle can offset future health care costs. In a recent survey, respondents said they consider healthy lifestyle habits such as a proper diet, regular exercise, and preventive care as a means to reduce healthcare costs. Healthcare expenses can be a major factor in retirement funding.

5. Realize that you will have to withdraw money from retirement accounts and savings accounts longer than you anticipated. Life expectancy has increased from 75.4 years in 1990 to 78.8 in 2013, so an increase in retirement savings will be necessary.

Cutting back on non-necessities

is one way to deal with needing additional savings, but healthcare expenses and other necessary costs aren’t easily reduced.

With Social Security payouts in doubt for Millennials, it’s critical to start saving for retirement now.

6. It’s vital to take an active role in managing your own financial accounts and there are services to help. Don’t raise your hands in surrender to understanding financial decisions!

We are here to help. Our Farm Bureau Financial Service agents know the ins and outs of which strategies will work for you.

Daniel Hummel is a financial advisor for Farm Bureau in Northfield. Reach him at 507-412-0658.

A Cash-Only Mindset (GS) Incorporating a cashonly mindset into various aspects of your personal economy can limit your reliance on credit cards or high-interest loans.

A cash-only lifestyle means you refuse to buy things that you can’t afford without physically having the funds. By spending conscientiously, you avoid lavish spending on extravagant items that you don’t actually need.

It’s also an excellent mindset to help you become better at saving money, as you must strive to save enough to pay for the asking price. Check out a few small steps to work this habit into your lifestyle and watch your debt shrink.

mindful of what is ordered and spend accordingly. Make sure to leave your credit and debit cards at home to resist the urge to impulse buy.

The same tactic should be instilled during grocery shopping trips. Each week, make a list, calculate the estimated cost, and avoid buying items that aren’t documented. You can find accurate pricing by visiting your local store’s website and looking for deals within their weekly advertisements.

Try to buy the food and drinks that will last you until the next shopping trip. Sometimes, stopping by a convenience store on the way to work to grab a coffee will lead to other purchases Wine and Dine that are more expensive than Before hitting the town for a those at your regular grocery fancy dinner, stop at the ATM to outlet. withdraw the amount of money you can comfortably pay. This Entertainment will help you and guests be more If you are planning a weekend

getaway to visit a sporting game, concert or another type of event, it’s good practice to develop a spending plan. Try to bring along enough funding so your excitement won’t be hindered but be diligent to avoid buying souvenirs, merchandise or food that’s not in the budget.

Avoid Online Shopping

For many, the conveniences of online shopping are too great to resist. When you can stock up on clothing, gadgets and even food from the comfort of the couch, it can be challenging to limit your purchases. Rather than entering your credit card into numerous online databases, commit to shopping locally and only buying things you can afford.

February 2022

SOMN FINANCIAL GUIDE

The gift of planning

By MIKE MEGER Guest Columnist

There are a number of reasons why pre-planning ones funeral arrangements may be M a n y considered a gift … a gift for the people are surviving family members. Inuncomfortvolving family members in this able discussplanning relieves them of the ing death and pressure that they are making dying, espethe right decisions. n cially when Clear Thinking: Making that discusimportant decisions are much sion centers Meger better made when there is no on their own pressure of a short deadline. In mortality.

Yet this is an inevitable addition at the time of death offact that everyone will eventually ten times people are in a state of shock or still trying to process ehave to face.

h

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the loss of a loved one. These are difficult times to make these important decisions.

Decisions such as cremation vs traditional burial, type of service, how much to spend; even details such as music, readings, lunch menu and more.

Your Wishes: This is a time for a person to create their own type of celebration of life. Is a traditional Church service preferred or a funeral service at the funeral home or other venue?

Art centers, fraternal lodges, and sports venues are just some of the

locations that can be considered.

How Is This Done? Funeral homes have forms that can be completed ahead of an in-person meeting or may be completed with the funeral director at the meeting. These plans can be completed at any time in one’s life and can always be changed if you wish. While the funeral home may keep the pre-arrangement on file, it is important that a family member or your attorney know that this plan exists. This will insure that your wishes are followed.

Prepay: While it is not possible to freeze the costs at the time of the pre-arrangement, funds can be set aside where it remains in a trust fund accumulating interest until the time it is needed Another option is to assign the proceeds of a life insurance policy or annuity to the funeral home. This option provides peace of mind for your family that they will not have to figure out how to pay your funeral expenses.

What If I Move? Funeral homes keep detailed records of

pre-arrangements and any prepayments. These are easily transferred to any funeral home in the United States.

Pre-planning relieves your family of the burden of planning your funeral arrangements and gives them more time and energy to focus on healing and remembrance.

Mike Meger is a mortician at Brick-Meger and Medford Funeral Homes.

The best way to make charitable gifts after 70½

-By JAKE COOK and BRENT IRAs are structured, you receive a tax deduction for making con-PETOUTKA Guest Columnist tributions on the condition that withdrawals from the account Whether you’re fully or partly are taxed as ordinary income. retired, you may find that your That means two things: a) assets are sufficient to cover your you must take RMDs whether lifestyle for the remainder of you want to or not (there’s a huge your retirement. In that case, you penalty if you don’t) and b) the ,may not feel like you need to use RMD money could push your any additional money from your adjusted income into a higher aIRA. And that’s fine – until you tax bracket, depending on your reach age 72 (age 70.5 before Jan. taxable income.

1, 2020).

If making regular charitable Then, the IRS requires will contributions is important to require you to withdraw funds you, a qualified charitable distrisfrom your IRA in statutorily- bution (QCD) may be a suitable mandated annual increments tax-relief strategy. Starting at age known as “Required Minimum 70.5, you can direct IRA distriDistributions” (RMDs). The way butions of up to $100,000 per

year to a qualified 501(c)3 charity of your choice.

This charitable distribution satisfies the IRS RMD rules.

AND, because the money went to a charity, you’re not required to report the income or pay taxes on the distribution. The QCD rule permits you to deduct the donation, which lowers your adjustable gross income (AGI).

Since the IRS uses AGI in several calculations -- including the taxable portion of your Social Security benefits and what deductions and credits you qualify to receive -- you can minimize the impact on your other retirement benefits. Particularly if you regularly support charities, you

Lisa Ackerman

Accountant/Tax Preparer 507-451-3399 • 221 Mineral Springs Rd Ste A

lisa@ackermanaccounting.com • ackermanaccounting.com

may find the QCD rule is truly a win-win.

Before you make any decisions, be sure to consult with your tax professional for guidance specific to your household.

Then, we can review your portfolio to determine if your current assets can support these contributions without impacting your overall financial plan. If you’d like further information or have questions, give our office a call.

Jake Cook and Brent Peroutka lead the Comprehensive Wealth Solutions office in Faribault.

Reach them at 507-332-8012.

Plan your next dream Plemel Insurance Agency Inc Judy Plemel ChFC, Agent 920 Hoffman Drive, Suite 1 Owatonna, MN 55060 Bus: 507-451-4619 State Farm Bloomington, IL 2001627

Whatever you’re saving for next, it’s easier to get there with the right plan.

I can help you look at your financial goals and find smart ways to save. Call me today.

Like a good neighbor, State Farm is there.®

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SOMN FINANCIAL GUIDE

February 2022

Emergency-Proof Your finances (GS) The best way to protect your finances in times of trouble is through pre-planning.

Disasters, whether in the form of storms, family crises or a larger economic issue, tend to arrive without warning. Making the right choices before there’s an emergency can limit disruptions, help lower stress and give you a smoother pathway forward. Here are some planning strategies to help emergency-proof your checkbook.

Create an Emergency Fund

Economies, by nature, are prone to booms and busts. Unfortunately, they will always be subject to downturns. We also can be impacted by sudden outside forces, like the banking crisis of 2008 or the pandemic of 2020.

An important protection against financial hardship involves saving money to help bridge these

cycles. The total amount varies depending on your costs, but a good rule of thumb for emergency funds is three to six months worth of expenses.

times. The higher your credit score, the better rates and terms you’ll earn. If you can’t establish the recommended three- to six-month emergency fund, or if the fund simply runs out during your emergency, you might need access to credit until you can emerge from an uncertain period.

Evaluate Your Finances

Pay close attention to your general savings, investments, income and debt. These financial markers can make all of the difference in navigating through a sudden problem. If you feel like there’s room for improvement, create a budget that takes into account how much you’re making against what you are paying out through bills.

Find places to cut costs before it’s a requirement, and those choices become more easily be unbearable; it gets worse still made. if disorganization creates new stress points as you try to move Organize Your on. Organize important docuDocuments The impact of a natural di- ments now, so you know just saster or family emergency can where to find them. Consider

Your memorial, an important piece of estate planning

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Review Your Insurance

putting documents that are more deposit box. difficult to replace — along with collectibles and other heirlooms Improve Your Credit Score — in a safety-deposit box. Keep things like passports and living Lenders always favor the wills with you, since you might healthiest borrowers, and that’s not have immediate access to the particularly true during difficult

An essential part of any emergency planning, insurance coverage can create an umbrella of protection against difficult financial situations. If you don’t have the right kind or amount, however, insurance can just as easily become another issue as you try to right your financial ship. Look into plans that will be of specific help during an emergency, like disability insurance to help replace lost income.

Paying the Right Debts First

(GS) When building your nest egg is challenging due to a lack of extra money after paying monthly expenses, it’s imperative to create a strategy to cut down debts. Unfortunately, it’s not always easy to understand which financial commitments should be eliminated first.

With the right approach, you can cut out high-interest fees, lower your balances and get yourself in better monetary shape with more saving power.

The first step in getting out of debt is making a list of all the debtors you owe. Perform an analysis of your mortgage, car loans and any existing credit cards. In addition to documenting your balances, you must also understand the interest rates on the accounts. Don’t automatically assume that knocking out

the highest monthly fee will be the most effective move in your financial plan. The journey to living debt-free can take time.

Find out more about two strategies from InCharge Debt Solutions that are effective for managing debts.

Debt Avalanche

When using this method, people must focus on paying off debts with the highest interest rates first. To be successful with the avalanche process, you should be able to make your payments without disrupting your monthly installments and other outstanding debts. If you’re serious about making the commitment to begin restoring your financial health, you may have to sacrifice a few things from your daily life, including:

• Avoid eating out.

• Skip an out-of-town vacation.

• Put buying a new wardrobe or extravagant items on the back burner.

Preparing a budget and sticking to its guidelines is an excellent strategy to save money and focus on paying down debts.

Debt Snowball

On the other side of the spectrum, the debt snowball plan means paying off your most expensive obligations regardless of the interest rates. This method effectively eliminates high costs and uses the money you’re saving toward the next highest debt. It can provide instant gratification and a mental boost as you begin checking financial responsibilities off your monthly bills.

February 2022

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Paying Bills Online

(GS) Who hasn’t forgotten to pay a bill, only to be hit with late fees?

- This simple mistake can also do lasting damage to your credit.

Today, you can use technology to ensure this never happens again by paying your bills online. Make -sure your information is safe, -then prepare to wave goodbye to dlate fees forever. Here’s a look at online bill paying.

-

Getting Started

Every company has its own set of rules, but generally you’ll want to gather your bills so that you can input account numdbers and other pertinent details.

If you using a catch-all bankgbased account, enter your biller’s information into the bill-pay platform. If you’re scheduling payments through individual -company accounts, have your billing address and other needed

personal information handy.

This allows you to determine exactly where your money is going Set up Pay Schedule and when, providing vital inforGoing online makes pay- mation on how to cut expenses. ing any bill so much easier, You can also keep an eye out for from one-time payments or increasing costs as they happen. scheduled monthly and annual Real-Time Benefits installments. It’s quicker than paying with an old-fashioned Identity theft has become a perpaper check, and can help you vasive issue in the internet age, avoid fees associated with auto- as tens of millions of Americans mated phone services. Bills can fall prey to unwanted intrusions be scheduled on a regular cycle, each year. Online bill-paying and even far off into the future services will typically provide — ensuring that you don’t forget a notification system, either by to renew an annual subscription email or text, that alerts users or address a tax bill. And they’ll when payments have been made.

They also offer updates on your always be paid on time. available balance and on any susAnalyze Your Spending picious transactions. Users can Automatically deducted pay- then quickly suspend accounts ments help you avoid overdraft to limit the damage these hackfees, and they can also help you ers might do — a real-time benmaintain a budget. Many online efit that has made a huge dent in bill-paying services provide tools losses due to identity theft. so that you can track spending.

Create something that your future self will thank you for. Like prioritizing your financial goals. Putting together a financial plan and investment strategy today can help you achieve your dreams tomorrow. Let’s get started.

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SOMN FINANCIAL GUIDE

Choosing a Credit Card (GS) Even for careful budgeters who keep plenty of currency on hand, there are still times when cash simply isn’t feasible as a method of payment.

It also occasionally makes more financial sense to hold on to your dollars, rather than empty the reserves on a major purchase.

That’s when a credit card comes in handy. Unfortunately, there’s great financial risk in using these cards on a more regular basis, when there aren’t extenuating circumstances or simply to cover everyday expenses. So, applying for the first credit card, looking for a better deal or reentering the credit marketplace after some time away requires a careful eye.

Here are three major considerations to keep in mind before signing up for a new credit card.

ity today is that you need to have credit-based buying power in order to make larger purchasing decisions like a car or a house.

Are you applying for credit for emergencies, when there’s an unexpected repair or family expense? In both cases, it makes sense to explore credit options from major providers. They’ll be familiar to those doing a credit check, and could potentially provide a higher credit limit to give you additional flexibility in times of need. If you’re thinking smaller, signing up for a specific retailer’s card will deepen an established business relationship while building your credit.

Look for Deals

Those who often travel will use specific credit cards that offer frequent-flyer miles or other related discounts. This gives them an opportunity to charge Understand Your for one trip while building boown Needs nus credit for future flights, hotel Are you simply trying to es- rooms or other amenities. Just tablish credit? The financial real- be sure to keep the card paid off,

so interest charges don’t end up balancing out the freebies. There are also many cards which offer cash-back rewards, whether for total dollars spent or for buying specific items during a promotion. It’s just another way you can get something back when you charge, providing a powerful incentive to choose a specific card.

Pay it Off, Every Time

Don’t use a credit card unless you can pay it off in full each month. It that becomes impossible because of extenuating circumstances, make every effort to settle the bill over as few future payments as you can. The annual percentage rate associated with your card can quickly add unseen debt to your account, creating a situation where a small purchase ends up costing you lots and lots more.

Keep a close eye on the annual percentage rate when deciding on a new card, and avoid offers above 20%.

February 2022

Investing in Bonds

(GS) One of the ways people make their money work harder is through investing, and buying corporate or government debt is a popular option for those looking for a steadier long-term investment.

Buying bonds along with stocks creates a sturdier, diversified portfolio. Here’s a primer on investing in bonds.

Treasury Direct. They are issued in $100 increments.

How They Work

What Are Bonds?

Bonds are issued by governments or companies in order to offset expenses, including everything from a new project to dayto-day bills. Among the most common are U.S. Treasury and savings bonds, issued by the Department of the Treasury; municipal bonds are issued by government entities. The principal

Remember that patience is a virtue with bonds, which are very safe but also take longer to pay out. Bond holders are entitled to a return on their investment, but only after a predetermined date when the bond matures. Before then, investors earn fixed interest which may arrive monthly, annually or semi-annually, depending on the bond. These interest rates are determined by the maturity date, as well as the issuer’s credit rating.

difference is in which are traded: Treasury bonds can be, while savings bonds can not. There is also a limit placed on the number of savings bonds any one person may purchase. GovernRely on an Expert ment bonds can be purchased You should read the bond through a broker or through prospectus carefully, studying the fees and what type of bonds are part of the fund. But homework only takes you so far. Use a broker who specializes in the bond market. There are brokerrecommendation services where you can learn more about their reputation, and how their commissions work. Talk to other investors, too.

Now Taking Appointments Income Tax Preparation Tax Planning QuickBooks Consulting Business Consulting Accounting & Payroll

We plan for many things in life. Our wedding, our first home, our children's education, our retirement and the list goes on.

Shou uld your funeral be any differe ent?

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Call TODAY to schedule your NO COST Pre Planning Consultation Consultation!

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507-451-7943

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What to Watch For

Unlike stocks, bonds are slow-growing investments, meant to build equity over a longer period of time. But not all bonds are created equal. Socalled junk bonds can be a very risky investment. Unlike lowrisk investment-grade versions, these bonds are issued by companies with unsatisfactory credit ratings. They issue junk bonds in order to raise capital without paying a high interest rate — and they don’t always stick around for the long haul. So, like stocks, some bonds come with their own specific risks. It’s worth discussing these options with a qualified investment advisor who can outline the risk before you invest.

February 2022

(GS) We all know the saying frequently attributed to Benjamin Franklin: There are two constants in life — death and taxes.

Of these two, taxes are easily the most complicated and, if some people are to be believed, sometimes cause the death (usually bypaperwork).

Keep reading to learn more about taxes, who pays them and what they’re used for.

Types of Taxes

Taxes typically fall into one of three categories, the Tax Foundation says: taxes on what you earn, taxes on what you buy and taxes on what you own. All taxes start

SOMN FINANCIAL GUIDE

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Taxation 101

out as a dollar you’ve earned as to finance social insurance proincome, but the difference is grams, such as Social Security when you pay it. and Medicare.

Taxes on What You Earn Taxes on What You Buy

Income taxes are levied on the wages you or your household earn. Many income taxes are progressive, meaning tax rates increase as income increases.

Higher earners will then pay a larger share of income taxes than those who earn less. Corporate income taxes are levied on business profits, or a business’s revenues minus the costs of doing businesses.

Payroll taxes are paid on the wages and salaries of employees

Sales taxes are levied on goods and services at the point of purchase. You’ve probably seen a sales tax tally on your receipt at the grocery store. The U.S., the Tax Foundation says, is one of the few industrialized countries that still relies on traditional of things you own. They are levsales taxes as a significant por- ied on immovable property like tion of state and local revenue. land and buildings and are a key source of revenue for state and Taxes on What You Own local governments, accounting Property taxes are one of the for more than 30% of total lomost common forms of taxation cal tax collections. Property tax

revenue funds public services such as schools, roads and public safety programs.

Tangible personal property taxes are levied on things that can be moved or touched. Some of these things include business

Types of Insurance

(GS) If you’ve owned a home or a car, you probably know a little about insuring those items.

But did you know about all the other kinds of insurance you can get? Try out these products for peace of mind.

Life Insurance

Life insurance gives you the ability to cover your funeral expenses and provide for the people you leave behind in case you die. This is especially important if you have a family that depends on what you earn. Life insurance, according to Investopedia, should cover 10 times your yearly income, but with all insurance, some is better than none.

Life insurance comes in two types: traditional whole life and term life. Whole life, as long as you pay the monthly premiums, will cover you until you die.

Term life covers you only for a set amount of time. Talk to a financial professional about which kind is right for you.

changing climate, you should strongly consider flood insurance. Most traditional homeowners and renters policies don’t cover floods, so you’ll need to get that in a separate package. Most flood insurance is funded by the federal government, but can be purchased through your regular insurer.

Landlord Insurance

Renting out a property to a tenant comes with risks you can’t control, but this type of insurance is here to help. These policies typically cover things such as Flood Insurance If you live in a flood prone fire, hail and lightning damage. If area or in an area that may be- you’re on the other side of the come flood prone because of our coin, consider renters insurance

to cover your possessions. The landlord’s policy typically doesn’t do that, and renters policies are an economical way to make sure you’re protected, too.

Event Insurance

Getting married or hosting another large, expensive event can be stressful. Take some ease with an event insurance policy that will protect your investments in the big day. Event cancellation coverage will reimburse you for lost deposits and other fees, up to your coverage limit.

Liability coverage may protect you if you’re found responsible for property damage or an injury caused during your event.

equipment, machinery, inventory, furniture and cars. These make up a small share of state and local tax collections, the Tax Foundation says.

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SOMN FINANCIAL GUIDE

February 2022

How to account for a rising cost of living

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(MC) Cost of living is a significant component of financial planning. The cost of living may dictate where people live and work, and a high cost of living can influence how individuals spend their free time.

Data from Statistics Canada indicates that consumer prices rose 4.1 percent and 5.3 percent in August 2021 in Canada and the United States, respectively. As Canadians headed to the polls in late September, a survey from Abacus Data found that 38 percent felt reducing their cost of living was a key factor affecting their vote.

Similarly, a 2020 survey from TD Ameritrade found that 47 percent of Americans feel that cost of living is the biggest threat to their financial security and long-term investments. It’s worth noting that the survey was conducted prior to the pandemic. Since the onset of the pandemic, cost of living has increased considerably.

Though the fight against a rising cost of living can feel like

an uphill battle, individuals can take steps to prepare for such increases.

• Apply lessons learned during the pandemic. A recent Pew Research Center analysis of U.S. government and Eurostat data found that roughly 9.6 million workers in the United States lost their jobs in the first three quarters of 2020. That period coincides with the onset of the COVID-19 pandemic.

When forced to confront sudden and unexpected job losses, millions of individuals learned how to get by on less income.

Cost-saving measures adopted during the pandemic can be continued or reimplemented, helping individuals to combat higher energy costs and other rising expenses.

• Look for a new job or fresh income streams. A rising cost of living is a concern for people from all walks of life, but it may be especially concerning for retirees or individuals with costs like childcare that can be hard to pare back. In such in-

stances, individuals can look for new a job or fresh income streams. According to the Q3 2021 CNBC | Momentive Small Business Survey, 50 percent of small business owners say it’s gotten harder to find qualified people to hire compared to a year ago. And nearly one-third of survey respondents indicate they have open roles they have not been able to fill for at least three months. Individuals can explore local employment opportunities in an effort to find a new, more lucrative job that can help them combat a rising cost of living. Others who want to remain in their jobs can look for part-time work to supplement their existing income.

• Consider relocating. The pandemic forced many companies to transition from in office working to remote working overnight. That trial by fire could have lasting results. A 2020 survey of 317 Chief Financial Officers and leaders in the finance industry found that 74 percent will move at least 5 percent of their previously onsite workforce to permanently remote positions after the pandemic ends. The survey, conducted by Gartner, Inc., also found that nearly one-quarter of respondents will move at least 20 percent of their onsite workers to permanently remote positions. That could make it possible for millions of working professionals to relocate to regions with a lower cost of living than their current towns or cities.

The cost of living might be on the rise. But individuals can combat that increase in various ways.

February 2022

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PAGE 11

Why it pays for seniors to maintain good credit (MC) The benefits of maintaining good credit include looking more reliable in the eyes of prospective employers and securing lower mortgage interest rates when buying a home. Those rewards can benefit anyone, but they’re especially enticing to young people. But what about seniors? Do individuals stand to benefit significantly from maintaining good credit into their golden years?

According to the credit reporting agency Experian, senior citizens tend to have the best credit scores of any consumer demographic. That could be a byproduct of years of financial discipline, and there are many benefits to maintaining that discipline into retirement.

• Home buying and borrowing: Buying a home is often considered a big financial step forward for young people, but that doesn’t mean aging men and women are completely out of the real estate market. In its 2020 “State of the Nation’s Housing” report, the Joint Center for Housing Studies of Harvard University reported that the share of homeowners age 65 and over with housing debt doubled to 42 percent between 1989 and 2019.

In addition, 27 percent of home-

owners age 80 and over were carrying mortgage debt in 2019.

Maintaining strong credit after retirement can help homeowners who still have mortgage debt get better terms if they choose to refinance their mortgages.

Even seniors who have paid off their mortgages can benefit from maintaining good credit if they decide to downsize to a smaller home but cannot afford to simply buy the new home outright.

• Rewards: Retirement is often associated with travel, recreation and leisure. Such pursuits can be more affordable when seniors utilize rewards-based credit cards that help them finance vacations, weekend getaways and

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pandemic. Unforeseen medical expenses also can compromise seniors’ financial freedom. Maintaining a strong credit rating into older adulthood can help seniors navigate such financial uncertainty more smoothly. Such a strategy can help seniors secure low-interest loans or credit cards that can help them pay down sudden, unforeseen expenses without getting into significant debt.

The importance of a strong credit rating is often emphasized to young people. However, a strong credit rating can be equalother expenses associated with ly beneficial for seniors. traveling. Seniors who maintain strong credit ratings into their golden years may have more access to the best travel-based rewards cards than those whose credit scores dip in retirement.

• Unforeseen expenses: No one knows what’s around the corner, but savvy seniors recognize the importance of planning for the unknown. The COVID-19 pandemic seemingly came out of nowhere, and among its many ripple effects was the sudden job loss experienced by seniors. The JCHS report found that 21 percent of homeowners age 65 and over had reported loss of employment income related to the

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February 2022

Strategies to ease the burden of student loan debt (MC) Student loan debt in the United States is growing. According to EducationData.org, federal student loan debt has grown at an annual average rate of just under 28 percent since the start of the 21st century. Private student loan debt also is a significant burden, totaling $132 billion by the end of 2020.

As student loan debt has risen, managing that debt has become an important component of financial planning. Individuals with student loan debt can look into various strategies to help ease their debt burdens.

• Reconsider your employment. As student loan debts have risen, employee repayment assistance programs once associ-

ated strictly with government jobs have grown in popularity at private companies. The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed around the onset of the pandemic in 2020 included a tax-free provision for employer-sponsored loan assistance programs.

The tax benefits helped both employees, who did not have to pay income taxes on loan assistance money provided by their employers, and businesses, who received payroll tax exclusions on funds paid to employers via the program.

The CARES Act provision was temporary, but experts at Goldman Sachs have noted that many private companies have

gotten creative in regard to helping employees pay down student loan debt. For example, some have allowed employees to redirect PTO and vacation pay toward their student loans. Individuals with sizable student loan debts whose companies do not currently offer such benefits can look for new employment opportunities with firms that will help them pay down their debts.

• Consolidate loans. Consolidation is often viewed through the lens of simplifying loan repayment by combining all loans into one so borrowers with multiple loans only need to make a single payment each month. That impression is correct, but there’s more to consolidation than sim-

plifying repayment. The experts at Credit.com note that consolidation typically allows borrowers to change their repayment terms. Longer repayment terms will increase the amount of in-

terest borrowers pay over the life of the loans. But longer repayment terms also allow borrowers to pay less each month, which can free up money to pay bills and build savings for large purchases, including a home.

• Know your loans. Many borrowers signed their student loan documents when they were 18, while others might have signed when they were 22 or 23 and about to enter graduate

school. It’s easy for young borrowers to overlook important details like interest rates, but individuals who have multiple loans must recognize that the interest rates on loans that have not been consolidated almost certainly vary. Learn the interest rates on your loans and make a concerted effort to pay extra principle each month on the loans with the higher interest rates. Doing so can save borrowers a lot of money over time and get them that much closer to eradicating their student loan debt.

Student loan debt is a significant burden for millions of individuals. Finding ways to ease that burden can help borrowers secure their financial futures.

What Does your Credit Score Mean?

(GS) A credit score is a threedigit number that sums up all the information in your credit report into one number.

You may have two credit scores, one called a FICO score and the other a VantageScore.

The FICO score dates from the mid-1980s, while the VantageScore is a more modern invention designed to produce a more consistent score across the three credit reporting agencies.

FICO Scores

FICO scores, named for the Fair Isaac company that started them, range from 300-850.

There’s no definition of a good or bad score, but you can generally consider the mid-600s the dividing line between better rates and terms.

hand, range from 501-990. Super prime borrowers have a score from 901-990, and they get a lender’s best rates and terms for credit. Prime plus borrowers, with a score from 802-900, get good rates and terms. Prime borrowers score from 701-800 and get generally reasonable rates and terms. Non-prime borrowers score from 601-700 and highrisk borrowers get from 501-600.

High-risk borrowers are generally not offered credit.

How It’s Calculated

Both VantageScores and FICO scores weigh your payment history – if you’ve made payments on time – and the number of new credit inquiries in your history when they calculate your score. VantageScores, however, emphasize how much VantageScores of your available credit you use.

Vantage Scores, on the other FICO scores, on the other hand,

emphasize the length of your credit history and the types of credit you’re using.

A home loan may score better than a store credit card, for example.

Improving Your Credit Score

To boost your credit score, pay your bills – all of them – on time every month. Try not to use more than 30% of the credit you’re approved for at any given time, and pay off any balances as soon as you can. Keep the number of credit inquiries in a year low. An exception is made for insurance, mortgages and auto loans because lenders expect you’ll shop around for these products. You should also have a good mix of types of loans, including credit cards, auto loans and personal loans.

February 2022

SOMN FINANCIAL GUIDE

PAGE 13

How to cut costs on home renovations (MC) Do you still have an avocado green kitchen? Is your living room dank and dark? Perhaps there is only one bathroom for a family of six? Answering yes to any of these questions could serve as the catalyst for a home renovation project.

Home improvement projects come in all shapes and sizes = some with huge budgets and others that are more cost-conscious.

Regardless of what homeowners hope to achieve with their

renovations, a common goal across any price point is a desire to save as much money as possible. Home renovations can be expensive, but there are ways to cut costs.

• Assess the merit of the project. Remodeling magazine annually publishes a “Cost vs. Value Report” that lists the average cost and return on investment homeowners can expect of various types of projects. If you’re planning to sell your home soon,

it may be best to focus on repairs and renovations that will generate the most substantial ROI. • Hire a contractor. Even avid do-it-yourselfers can sometimes benefit from a contractor’s expertise, particularly for complex tasks. Don’t waste money by trying tough jobs yourself; rely on an experienced contractor who can get supplies for less money and will do the job right the first time. Compare bids from several different contractors and figure

out the best value.

• Refurbish existing features.

Rather than a complete gut and rebuild, figure out where you can revitalize existing fixtures and more. For example, refinishing existing cabinets can save you up to 50 percent compared with the cost of new cabinetry, according to Angi (formerly Angie’s List), a cost comparison and business review resource.

• Choose midgrade materials.

Certain materials may be all the rage but they come with a higher price tag. Angi reports that granite counters could be $60 to $100 per square foot. However, a composite or laminate that looks

like granite and wears well may be $10 to 40 per square foot. Figure out where you can choose middle-of-the-road materials for maximum value.

• Avoid peak seasons. You’ll pay more to install a deck or a pool right before the outdoor entertaining season. There also may be a premium to get work done right before a major holiday.

Therefore, consult the calendar to find an off time for a renovation and book it then to save.

• Do some prep work. You might be able to save by doing some of the demolition and preparatory work yourself. For example, you can tear up old car-

peting before the installation of new tile floors. Perhaps you can mend and patch up walls before a paint job.

• Buy a display item. Former showroom kitchens and baths often are sourced at a fraction of their recommended retail prices, according to Real Homes, a home remodel guide based in the United Kingdom. Retailers often update their displays and you may score existing showroom items at a discount.

Renovations can be expensive, but there are many different ways to cut costs.

Financial guidance from someone who gets you.

Getting your finances in order isn’t always easy.

That’s why I’m here. Together, we can assess your financial picture and personalize your strategy to help you: • Protect your future.

• Save and prepare for income in retirement.

• Pay for college or education expenses.

• Invest and manage your assets.

• Give to causes that matter to you.

Let’s connect to get you where you want to go.

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February 2022

Simple strategies to stretch retirement savings (MC) Running out of money is a common concern among retirees. And that anxiety is not necessarily unfounded, as a recent study from the Society of Actuaries found that people routinely underestimate just how much money they will need in retirement. Similarly, a 2019 model created by the employee benefit experts at EBRI found that nearly 41 percent of households in which the head of household is between the ages of 35 and 64 are projected to run short of money in retirement.

Such figures underscore how

important it is for younger professionals to save for retirement, but what about current retirees or those on the cusp of retiring? Individuals who fit those descriptions may need to embrace these strategies designed to stretch their retirement savings.

• Downsize your home.

Homes are many individuals’ greatest expense, and that does not necessarily change in retirement. Downsizing to a smaller residence allows homeowners to pad their savings with money earned in the sale of their homes and also reduce their monthly

overhead, as utilities, property taxes and maintenance expenditures are typically much lower in smaller homes than larger homes.

• Look for other ways to downsize. Individuals also can stretch their retirement savings by downsizing in other areas.

Lower monthly expenses by shopping around for less expensive auto insurance policies, downgrading cable television packages or cutting the cord entirely. And though individual streaming services may not be too costly, these expenses can

add up for individuals who have five or more subscriptions.

Downsizing streaming services to one or two packages at a time can help individuals keep more money in their retirement savings accounts each month.

• Be flexible with your withdrawals. The “set it and forget it” model of retirement investing helps professionals avoid the tricky process of trying to predict the markets. Retirees may take the same approach when it comes to withdrawing their money, following the industry standard and automatically with-

drawing 4 percent from their accounts each year. But individuals who want to stretch their savings should remain flexible with their annual withdrawals and routinely examine their spending habits.

An individualized approach to retirement withdrawals can help retirees avoid taking more than they need out of their accounts each year. The 4 percent rule has its merits, but retirees should recognize that they may not need to take that much out every year.

• Work with a financial advisor. Ensuring you don’t outlive your retirement savings can be

complicated, as it often involves navigating fluid concepts such as inflation. A certified financial professional can help retirees plan for changes that are beyond their control and even recommend when certain risks might be worth taking.

Many individuals will need to stretch their retirement savings in the years ahead, and various strategies can help individuals do so.

Common Credit Card Perks (GS) More than a way to pay for unexpected expenses or rack up airline miles, many credit cards come with perks that you may not know about.

Check your statement carefully or call your card issuer to ask for some of these common credit rewards.

It’s possible to achieve the retirement of your dreams.

Prepare now, so that when the time comes, you can enjoy retirement on your own terms. Contact me to learn more today.

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Cash Back

Many cards offer cash back for types of purchases or payments. There are, however, some pitfalls to be aware of. Some programs cap the cash back annually, cash back rewards and amounts can change on a regular basis or the cash back may depend on how quickly you pay off your balance.

Also look to see if your card gives you discounts with certain merchants or on certain types of purchases. This is similar to cash back, so some of the same warnings apply here, too.

Insurance

Some credit cards offer insurance on rental cars if the card is used to book the rental. Others offer insurance that makes payments on behalf of the cardholder if they can’t make their payments because of a loss in income. Buyer beware, however.

The Consumer Financial Protection Bureau has taken action against some of these policies for unethical practices in sales and distribution of these policies.

protection plans to help offset the cost of repairing or replacing your phone. As with most perks, however, there is a but. Some cards cap their plans, so if you have the priciest new model, it may not be much help.

Free Shipping

Online shoppers, take note.

Some credit cards offer free ShopRunner access, giving you free two-day shipping with more than 100 online retailers.

Enroll for free with your eligible card and add to cart.

Event Access

Always on the go? Your card may be able to help with that.

Many credit card issuers will offer exclusive access to enterDiscounts or Gift Cards Cell Phone Protection tainment events, such as presale Another common induceIf you pay your cell phone tickets, priority seating and comment to open a card is a free gift bill with your credit card, that plimentary access. card for opening an account. card issuer may offer cell phone

February 2022

SOMN FINANCIAL GUIDE

Cash-out vs. change term mortgage refinancing

(MC) Mortgage refinancing has long been a valuable option for homeowners looking to save money. Refinancing has become an especially enticing option since the onset of the pandemic, as mortgage interest ranks have sunk to historic lows. Despite that, a recent survey from Bankrate found that 74 percent of homeowners who have had the same mortgage since before the pandemic have not refinanced.

Homeowners who haven’t yet refinanced but are considering doing so can consider two types of mortgage refinancing options.

• Cash-out: According to the mortgage experts at MortgageCalculator.org, a cash-out mortgage extracts equity from ta home. Homeowners in the United States have more than $6 trillion in untapped home equity, and that can be used to upay for various expenses, includting home improvements, tuition and medical costs. The financial experts at Nerd Wallet note that a cash-out refinance works by .replacing an existing mortgage ewith a new home loan for more money than homeowners owe on their homes. The difference is then given to the homeowners in cash, which they can use for the aforementioned expenses or other costs, including paying down high-interest debts. Lower interest rates typically entice homeowners to refinance, but if homeowners are solely looking for lower rates, then a cash-out refinance is probably not the best option.

• Change term: Also known

PAGE 15

What is a HELOC? (MC) Homes symbolize many different things, including an investment in one’s future.

Bank of America says a home equity line of credit, often referred to as a HELOC, is a line of credit secured by your home.

It is a revolving credit line that can be used for various expenses.

The Credit Union of Southern California reports that a HELOC credit line is issued by a lender and has a limit and variable interest rate that is secured by the equity in your home.

A HELOC is similar to a credit card in that they both provide revolving credit. Investopedia says revolving credit is an agreement that permits an account holder to borrow money repeatedly up to a set dollar limit while also repaying a portion of the current balance due in regular payments over time. But unlike credit cards that may have high interest rates, the interest rates of HELOCs often are lower - a significant advantage when

paying off large amounts of bor- owed on the mortgage. HELOC rowed money. terms also vary, but they can run for as long as 30 years.

Even though there are many benefits to HELOCs, there is a downside to using a home as collateral. Investopedia says home equity lenders place a second lien on the home (in addition to the first mortgage lien). Defaulting on HELOC payments can result in legal action and a home being repossessed. AnHome equity accessed other potential pitfall is a lender through a HELOC can be a great may reduce or freeze your credit source of value for future reno- line after missed payments. Even vations, large purchases such as though banks attempt to limit cars, educational expenses, and how much can be borrowed alternative debt repayment. The through HELOCs to help avoid credit limit of a HELOC depends potentially negative situations, on your credit standing and un- they are not without risk. paid debts. It also is determined Borrowers considering a HEby the market value of the home LOC have other options, includand how much you owe on your ing home equity loans. Homemortgage. According to Credit owners can speak with financial Karma, banks tend to limit the advisors to learn more about amount borrowed to no more their options for maximizing eqthan 85 percent of the appraised uity in their homes. value of the home, minus what is

Insurance Coverage

to protect your home and so much more as a rate-and-term refinance, a change term is a refinance characterized by shifting to a lower interest rate. Homeowners also may refinance utilizing a change term to shift from an adjustable rate mortgage to a fixed-rate loan. Change term refinancing also is popular for homeowners who want to switch from the standard 30-year fixed rate to a 15-year fixed rate. This can shorten the term of the loan, saving homeowners a lot of money in interest over the 15year period. However, homeowners should note that switching from a 30-year to a 15-year loan will lead to higher monthly payments. This switch might be most suitable to individuals earning significantly higher salaries than they were at the start

of their initial mortgages and/or homeowners whose cost of living has recently decreased due to certain changes, such as children graduating from college.

Homeowners also may consider change term mortgages to lower their monthly payments. In such instances, they simply swap out an existing 30-year mortgage for a new 30-year mortgage with a lower interest rate. That can save money up front, but homeowners should calculate the longterm interest costs of switching to a new 30-year mortgage. The lower monthly payments might be tempting, but homeowners may ultimately pay more in interest over the life of both loans by switching to a new 30-year mortgage.

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SOMN FINANCIAL GUIDE

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