Yahoo! Finance Feature: Transitioning Into Retirement: A 2024 Financial Checklist→

Andrew Van Alstyne had the privilege to be featured in Yahoo! Finance to talk to readers about the preparing for retirement in 2024.

Andrew discusses a systematized checklist that can be utilized in the years leading up to, and then through, retirement.

Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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Recent Articles Andrew Has Been Featured In:

Financial Planning Feature: American's Top 5 Financial Regrets of 2023→

Andrew Van Alstyne had the privilege to be featured in Financial Planning to talk to readers about the financial regrets of 2023.

Andrew discusses how one of the biggest missed opportunities was missing out on higher yield savings accounts and how inflationary risk is all too often under valued for the impact in can have on the real rate of return of an investment.

Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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Recent Articles Written by Andrew:

Recent Articles Andrew Has Been Featured In:

Yahoo! Finance Feature: 13 Key Signs You’ll Always Be Middle Class→

Andrew Van Alstyne had the privilege to be featured in Yahoo! Finance to talk to readers about the behaviors keeping them middle class.

Andrew discusses how certain financial habits are keeping high-income earners from elevating their socioeconomic position.

Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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Recent Articles Written by Andrew:

Recent Articles Andrew Has Been Featured In:

Yahoo! Finance Feature: How Much the Average Florida Retiree Should Have in Their Savings Account→

Andrew Van Alstyne had the privilege to be featured in Yahoo! Finance to talk to readers about the factors to consider if you want to retire to the sunshine state.

Andrew discusses the benefits to consider when retiring to a state without income tax as well as strategies that can be applied more broadly.

Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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Recent Articles Written by Andrew:

Recent Articles Andrew Has Been Featured In:

GoBankingRates Feature: Net Worth for Baby Boomers: How To Tell Whether You’re Poor, Middle Class, Upper Middle Class or Rich→

Andrew Van Alstyne had the privilege to be featured in GoBankingRates to talk to readers about gaining clarity on the blurred lines between classes in America.

Andrew discusses the differentiating factors in each wealth segment, and how to properly manage your assets based on the one you’re in.

Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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Recent Articles Written by Andrew:

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The Order of Operations for Retirement Savings

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One of the most common questions people ask me is how to determine the best way to save for retirement. It’s a fair question because there is no one-size-fits-all retirement saving and investing approach. Each person’s unique financial situation can impact how they save for retirement. So, before we jump into a general recommendation for the order of operations in retirement savings, consult a financial advisor-–like myself-–to discuss your individual financial considerations that can influence your retirement outlook.

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Step 1: Work-Based Retirement Plan

Employer retirement plans, such as 401k, 403b, or 457, are often the best and simplest way to begin retirement savings. Not all plans are created equal, depending on your employer, but these plans contain some significant benefits worth taking advantage of.

Minimal Barrier to Entry

Employer-sponsored retirement plans typically have low to no barriers to entry. In most cases, employees are auto-enrolled in the company plan, with some employers requiring a small contribution from each employee. If not automatically enrolled, opting into the plan is often as simple as filling out a few forms. 

Matching Incentive

One widely recognized benefit of employer plans is the associated company match. While not mandatory for all employers, a company match is becoming a common addition to benefits packages. I like to call this “free money”. By contributing a percentage of your paycheck, your employer agrees to match your contribution up to a specified limit. For example, “Employer agrees to match 50% of employee’s contribution up to 6%”. This means that if you contribute 6% of your paycheck, your employer will add an additional 3% to your contribution. This is a key reason why work-based retirement plans are so effective.

Automatic Deduction

The final distinction of these employer plans is that your contributions come directly from your paycheck before you receive it. This makes the process of saving for retirement very simple and automated. Automatic deduction enables you to save for retirement before recognizing that money as income.

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Step 2: Emergency Fund

I know what you’re thinking—having an emergency fund has nothing to do with retirement savings. While it doesn’t directly count as retirement savings, it’s a necessary step in the equation. To fund your retirement, you need to ensure that your current financial situation is under control. The control starts with having a safety net in place. An emergency fund allows you to manage your current financial picture before addressing your future financial picture. By establishing an emergency fund, you can stay on track with your retirement goals when unexpected expenses arise rather than halting retirement contributions to cover unforeseen costs. Once you’re contributing to your work-based retirement plan and have an emergency fund established, we can move on to other retirement savings accounts.

Step 3: Individual Retirement Accounts

Individual Retirement Accounts (IRAs) are often the next step in retirement savings. These accounts are separate from employer plans but still hold numerous benefits. There are two main types of IRAs, each effective depending on individual financial considerations. While this won’t be a deep dive into these accounts, here is a quick overview of their function and benefits.

Traditional IRA

A traditional IRA is a pre-tax retirement account. Contributions are made pre-tax, resulting in a current-year tax deduction. The money invested in the account grows and is taxed at an ordinary income rate when withdrawn. This is often referred to as tax-deferred, meaning that you defer your taxes until withdrawal.

Roth IRA

A Roth IRA is considered a post-tax retirement account. Contributions happen after taxes are taken out of your income. Since you pay taxes upfront, that money grows tax-free. Regardless of your tax bracket at withdrawal, you won’t have to pay taxes on the money in your account, assuming you follow proper withdrawal guidelines.

Which One?

This is where a professional comes in handy. Many individuals benefit from utilizing both IRAs at different points in their careers, often dictated by their current income. In most cases, ask yourself, “What is my current tax bracket compared to my retirement tax bracket?” If your current tax bracket is higher than your projected retirement bracket, it might make sense to contribute to a traditional IRA over a Roth. But a Roth could be the most efficient option if your current tax bracket is lower than your projected retirement tax bracket. The maximum contribution for an individual in 2024 is $7,000 for those under 50 years of age and $8,000 for those 50 and above.

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Step 4: Health Savings Account

Health Savings Accounts (HSAs) are great financial tools for some individuals. An HSA is primarily a form of health insurance an employer could offer. It’s a high-deductible plan that allows you to put money into an account for qualified medical expenses. HSAs often have an employer contribution attached. Due to the high deductible, these plans are great for healthy individuals with lower medical needs.

There’s a point where an HSA can secondarily be used as a retirement savings account in addition to its primary use as a health insurance plan. This is when you have unused money in the plan to be invested. This allows you to utilize the “triple-tax advantage” of using an HSA as an investment vehicle. Contributions are tax-deductible, while the earnings and withdrawals are tax-free when used for medical expenses. After the age of 65, withdrawals can be taken from your HSA account for non-medical expenses and taxed like a traditional IRA. For many individuals, the HSA functions as a great tool for wealth accumulation after maxing out your IRA.

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Step 5: Taxable Account

The final piece of the puzzle for retirement savings is a taxable account or brokerage account. This account does not offer the same tax benefits as the previously mentioned accounts, which is why it is last on the list. Contributions to these accounts occur after taxes, and the growth or income produced each year counts towards your taxable income for the year. With that being said, the benefit of this account is that you can contribute and withdraw as you please. Because the money is likely invested, it may take a few days to sell and withdraw, but there is no age limit to take the money out. What you lose in tax benefit, you gain in liquidity.

These accounts have multiple purposes but are commonly used to create a “bridge account” for retirement. Because work-based retirement plans, IRAs, and HSAs all require you to be a certain age before making withdrawals, you can use a taxable account to save and invest money if you decide you want to retire early. This account functions as the “bridge” to fund your life from when you retire until you start collecting Social Security or retirement account distributions.

As I mentioned at the start, this is not a blanket approach to retirement savings for everyone. While the structure may work for some, it is important to talk with an investment professional to consider how your income, retirement plan, and goals will impact your strategy. What’s universal about this information is that everyone can contribute to retirement savings in multiple ways to ensure their financial picture is on track.

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References

https://www.bogleheads.org/wiki/Prioritizing_investments

https://www.bogleheads.org/wiki/Health_savings_account

https://thecollegeinvestor.com/1493/order-operations-funding-retirement/

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

An X-ray of Grand Rapids Hospital Retirement Plans: Which One is Best?

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Employer Retirement Plan Details: Why Should You Care?

Employer retirement plans — such as 403(b)s and 401(k)s — are usually a large part of the financial plan for providers, nurses, and other medical professionals. The details of these plans can be confusing so I thought it would be helpful to compare and contrast the plans of the four larger hospitals in Grand Rapids, MI for you.

• Corewell Health-Empower

• U of M Health West-Principal

• St. Mary’s Trinity Health-Fidelity

• Mary Fee Bed-Empower

Understanding the details of your employer plan can lead to a huge difference in your account value at retirement. It should also be factored in when deciding where to work, as it is part of your compensation package. Different aspects of these plans can make them better or worse, I will assign them a Heath Biller score ranging from 0 to 10 — since that is the range used for pain assessments. 10 will be excellent and 0 will be horrible. Let’s X-ray the plans.

*Full disclosure, I have previously worked at Corewell Health & Mary Free Bed

Eligibility

This is when you are allowed to start participating in your company’s retirement plan. Due to compounding interest, the sooner you can start participating the better.

Automatic Deferral

This is when a company automatically enrolls you into the plan at a certain contribution rate when you get hired. The other option is having you opt into the plan yourself, which sometimes doesn’t happen. Automatic deferral is usually much better since it helps you start investing sooner. Life can get busy and procrastination is real.

Employer Matching Contributions

This is the amount of money that your employer contributes to your account on your behalf. It can be matching contributions which is usually a percentage of what you contribute. They can also make a non-elective contribution which means they contribute money to your account even if you don’t contribute anything. A higher rate here is better since that is more money towards your account.

Vesting Schedule

This is the length of time you have to stay working at the company before you are eligible for their matching contributions. If you leave the company before this period of time, they will take their matching contributions back from your account. The shorter the vesting schedule the better.

Roth Option

For a long time, most companies only offered Traditional contributions as an option for their plans. This means you get a tax deduction now but will have to pay taxes down the road when you take the money out. More companies are now offering a Roth contribution option. This means you do not get a tax deduction now but when you take the money out down the road, it will be tax-free. Sometimes Traditional contributions are better and sometimes Roth contributions are better. Having a Roth option is beneficial as it allows flexibility for your specific situation. If you want to learn more about Traditional vs. Roth contributions, read this blog post.

Plan Fees

These are the fees charged to your retirement account by the plan providers for helping set up and manage the retirement plan. Lower fees here mean less money is coming out of your account.

Investment Options

These are the range of investment options the plan offers inside the account. You want to make sure you are contributing to your account, but you also want to be aware of how the money is invested inside your account.

And the Winner is…

Saint Mary’s-Trinity Health with a score of 60/70 (86%). The aspects of their plan that stood out the most compared to the competition were: their employer contribution, their plan fees, and their investment options.

The other plans are pretty decent, I have seen much worse. I would have liked to have seen more automatic deferrals, higher employer matching contributions, and more target date funds as the default investment option. Hopefully, this has helped you better understand the plan where you work or evaluate the plans of future employers you are considering.

Please reach out if:

• You work for one of these hospitals and have more questions about your plan and what you are invested in

• You work for a different medical facility and would like me to help you review the retirement plan they offer

• You work for a facility that currently does not offer a retirement plan but would like help setting one up

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Yahoo! Finance Feature: Why Your Idea of Retirement May Be Wrong: And What You Can Do To Better Prepare→

Andrew Van Alstyne had the privilege to be featured in Yahoo! Finance to talk to readers about the importance of preparing for expenses in retirement.

Andrew discusses why retirees must plan on having similar, if not greater expenses in retirement to those they’re experiencing in their working years and how they can maximize their cash flow to support their financial independence.

Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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Pulse Check: Why Healthcare Professionals Should Monitor Their Credit Scores

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What are Credit Scores?

Let’s start by first reviewing what a credit score is. It is a number assigned to you by a credit reporting agency that helps creditors obtain a quick snapshot of your creditworthiness. Equifax, Experian, and Transunion are the three main reporting agencies in the United States and the credit score number can range from 300 to 850. (Source: Experian; link below)  

When you apply for a credit card, a car loan, insurance, or a home mortgage; the lender is going to look at your credit report & score to help determine if you qualify and meet their standards to get approved. By proactively understanding and taking steps to get your credit score high, you should have a better chance of getting approved for credit in the future. 

There are 5 different ratings assigned based on your credit score number.

• Poor is considered 300-579

• Fair is considered 580-669

• Good is considered 670-669

• Very Good is considered 740-799

• Exceptional is considered 800-850 

I would recommend striving to get your credit score to at least Good and if you want the best rates and approval chances then keep going until you get to Very Good or Exceptional.

Factors Contributing to Your Credit Score

Your credit score number is calculated based on six different categories: Payment History, Credit Utilization, Derogatory Marks, Length of Credit History, Total Number of Accounts, and New Credit Inquiries. Payment history, Credit card usage, and Derogatory marks have the highest impact on your credit score so those areas would be the highest priority to focus on. Credit Age has a medium impact on your overall credit score. Total accounts and Hard inquiries have the lowest impact. 

Payment History: Your goal should be to have as many on-time payments as possible. The higher the better.

• 100% on-time payments for excellent

• 99% for good

• 98% for fair

• 97% and below needs work

Credit Utilization: Your goal should be to not use all of the credit that is available to you. The lower the percentage the better

• 0-9% of credit utilized for excellent

• 10-29% for good

• 30-49% for fair

• 50-100% needs work

Derogatory Marks: These include accounts in collection, bankruptcies, civil judgments, and tax liens. Your goal should be to have as few as possible.

• 0 is excellent

• 1 is fair

• 2+ needs work

Length of Credit History: This is the average age of all your open accounts. This goes up over time but you should be cognizant not to close older accounts that have been open for years or this will decrease.

• 9+ years is excellent

• 7-8 years is good

• 5-6 years is fair

• 0-4 years needs work

Total Number of Accounts: This is just based on the number of credit accounts you have overall. Having more accounts gives creditors more history and data to evaluate you on.

• 21+ is excellent

• 11-20 is fair

• 0-10 needs work

New Hard Credit Inquiries: If you keep applying for a bunch of different accounts this could be a red flag. Limiting the number of accounts you apply to can help keep your credit score high. This usually looks back over the past 2 years.

• 0 is excellent

• 1-2 is good

• 3-4 is fair

• 5+ needs work

Why Your Credit Score is Important

Some people like Dave Ramsey are totally against any debt while other people like Robert Kiyosaki say you should take out as much “good” debt as possible. Both of these are extremes and most people probably fall somewhere in the middle, using credit and some debt wisely but not going overboard. 

If you are going to use debt during your lifetime then knowing what your credit score is and keeping it high should help you when you apply for a credit card or car loan, get insurance, or buy a home with a mortgage. 

I use credit karma to monitor my credit score since they were one of the first companies to offer it free years ago. Nowadays there are a plethora of options to pick from. You are also able to check your full credit report for free once a year at https://www.annualcreditreport.com/index.action

If you don’t know what your credit score is currently, take some time this week to figure it out and see if there is anything you should be doing to improve it.

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Shout out to Alex Kiel with Macatawa Bank’s Mortgage team for helping me co-write this blog post. She joined their team in 2016. Alex holds her Bachelor’s degree from Davenport University, where she double majored in Marketing and Finance, and played both basketball and golf. When she’s not fitting her customers with the perfect mortgage, Alex cheers on the Detroit Lions, who did quite well this year but unfortunately weren’t able to make it to the Superbowl…next year though! I have also had the privilege of competing with Alex in beach volleyball. 🏐😎

616.502.8044 akiel@macatawabank.com Website

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Sources:

Experian https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

MoneyGeek Feature: Women’s Guide to Financial Independence

Leanne Rahn had the privilege to be featured in MoneyGeek to talk to readers about “Women’s Guide to Financial Independence”.

Leanne discusses challenges women face when it comes to their finances and how they can maximize their cash flow to support their financial independence.

Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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Recessions Aren't Always a Roadblock - Consider These Benefits

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Defining a Recession

Let’s begin by clarifying what a recession entails. “Most commentators and analysts use, as a practical definition of recession, two consecutive quarters of decline in a country’s real inflation-adjusted gross domestic product (GDP)- the value of all goods and services a country produces.” (Source: International Monetary Fund; link below) According to the National Bureau of Economic Research (NBER), it’s a broader concept involving, “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.” (Source: International Monetary Fund; link below) Both definitions show the negative outcomes so let's dive deeper into what some of the positive outcomes could be.

Short-Term vs. Long-Term Views

Why would a decline in economic activity be considered a positive factor? The answer lies in the window of time you view it. In a free-market economy, businesses compete for customers. During a recession, consumers tend to spend their money more wisely, favoring businesses with lower prices or higher quality to make their money go further. While this may lead to short-term challenges such as job losses and business closures, it encourages efficiency. In the long run, recessions help eliminate less efficient companies from the market, allowing more efficient ones to thrive and take their place. In the long run, this helps improve the economy's overall strength.

How to Navigate a Recession by Being an Opportunist?

Instead of being scared of a recession, why not consider it an opportunity for growth and improvement?

• Failed businesses can make way for new enterprises, offering better jobs, products, services, and prices.

• Individuals facing job loss can use the opportunity to learn and grow new skills, making a more significant economic impact on society and for themselves.

• Asset value declines can create opportunities for strategic financial moves like Roth conversions, portfolio rebalancing, or tax loss harvesting.

A recession could be a great time to invest in yourself. Warren Buffett famously said, “Whatever abilities you have can't be taken away from you. They can't actually be inflated away from you. The best investment by far is anything that develops yourself, and it's not taxed at all.”

Navigating Recessions with Confidence

When news of a recession emerges, it's vital to resist succumbing to fear. Much like weightlifters intentionally break down muscle fibers for greater strength or home renovators tear down outdated designs for improved homes, recessions play a role in eliminating inefficiencies within our economic system.

Avoiding the pitfalls of political rhetoric is equally crucial during these times. Recessions often trigger frustration and political finger-pointing so it can be beneficial to remember that the benefits of a recession could be better than the harm of government intervention trying to prevent the recession from happening. Echoing one of my favorite quotes by economist Thomas Sowell, "The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics."

While recessions may bring short-term challenges, they are pivotal for maintaining a robust and growing economy in the long term. A recession might not fulfill every immediate desire, but it acts as a catalyst, paving the way for efficient businesses to address more needs at lower prices over time.

Sources:

International Monetary Fund https://www.imf.org/external/pubs/ft/fandd/basics/recess.htm#:~:text=Calling%20a%20recession&text=Most%20commentators%20and%20analysts%20use,and%20services%20a%20country%20produces.

International Monetary Fund

https://www.imf.org/external/pubs/ft/fandd/basics/recess.htm#:~:text=The%20NBER's%20Business%20Cycle%20Dating,real%20income%2C%20and%20other%20indicators.

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

What Teaching My Children About Finance Has Taught Me

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Are you as shocked as I am that financial literacy is not a mandated course in all school curriculums? I’m obviously biased on the subject and while you may not be as laser-focused as I am, it's a crucial life skill that can impact our financial well-being for years to come. As my children start their schooling, I won’t leave it up to chance that they will learn the fundamentals correctly.

While my children may only be five and two, I feel it’s never too early to start passing on some of my wisdom. With that being said, there are some key takeaways to consider if you elect to start these conversations with your children.

Keep it Simple at The Beginning

It is crucial to keep things simple when teaching children about money. Depending on their age, children may not even understand the concept of money, which is becoming increasingly difficult to grasp as we move further into the digital age. The transactional act of handing over physical currency in exchange for a good or service is extremely powerful in not only learning when they have run out of funds and to spend within their means, but it also involves an emotional experience in separating from one item of value to obtain another. Learning this fundamental concept will help lay the groundwork for more complex matters later in life.

Financial Tips from Andrew

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Get Specific About What They’re Saving For

As adults, the savings goals start to present themselves more naturally. Whether it’s retirement, your children’s college tuition, or purchasing a larger house. If I were to put my kids on the spot and ask them what their long-term goals are it would probably be to get candy after dinner, so to save for something even a week or two out may seem alien. But when the opportunity presents itself such as an interest in a new toy I capitalize on it by mentioning how if they saved (insert birthday, chore, etc.) money, they could buy it themselves.

The Money Needs to Go Somewhere

While I help my clients with their finances by making sure their assets are in the correct investment vehicles to achieve their goals, even a savings account is overkill for my children at the moment plus, that would take away from the tangible transactional experience mentioned above. Yet placing it in a sock drawer or worse, immediately into their pocket, isn’t the solution either. Whether it is a family heirloom piggy bank or an empty jar, the money needs to have a defined place to go where they (once again) need to physically take it out if they intend on spending it. An additional measure that I’ve taken with my oldest is to have her manage a balance sheet that we reconcile every few months (as there isn’t enough cash flow for monthly/weekly balancing just yet.)

Let Them Vote

If you want your child to gain financial literacy then they need to have a say in their finances. Constantly telling them what decisions should be made and how to direct their funds, they won’t develop the skills and habits to make the correct decisions on their own. Just remember to take it easy on them when there is a mistake, while a $3 misspend may not be a big deal to us, it can be devastating to a child who was intending on a bigger purchase and they can now no longer afford it. I recommend extending grace if it is a rare occurrence and tightening up if it starts to present itself as more of a habit.

It’s Okay to Incentivize

As adults, we have plenty of reasons to put money aside, whether it's for an employer match or as part of a strategy to minimize tax liability. So why should it be any different for kids? I encourage my children to save by offering to match an additional fifty cents for every dollar they can save for a month. Additionally, I offer extra matches and savings incentives around vacation time. I'll match a percentage of their savings leading up to vacation and offer an additional match for every dollar they bring back home. My kids seem to enjoy the process of saving and planning, and it's a great way to teach them about money management. While these strategies may not work for everyone, I believe it's okay to pay more for good financial behavior.

Looking Into The Future

As they get older, we will begin opening up bank accounts that will develop a deeper understanding and appreciation of the varying accounts that can be utilized in achieving long-term goals. Eventually, I’ll have to succumb to letting my children have access to electronic forms of payment. The initial foray will be a debit card linked to a checking account with minimum funding as to avoid the temptation of blowing through all of their savings.

Of course, once they begin to earn a paycheck, we will incorporate more complex systems and budgeting measures, but by starting small now there will be plenty of runway ahead of us to ensure that they are well-equipped to make smart financial decisions by the time they reach adulthood.

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Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

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Embracing Lifestyle Changes Over Strict Budgeting: A Sustainable Approach to Personal Savings

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If you’re looking to lose weight, instead of a diet, the focus should be on making lifestyle changes. Meaning that if you’re going to force yourself to eat certain foods, it won’t be sustainable, and you’ll be right back to where you started if it isn’t a change that will naturally fit within your lifestyle. 

The same philosophy should be applied when working towards saving for the future. The more the budget fits with your lifestyle, the more likely you are to follow it.

The 50/30/20 Budget Rule

One of the most common budgeting tactics is the 50/30/20 rule. It will assist you in living within your means and staying out of debt. Use the percentages below as a rough guide for how the percentages should play out:

• 50% For necessary expenses

  • 20-25% Housing

  • 10-15% Food

  • 5-10% Utilities

  • 5-10% Transportation

  • 5-10% Healthcare

• 30% For lifestyle expenses

  • 5-10% Recreation/Entertainment

  • 5-10% Consumer goods

  • 5% Miscellaneous

• 20% For Savings

Keep in mind that these percentages should be based on your take-home pay (after tax). Additionally, your budget for savings should be prioritized after necessary expenses but before lifestyle.

Avoid a Mindset of Constriction

Remember how I mentioned earlier that sustainability was the key to a successful "diet" strategy? The 50/30/20 budget plan includes discretionary expenses to enable you to enjoy occasional treats that make life worth living. Being too strict with yourself can be counterproductive, as it may lead to excessive purchases driven solely by emotion due to the stress of trying to stick to the budget.

But Be Prepared to Have to Make Hard Decisions When Setting Up Your Budget

While it's important to include discretionary spending in your budget, keep in mind that it should be the last category to consider. The preceding categories may exceed the recommended ratios meaning you may not have the full 30% to spend here. For example, if you live in a high-cost-of-living area, your necessary expenses may exceed  50%. This may sound in opposition to the enjoyment mentioned previously, but the difficult (and oftentimes stressful) decisions being made here are when you sit down to plan out your budget in advance of expenses.  This will lead to the ability to avoid making stressful decisions in the moment.

Financial Tips from Andrew

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Flexibility is Key

It’s perfectly acceptable to get very, very intentional for short periods to achieve goals. Want to buy a new car and pay cash? Go on a lavish trip? Pay off your mortgage 5 years early? These are rather lofty examples but regardless, if the goal you set is what will bring you joy, then by all means get after it. Keep in mind, if your budget is too tight you’ll have trouble sticking to it for extended periods and the extra savings amount will have to come from your lifestyle expenses.

Reflection and Adaptation

When you’re drawing up your first budget, reference historical data and avoid guestimating amounts. Ideally, you want to review six to twelve months of financial statements to ensure you’re able to spot trends in expenses. The great thing about this exercise is you’ll probably find expenses that you either weren’t aware you were still paying or are more than what you thought it costs.

Pay Yourself First

I alluded to this earlier but saving for your future should always precede your current lifestyle. You should establish a savings account that is linked to your employer for direct deposit. From that account, you can then transfer the EXACT dollar amount you budgeted for to your checking account where all outgoing payments will be transacted.

Ideally, there will be excess funds left in the savings account at the end of every month (and as you improve, it’ll be more than 20% of your post-tax income) This is the simplest, and most cost-effective way to ensure that you pay yourself first.

Review and Improve

The more frequently you can track and review your progress, the less likely you are to deviate from the plan. A bare minimum should be a monthly review but for the first few months, daily reviews would be best.

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Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Mastering Your Money: Budgeting Essentials and When You Need Them

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The findings of a recent survey done by The Harris Poll found that 74% of Americans have a monthly budget. It’s a significant number, and one might assume that budgeting is the key to financial well-being. However, it raises questions about why consumer debt remains on the rise despite so many people budgeting. It’s a fair question to ask. Let’s explore the purpose of a budget, how to create it, and find out if everyone should be following one.

Why Budget?

A budget is a strategic plan to evaluate your income and expenses. People create budgets for various reasons, but they all boil down to effective money management. You might be saving for a vacation, working to pay off debt, or hoping to gain a better understanding of where your money is going. All of these are great outcomes we see from budgeting, and easier said than done. If we had to boil it down to one main reason, I’d say that you work too hard for your money to be unintentional with where your money goes.

How to Budget?

Budgeting can take shape in multiple ways, and there are a few steps to take regardless of your preferred method.

1. Collect your spending and income: Ideally, your income would exceed your spending. If this is not the case, now is the time to find areas where you can cut expenses to make sure you are living within your means. You can create your budget in a spreadsheet where you are in charge of tracking each expense or utilize an app that tracks everything for you.

2. Include goals: Once you have a good handle on your baseline budget, integrate any goals you have such as debt pay down, saving for large expenses, or retirement.

3. Track and Adjust: Your budget should be fluid, and will likely change every month. Give yourself the flexibility to make these changes as unforeseen expenses arise.  

4. Stay Consistent: The true benefit of budgeting comes when you stay consistent over the long haul. Find an approach that suits you, and stick with it. As one goal is accomplished, start on your next one.

Do I Need to Budget?

While the benefits of budgeting are evident, not everyone will choose to implement one. If you're not going to budget, at the very least, consider tracking your income, expenses, and investments every month. For your financial health, it is necessary to know that your income is more than your expenses and that you are investing in your retirement.

Final Thoughts

In the second quarter of 2023, we saw credit card balances grow by $45 billion, consumer loans increased by $15 billion, and auto loans by $20 billion according to the Center for Microeconomic Data. The persistently growing consumer debt underscores the importance of budgeting for each household. While implementing a budget may not lead to overnight transformation, it can set you on a path to a better financial future and provide increased peace of mind.

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References:

https://www.bls.gov/news.release/cesan.nr0.htm

https://www.bankrate.com/banking/create-a-home-budget/

https://www.nerdwallet.com/article/finance/data-2023-budgeting-report#:~:text=While%20close%20to%20a%20third,has%20to%20come%20from%20somewhere.

https://www.newyorkfed.org/microeconomics/hhdc.html

OpenAI. (2023). ChatGPT [Large language model]. https://chat.openai.com

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

SavvyMoney Feature: 6 Tips For Teaching Your Kids to Save

Leanne Rahn had the privilege to be featured in SavvyMoney to talk to readers about “6 Tips For Teaching Your Kids to Save”.

Leanne shares tangible tips and steps parents can implement to create a positive environment around money for their littles.

Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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Waiting To Start Investing Until 40 Could Cost You Over $4 Million?

Albert Einstein has been credited with saying, “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.” (Source: Goodreads; link below) I want to review a few scenarios to show you how powerful compounding interest can be when you start early and are consistent with investing. Hopefully, this will help you be the person who earns it throughout your life instead of the person who pays it!

Disclaimer: All these scenarios are calculated to earn the same interest rate every year. Your actual numbers in real life will be different since some years it might be higher, lower, or even negative. The average stock market return over the long term has been around 10% per year. (Source: Forbes; link below)

The Early Investor

Source: Calculator.net; link below

Iron Man has read Heath’s blog posts and knows that starting to invest early is very important so he starts investing right after high school. He starts with $0 and begins investing $6,500/year into his Roth IRA from age 18 until he retires at 67. He earns a 9% interest rate per year. The total contributions that he deposited into the account would be $318,500. The total interest earned over those 49 years would be $4,973,043. Iron Man’s total balance when he turns 67 would be $5,291,543. That means 94% of the money inside the account is from compounding interest!

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Investing A Decade Later

Source: Calculator.net; link below

Loki wants to have fun in his 20s. He goes on fancy vacations, drives fancy cars, and lives his best life. When he turns 30 he decides to start investing for retirement. He starts with $0 and begins investing $6,500/year into his Roth IRA from age 30 until he retires at 67. He earns a 9% interest rate per year. The total contributions that he deposited into the account would be $240,500. The total interest earned over those 37 years would be $1,590,093. Loki’s total balance when he turns 67 would be $1,830,593. That means 87% of the money inside the account is from compounding interest! Still good, but $3,460,950 less than Iron Man. Those 12 years of additional investing were very powerful.

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The Mid-Life Investor

Source: Calculator.net; link below

Captain America was unfortunately in cryosleep for many years so he wasn’t able to start investing until he turned 40. He starts with $0 and begins investing $6,500/year into his Roth IRA from age 40 until he retires at 67. He earns a 9% interest rate per year. The total contributions that he deposited into the account would be $175,500. The total interest earned over those 27 years would be $552,293. His total balance when he turns 67 would be $727,793. That means 76% of the money inside the account is from compounding interest! That is still good but again $4,563,750 less than Iron Man who started 22 years sooner. 

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Which superhero do you want to be?

• It takes discipline to start investing early like Iron Man at 18 years old but the rewards down the road can be tremendous

• If you look at the graphs in all three scenarios you will notice that compounding interest doesn’t really start to ramp up until after the first 10-20 years. Don’t get discouraged in the first 5 years if you don’t see your money growing dramatically yet

• There’s a Chinese proverb that the best time to plant a tree was 20 years ago but the second best time is now

If you would like help to harness the power of compound interest schedule a time when we can discuss your particular situation.

Sources:

https://www.goodreads.com/quotes/76863-compound-interest-is-the-eighth-wonder-of-the-world-he

https://www.forbes.com/advisor/investing/average-stock-market-return/

https://www.calculator.net/future-value-calculator.html

“If you have any financial questions I would love to connect with you to help”

— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

What is money? Isn't it really just time?

Time in Place of Money

What is money? If you live in the United States, you probably think of money as the US Dollar. People in Japan might think of the Yen. People in France, Germany, and Italy might think of the Euro. Economists Milton Friedman and Allan Meltzer describe money as, “a commodity accepted by general consent as a medium of economic exchange. It is the medium in which prices and values are expressed; as currency, it circulates anonymously from person to person and country to country, thus facilitating trade, and it is the principal measure of wealth.” (Source: Britannica; link below)

What if you thought of money a little bit differently? When thinking about money, try substituting my time in place of money because time is what you have to give up to receive money.

Exchanging Crops for a Phone

Let's say a farmer wants a new phone. He knows how to grow crops but can’t build his own phone. The farmer sacrifices his time to grow crops that he can sell to others for money. Once he obtains this money he can buy a new phone. The owner of an electronics store sacrifices her time working at the store selling phones to earn money. What does she do with that money? She might buy the farmer's crops at the grocery store. The money is just an intermediary for the time between the farmer and the electronics store owner.

While this is a simplistic example, this is how many transactions happen in our society. If you start thinking about money as actually being your time, then it could make you wiser with your money. Being wiser with your money could lead you to be more efficient with your time!

How to Apply to Your Life

Here is a real-world scenario where you could apply this money as time principal. The average new car price as of November 2022 was $48,681. (Source: Kelley Blue Book; link below) Economics is all about opportunity costs. If you spend $48,681 purchasing a new vehicle then that is $48,681 that you do not have to purchase something else. Let’s assume that you make the average hourly wage of $32.80/hour. (Source: St. Louis Federal Reserve Bank; link below) We can find how many hours you would have to exchange for purchasing a new vehicle by dividing $48,681 by $32.80: 1,484 hours! Once you take taxes into account the number of hours will probably be even higher.

While you might normally ask if the car was worth $48k, instead ask yourself if it’s worth 1,484 hours of time working at your job. Are you willing to spend 74% (1,484/2000) of a year working to purchase that new vehicle? If the answer is “yes,” then go for it and enjoy your new vehicle. If the answer is, “Hmmm I think I might be able to use those 1,484 hours more effectively somewhere else in my life”, then keeping your current vehicle could result in a wiser use of your time!

I am currently in this scenario right now in my own life. I drive a 2011 Prius that only has around 75,000 miles. It runs great, does not need any major repairs, and gets 50 MPGs! I don’t need a new vehicle but have been intrigued with the 2023 Rav4 and 2023 Prius. I utilized this process in my head and determined that was too many hours of my working life to pay for a newer vehicle that I might want but don’t need. I would rather use those hours spending time with my friends/family, writing blog posts, creating YouTube videos, and staying healthy by playing beach volleyball/pickleball.

Words to Live By

You can utilize this thinking in many different scenarios. Just take the price of what you are considering buying and divide it by your hourly wage. That will tell you how many hours it will take you to work to pay for that next big purchase. Then decide if you are okay with that tradeoff. 

Here is one of my favorite quotes from the book, “The Psychology of Money,” by Morgan Housel. He states, “The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.” Make sure you are being wise with your money so you can enjoy your time to the fullest!

Sources: https://www.britannica.com/topic/money

https://www.kbb.com/car-news/average-new-car-price-sets-record/

https://fred.stlouisfed.org/series/CES0500000003

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“If you have any financial questions I would love to connect with you to help”

— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.