Although saving money may be more difficult, especially if people are out of work or if they’ve slowed down, the importance of it still remains.
“The now should not be viewed as any different than any other time,” said Randy Carver, president and founder of Carver Financial Services, Inc. in Mentor. “It’s important to save.”
Alongside saving, getting a match on a 401(k) contribution is something to consider if it’s available to them, Carver said.
“That’s the first thing they should do because that’s essentially free money at that point,” he said. “Also, money that’s in a 401(k) or a (Roth IRA) — it’s not considered an asset if you go for financial aid for your kids and it’s also protected from creditors in Ohio if something were to happen.”
In addition, setting up a regular systematic withdrawal from a checking to a savings account is an important factor in saving. It can become difficult to move the money or write a check because people become busy and forget, he said.
“By setting up an automatic investment program, it’s just going to happen,” Carver said. “A lot of people feel like, ‘I can’t do very much, so I’m not going to bother.’ Anything is better than nothing, so whatever you can do is going to be better than nothing, whether you do it on your own or work with a financial advisor.”
“If you saved $100 a month from age 25 to 35 and then stopped, and somebody else started at age 35 and saved all the way to 60, you would have more money than they would because of compounding (interest),” Carver added. “The sooner you start, the better.”
There are two essential things that need to be done in order to save and manage money — living within means and getting onto the compounding table, said Bradley G. Brown, president of Royal Paladin Group in Willoughby, which offers securities through First Allied Securities, Inc.
“Albert Einstein said the most powerful force on earth is compound interest,” Brown said. “You need to save for the future as well as live for today.”
Financially, the greatest thing that can come out of the novel coronavirus is the learning experience of what is needed the most, he said.
“What do they need to manage an emergency so that as they rebuild their finances in the future, that they keep that in mind and they don’t repeat that mistake,” Brown said. “It may be a very valuable resource in the future if they’ve learned from the situation.”
Another key thing people should consider learning is the 1970s marshmallow test, Brown said. That was a study done in front of children. It’s a test of understanding delayed gratification.
“They put a marshmallow in front of a young kid and said you can eat it right now or you can wait until I come back,” he explained. “When I come back, if you have not eaten it, I’ll give you another marshmallow and you can have two.”
Savings, at a very early age and understanding money, is crucial, Brown said. In addition, the longer someone is on the compounding interest table, the more the amount grows.
In the world of tax, people who choose to do their taxes on their own may not be aware of things that might be able to lower their tax bill because it’s not their area of expertise, said Paul Pahoresky, one of two partners at JLP CPAs in Mentor.
“They’re going to get a return that’s not going to be wrong, but they may not be reducing all of their tax obligation and getting as big of a refund as possible,” Pahoresky said. “For what it costs to have a paid preparer do it, it’s many times money well spent. The paid preparer can get them more than the fee is going to cost them.”
Although TurboTax can be a great product, it’s still a software product, he said. While a software package is used at JLP CPAs, staff have the training and education, he said.
“A friend has been doing his own returns for years and nothing has been wrong about his return, but when we prepared his return, we saved him $1,400 that he wasn’t going to know about,” Pahoresky said. “We’re not just putting numbers in. We’re looking at other opportunities.”
Another new tax law implemented this year could easily go missed, Pahoresky said.
For 2020 and going into 2021, people are able to take for 2020 up to $300 as a charitable contribution that is above and beyond their itemized deduction. Even if the standard deduction is taken, if someone has charitable contributions, they should let their preparer know.
“The more organized a person is, the more beneficial it is,” Pahoresky said. “If they do have their own business, the biggest thing I see people doing there is you don’t pay tax on what you collect. You pay tax on what you collect minus all of your expenses and they let those little expenses fall through the cracks.”
Pahoresky, who has been preparing taxes for nearly 30 years, said no one goes into business looking forward to doing bookkeeping, tax returns and payroll processing.
“We’re a necessary evil out there and at some point, when a person gets big enough with their business, they realize having their spouse try to do this stuff begrudgingly or themselves trying to do it at 10 p.m. at night isn’t working for them,” he said. “It’s having that professional there is going to help them.”
Carver started his financial advising journey at the age of 21, the same age that he opened his first office.
“I’ve been in the business since 1986. We actually manage $2 billion for clients around the world and I started out knocking on doors — every door in Mentor to get started,” Carver said. “It’s one of those things. You’re helping people and changing their lives, and the nice thing is now, because I’ve done it for so long, I can see the results off the planning that was done 10 or 20 years ago.”