Time to “Spring” forward and get your finances in order

Peace and blessings everyone, this is Kinji Ridley, “The Wealth Builder” bringing you Talking $$$ and Sense. We’re finally in the midst of spring, bringing rebirth, longer days, better weather, and renewed optimism. Consider the toll the COVID-19 Pandemic has caused everyone, not only social distancing but emotional and mental stress due to most individuals not having the adequate financial resources to survive during these times. It’s during this time that we “Spring Clean.” We should take an opportunity and review our finances to ensure that our financial house is in order. One of the simplest things individuals can do to begin to get their financial house to retrieve, review and organize their important financial documents. These documents include Wills, Power of Attorney, Trusts, Burial Plot documents, Life Insurance Policies, Retirement Plans, and any other documents that can impact their life. Knowing where these documents are, reviewing them for accuracy, and if necessary, revise them to make adjustments to reflect your current wishes is something everyone should do annually. This way, when the time comes when these documents are needed, there’s no rush or struggle to retrieve or utilize them.
Another good thing to do to help get your financial house in order is to develop a budget and determine whether you have enough “EMERGENCY” funds to survive for 1-2 months without income. It is not a difficult task to develop a budget. It’s as simple as putting down your income and all of your expenses (leave nothing out) and seeing if you have money left at the end of the month. Once you’ve developed your monthly budget, take your monthly expenses and multiply them by TWO (2), so you can determine what the minimum your Emergency Fund should be. Now to begin saving toward this goal, you should go back to your budget, look at areas where you can potentially cut back on spending, and start putting these savings in an account for your Emergency Fund. While you are developing your Emergency Fund, a crisis can occur. That leads to the big question on many people’s minds: What if I don’t have 1-2 months of income saved up? What can I do?
Many individuals have several “Assets” that they tend to overlook that could help keep them afloat during a financial crisis. Most people who work for private and public employers have several of the following accounts set up and don’t realize that they can access these funds in an emergency. Now, while they may carry taxes and penalties for accessing them earlier than they were supposed to be, I advise clients that it’s better to pay taxes and penalties NOW, rather than LOSE EVERYTHING and have these accounts still just sitting there. Here are several accounts that many working people don’t utilize in the case of emergencies:
 Deferred Compensation Retirement Accounts (401k, 403b, 457c, Thrift Savings, IRA’s)
 Annuities
 Cash Value Life Insurance Policies
In regard to the deferred compensation retirement accounts and annuities, these accounts provide income to individuals when they finally decide to retire. To escape paying penalties, you are supposed to be 59 ½ or older before accessing these funds. However, you can access these funds earlier, especially in the case of emergencies (I think a Pandemic with loss of income would qualify as an emergency) and have to pay a 10% penalty on the amount withdrawn as well as having 10% of the amount withdrawn withheld for taxes. Again, this isn’t the optimal strategy to utilize for emergencies. However, if this is your only option, it’s there to be used.
Accessing the cash in a Cash Value Life Insurance is a little easier and carries fewer consequences. Depending upon the amount of cash value within the policy, a simple policy loan request can be made, and the amount will be sent to you within days. NOTE: To access this money without paying taxes, it has to be done via a policy loan, meaning you are required to pay this money back. This can be done by making your regular policy premium payments or separately. If you do not put the money back into your policy, it would either: A. Become taxable if your policy cancels, or B. Be deducted from your death benefit if you happen to pass away and the amount is outstanding.
While utilizing these accounts may delay or even force someone to start their long-term retirement strategy again, in comparison to the other option (complete financial ruin), this may be the best option to take. Again, I recommend using these accounts this way ONLY if you don’t have any other options.
Situations will come and go, but if you build a solid financial house, you’ll be able to weather any storm.
Peace and Blessings
The Wealth Builder, Kinji R W Ridley, CFEd, MBA
Kinji can be reached at (484) 900-4005 or email at admin@yourfuture1st.com, www.mywealthbuildingblocks.com