Rockville financial planner Howard Perlroth says he’s often struck by how many couples have never discussed some of life’s biggest money decisions.
In countless conversations, he’s asked the pair sitting in front of him about who’s going to pay for their child’s college education. “One says, ‘We’re going to pay it all.’ And the other says, ‘[The child] is going to have skin in the game,’ ” says Perlroth of Gartenhaus Wealth Management. “And they say it at the same time, and then they look at each other.”
Perlroth and other financial advisers say many people avoid having conversations about money—a tricky, sometimes awkward subject. But it doesn’t have to be scary, they say, if you’re honest about acknowledging your priorities and if you create a plan that fits them.
A common misconception is that financial planning is only for the uber-rich. Brad Sherman says he was raised by a single mom who worked as a teacher in Montgomery County. Because he had to help her financially, he says, conversations about money were normal in his home.
Though that background helped put Sherman, a Gaithersburg-based financial adviser, on his career path, he’s since found that many people view wealth management as something that excludes them. “A lot of folks say, ‘Well, you have to have $4 million to talk about money,’ ” says Sherman, of Sherman Wealth Management. That’s not true, he counters—everyone should think about money, regardless of how much they have and what stage of life they’re in.
So whether you’re just starting your career, beginning to nest, or settled in and contemplating retirement, here’s advice from some of the area’s top finance professionals to get you thinking.
Is it a good idea to experiment with NFTs? Cryptocurrency? Other investment fads?
Short answer: No, says Alvin Carlos of District Capital Management, based in Upper Northwest Washington, D.C. While a buzzy Elon Musk tweet might have made Dogecoin sound like an enticing opportunity, buying it is more akin to speculation than investing, Carlos says. “It’s essentially gambling,” he says. “The crypto coin that you buy most likely has no inherent value. It’s only as valuable as society dictates.”
In other words, the currency is a bubble that could pop without warning. And not only is the crypto market unstable on that count, bitcoin and other currencies are rife with manipulation, Carlos says, making them that much riskier to buy into. “So we try to advise clients to stay away from these fads,” he says.
The Montgomery County housing market is famously competitive. What should I keep in mind as I search for a rental?
Generally, you don’t want to spend more than about 29% of your gross income on housing, Perlroth says. So in the expensive D.C. area, he adds, you might have to look for housing away from the urban centers.
He advises talking to friends who live in the city and those who live farther out about the pros and cons of each. And if you think you’d never rent in the “suburbs,” Perlroth suggests spending a night or two in a hotel in the area to see if you like it. “Don’t just summarily dismiss [the suburbs] based on predisposed notions if you don’t have an experience of it,” he says.
Matt Losak, executive director of the nonprofit Montgomery County Renters Alliance, suggests young people consider roommates or even check out the county’s home-sharing program, which pairs homeowners with potential renters. The program helps renters find affordable housing, Losak says, and also aids empty nesters or other homeowners who have spare rooms and need some extra income. More information is available at hiphomes.org/counseling-and-education/home-sharing.
Inflation is constantly in the news. How do I cope with it?
Most people don’t know where about 8% to 10% of their monthly income is going, Perlroth says. So for starters, he says, you should develop a formal budget and make sure you’re aware of how you’re spending your money.
Another idea, Carlos says, is to be sure you’re making the most of credit card reward programs as you buy your gas or groceries. For restaurant-loving Montgomery County residents in particular, Carlos recommends a card that gives you cash back when you dine out.
I’m just getting started in my career. What are the most important budgetary strategies to keep in mind?
Sherman says he always starts this conversation by helping people separate their wants from their needs.
Paying bills on time is important so you don’t stretch yourself too thin financially, he says, and if you have debt, you also want to understand which expenses could grow based on rising interest rates. For instance, credit cards and some student loans could have variable interest rates, while a mortgage or car payment might be fixed, he says.
You also should cancel that Hulu account you might have forgotten about. “People have subscriptions and other things—you hear from our 20- and 30-year-old clients—that they don’t even know they’re still on,” Sherman says.
How do I build credit?
For one thing, Carlos says, you should never close your oldest credit cards, even if you’re trying to clean out your wallet. “The oldest credit card will contain a lot of your credit history,” he says. “And the longer your credit history is, the better your credit score.”
Another smart move is to avoid using more than 10% of your credit limit, he says, because crossing that line could lower your score. If you want to charge more than that amount, you can try requesting a credit limit increase so you can put more on your card without going over the 10% threshold, he adds.
If you’re squeamish about credit cards because you or your family have struggled with debt in the past, Carlos says it’s OK to rely largely on a bank card. But in that case, he still advises using credit cards to buy gas or to pay a fixed monthly bill. “If your credit activity is zero, that also dings you on your credit report,” he says.
I’m getting married. Should I sign a prenup first?
Engaged couples often don’t want to consider that their relationship could one day meet its demise—which can make conversations about prenuptial agreements uncomfortable, says Stephanie Perry, managing partner at the Bethesda firm of Pasternak & Fidis. But it’s smart to decide how you’d divvy up assets in the event of a breakup, she says.
Many couples like to specify that the possessions and money they acquire during a marriage be divided during a divorce, but an inheritance or wealth brought into the relationship is off the table, says Perry, who focuses on estate planning and administration.
Perry also advises parents to broach the topic of prenups with their adult children before a potential son-in-law or daughter-in-law is in the picture so the discussion feels less pointed. “Because if you have the conversation after I’m engaged and it’s about my fiance, it’s not about protecting the family wealth,” she says. “It’s about, ‘You don’t like my fiance.’ ”
What should I know about starting a 529 account for my kids?
Deborah Gandy, a wealth adviser with Chevy Chase Trust, says a 529 account can be an excellent tool for families to save for their kids’ college education. You can contribute up to $16,000 a year, Gandy says, without triggering the federal gift tax.
Maryland is among the states that lets you use 529 accounts to cover K-12 expenses and also contributes matching funds if the yearly household income is below a certain threshold: $112,500 for individuals and $175,000 for married couples. As long as the money is spent for educational purposes, it’s not taxed, Gandy says. “So it’s a really, really good way to set funds aside,” she says.
What should first-time homebuyers know before they start looking in this market?
Avi Adler, president-elect of the Greater Capital Area Association of Realtors (GCAAR), recommends contacting lenders and having a loan preapproval letter in place before you start looking for a house—especially in this competitive real estate market. You need to be able to move quickly if you find a place you like.
It’s also important to do your research in advance before looking to buy in Montgomery County, where the median home sale price was $566,000 in August, according to the association. Even though it’s still a seller’s market overall, each neighborhood is different, Adler says. So it’s a good idea to look around and figure out where houses might be lingering on the market a little longer—and where you might find a better deal. Adler also recommends checking out GCAAR’s guide to homebuyer assistance programs, available online at gcaar.com/resources.
Zelda Heller, a Bethesda-based real estate agent for Long & Foster, says townhomes could be a good option for young buyers and are probably a better choice than condos, which can come with steep fees.
What factors should I consider before changing jobs?
Brian Salcetti, CEO and managing partner at Sandbox Financial Partners in Bethesda, says workers should think about the economic outlook before jumping to a different company. Though the unemployment rate has been low, some experts are predicting a recession. “You hate to be the last one in, and then the economy goes into recession and then your employer has to let some people go,” he says.
You should also focus on your job category, Salcetti adds. Is your industry growing or shrinking? And would your potential job be essential to the employer, or would it be vulnerable to cuts? “Always listen, always look, always be aware of what your value and your worth is,” he says. “But be careful changing jobs if we are on the potential onset of a recession.”
Any advice about preparing for a recession?
Though people tend to get nervous when their assets plummet during a recession, one of the worst things you can do is sell when stock prices are low, says Jastinder Sohi, a wealth adviser for Chevy Chase Trust. “If you do that, what you now have done is, you’ve converted a paper loss into a real loss,” he says. “You can’t make that back.” On the other hand, if you stay the course, he says, the markets have a chance to rebound, and you may recoup the dip in your portfolio value.
Salcetti also suggests beefing up your rainy day fund if you see an economic downturn coming. The amount people should keep in reserve varies based on individual circumstances, but he advises saving enough to cover expenses for between three and six months. And if you’re preparing for hard times, he says, you might want to consider setting aside enough to pay the bills for a year.
What’s the best way to build wealth?
If you have a 401(k), make sure to put the maximum amount in it, Sohi says. “If the employer is going to give you 75 cents when you put in $1, that’s a great rate of return,” he says. “There’s nothing out in the investment world that is that safe, that would give you that kind of return.”
How can I help my kids gain financial independence?
Many parents struggle to withdraw financial support from children entering adulthood, says Keith Barberis, director at Barberis Wealth Management, a Bethesda-based firm that operates under the umbrella of Steward Partners Global Advisory in D.C. “They’re accustomed to reaching in their pockets and subsidizing their children, because that’s what they’ve done for 20-some years,” he says.
But clients must make this vital transition, both to meet their own financial goals and to help their children become self-sustaining, Barberis says. He’s had clients who have undermined their own retirement plans because they won’t stop diverting money toward their adult kids.
Though this can be a challenging shift, Barberis says he encourages clients to broaden their perspective, so it’s not just about them versus their kids. It’s important to recognize that when you continue to support adult children, you might be compromising your long-term ability to provide financially for your kids and other loved ones, he says.
And Barberis says his role as a third party can help defuse tense family conversations. He says he tells his clients: “Put the blame on me.”
What’s an obvious budgeting move that gets overlooked?
Barberis says many people forget to plan financially for the end of their lives, a period when they might be dealing with significant health care costs or have to pay for some level of day-to-day assistance. But disregarding these potential expenses will impact what people can leave behind to their kids or other loved ones, he notes. And for married couples who haven’t set aside these funds, the care needs of one partner can place a financial burden on the other, he says.
It’s a good idea to estimate long-term care expenses for roughly the last three years of life and set goals for saving that amount, Barberis says. He bases that on the federal government’s estimate that women need an average of 3.7 years of long-term care (for instance, in a nursing home or assisted-living facility, or from an in-home caregiver) at the end of their lives, and men need an average of 2.2 years. People should think ahead about how they want to age—whether it’s in their homes or in a care setting—and figure out what that would cost.
Any advice for downsizing in a way that makes financial sense?
People with a lot of equity in their homes have more flexibility to explore buying a smaller place when preparing for retirement, Adler says. Like first-time homebuyers, people looking to downsize should educate themselves ahead of time and start planning well before they want to move, he says.
If you’re interested in buying a condo, remember to factor in the monthly fees on top of your mortgage. If a condo isn’t affordable, Heller says renting one might be worth a thought. If that’s not an option, consider purchasing a rambler or a one-level home that will allow you to age in place.
“You’ve got a lot of things to consider. You’ve got to see your physical condition, your financial condition, proximity to where you need to be,” she says. “Every situation is different.”
Bethany Rodgers is a freelance writer and former Bethesda Beat reporter. She writes about politics and government and, in her spare time, tries to keep plants alive.
This story appears in the November/December 2022 issue of Bethesda Magazine.