Financial House Keeping

Financial Housekeeping

Consider doing these key financial task headed into the new year

As we wrap up the year these are excellent financial housekeeping tips. 

1.     Consider Maxing out IRA Contributions:

For those under 50, the allowable annual contribution to a traditional or Roth IRA is $6,500; for those 50 and older, it's $7,500. Evaluate the advantages of a pre-tax traditional IRA versus a Roth IRA in the context of your financial goals. Also, note the extended contribution deadline until April 15th, 2024, for the 2023 tax year.

2.     Collecting Tax Documents:

As the year concludes, proactively compile a comprehensive list of all financial accounts. Anticipate incoming tax forms from relevant institutions. Timely receipt of these documents is imperative for accurate tax filing. Exercise diligence, recognizing that the responsibility for completeness lies with you.

3.     Increase your 401k/403b Contributions:

Embrace the wisdom of Albert Einstein by incrementally enhancing contributions to your employer-sponsored retirement accounts. Recognize the intrinsic value of compound interest in wealth accumulation. Additionally, reassess your investment strategy to align with your financial objectives.

4.     Update Beneficiaries:

Talking about wills might feel morbid, but it's like an insurance policy for your family's peace of mind. Keep your beneficiary info updated; life happens.

5.     Maxing Out HSA Contributions:

HSAs are like secret savings accounts. Max them out if you can. And if you've got a flexible spending account (FSA), use that leftover cash; it doesn't roll over.

6.     RMD’s:

If you're enjoying retirement and hitting 73 or older, remember to take out your required minimum distributions (RMDs). Missing it means penalties, big penalties.  You have until December 31st to complete RMDs for 2023.

7.       Updating Insurance:

Time to check your home and auto insurance. With things going up, make sure your coverage is on point.  Get a free quote and consider bundling home and auto insurance for potential discounts.

8.       Paying Off Debt:

Got some extra cash from holiday bonuses? Think about wiping out some debt. It's like giving yourself a head start for 2024. Less debt, less stress. Cheers to financial freedom!

9.     Goal Setting:

Plan out your money goals for 2024 and beyond and jot them down. Seriously, you're 10 times more likely to make things happen when you put them on paper.

These are just a few friendly suggestions. Your money, your rules. But a bit of financial TLC can make a world of difference.

Sincerely,

Spencer Miller

12/21/2023

How to Budget on a Sales Income

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How can I budget when my income is variable? If you’ve asked yourself this question, you are in good company. Most sales professionals experience the challenge of figuring out how to plan for their fluctuating income. Let’s walk through tips on the basics of budgeting off of a variable income.

I’ve had the joy of working in sales and experiencing this firsthand, and now working with sales professionals as their financial advisor. Variable income will present itself in one of two ways; employees will be compensated with full commission on sales or a mixture of base salary plus commission. These principles will pertain to both individuals, with an added emphasis on those with fully commissioned roles.

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Step 1: Estimate Minimum Expenses

Start by listing your monthly expenses, distinguishing between necessary and discretionary expenses. Necessary expenses would include housing, utilities, insurance, food (groceries, not eating out), and transportation. You can do this on paper, excel, or through an app. This will give you a budget that is broken down by normal expenses and bare minimum expenses. Understanding your bare minimum expenses is crucial when developing a safety net.

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Step 2: Establish Safety Net

This amount will be different for everyone but ultimately is based on the security of your job, income, and lifestyle. If you feel like you have a very secure job and a lower-cost lifestyle, you could stretch this amount to a low end of 3-4 months' worth of expenses. If your job is highly competitive and your company has been known to frequently replace underperformers, it might be a good idea to have closer to 6 months' worth of expenses.

The other piece of this safety net revolves around how easily you can find another job, should you leave or be let go from your current role. If you have confidence in your ability to get a new job within a month, then we can stretch to the lower end. If you work in a specialty sales market with a longer timeline to hire. I always recommend that you take whatever you think makes sense for your current situation and add a 1-2 month buffer. This safety net is in place so that you have options in case of job loss.

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Step 3: How to Budget

You should have already created a complete budget in step one. If not, add the rest of your non-essential expenses to your bare minimum budget. This is what you can plan to live off of once your safety net is established. If you have a base salary as part of your compensation structure, I recommend making sure your salary covers your entire budget. This way you won’t depend on sales commissions and will have massive financial flexibility.

This can be a bit more challenging if you’re someone who is in a 100% commission role. First things first, I would attempt to have a 6-9 month safety net. Sales can be a rollercoaster of a profession, and the compensation tends to follow. Even if it rarely comes, you need to be prepared for the worst-case scenario. To create a budget off an entirely fluctuating income can be done in two ways. The first way is to take your previous year's income and budget off of that. This can be a useful strategy, especially if your previous year was more of an “average” year. The method I prefer to use is based on forecasting. To do this, you need to have a good understanding of your company's payout structure and project forecast. Take your projected sales target and assume you will hit exactly 100%, or 90% if you want to be conservative. Multiply the amount of sales by your commission percentage to get your yearly income, and don't forget to take taxes off of that number. Either way, it's crucial to add some extra room when making these estimations.

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Step 4: How to Manage When You Get Off Track

While I wouldn’t wish this on anyone, I understand that volatility of sales doesn’t play favorites. On the rare occasion that you hit a major dry spell with your commission, don't panic and remember the safety net you established. Although it can be challenging, temporarily reducing your expenses to cover only the essentials might be necessary. This will ideally be a short-term adjustment, and that is why it is important to have your bare minimum budget.

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Balancing a variable sales income can be challenging as every year is different. However, utilizing this approach will provide the necessary safeguards to protect you and your family. Along with financial protection, implementing these suggestions will come with a level of stress reduction that can often be associated with a fluctuating income.

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.

YahooFinance Feature: 13 Key Signs You’ll Always Be Middle Class

Ben Lex recently got a shout-out in a Yahoo! Finance article titled “13 Key Signs You’ll Always Be Middle Class”.

In it, he dives into the major signals holding people back from growing their wealth. Check out Ben’s insights - they’re golden nuggets for leveling up financially.

Is Your Financial Plan Overlooking This Vital Element — Your Health?

The Dalai Lama, when asked what surprised him most about humanity, answered "Man! Because he sacrifices his health in order to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then dies having never really lived.”

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What Your Financial Plan Might be Missing

Your financial plan encompasses numerous facets of your life, covering emergency funds, income, debt, savings, budgeting, financial goals, risk tolerance, investment allocation, retirement, and tax planning. However, there's one critical aspect often missing from financial plans that can significantly impact your economic well-being – your health.

Understanding the Link Between Health and Finance

Health influences nearly every dimension of your financial plan in distinctive ways. For instance:

• Income and Productivity: Poor health or frequent illnesses can lead to reduced overall income due to missed workdays. Maintaining good health can help you keep a stable income.

• Emergency Fund: Health status affects the size of your emergency fund. Individuals with health challenges may require a larger fund to mitigate increased risks associated with medical expenses.

• Budget and Savings Rate: Increased healthcare expenses can strain your budget and potentially result in a lower savings rate. Prioritizing health can positively impact your budget and allow a higher savings rate.

• Retirement Planning: Planning for potential healthcare costs during retirement becomes crucial. An unhealthy lifestyle now may require a larger nest egg for future medical needs.

The Cost of Ignoring Health in Your Financial Plan

Neglecting health can have significant financial consequences, especially in the United States where lifestyle-related conditions like obesity, high blood pressure, high blood sugar, and high cholesterol are prevalent. Metabolic syndrome, characterized by the coexistence of three or more of these conditions, increases the risk of expensive health issues such as heart disease, stroke, diabetes, and other serious health problems. (Source: National Heart, Lung, and Blood Institute, link below)

Average cost per year in the United States

• Heart Disease & Stroke $19,110

• Diabetes $8,837

• Obesity $1,405

Considering that 1 in 3 American adults has metabolic syndrome, the financial implications are substantial. However, the good news is obesity, high blood pressure, high blood sugar, and high cholesterol are all modifiable risk factors. That means, if You change YOUR lifestyle YOU can reduce or eliminate these conditions. (Source: Centers for Disease Control and Prevention, link below)

Taking Action for a Healthier Lifestyle

Recognizing the integral role of health in financial planning, here are actionable steps to improve both your health and financial future:

• Nutrition: Eat more whole foods, fruits, and vegetables. Cooking at home and avoiding processed foods can contribute to better health and financial savings. You cannot out-exercise a poor diet.

• Physical Activity: Find a sport you enjoy and exercise regularly. Try to meet the recommended 150 minutes of moderate exercise or 75 minutes of vigorous exercise per week.

• Quit Smoking: Smoking is a leading cause of preventable death. Quitting not only improves health but also saves money that can be directed toward financial goals.

• Quality Sleep: Prioritize 7-9 hours of sleep per night. Good sleep promotes overall well-being and reduces the risk of chronic diseases.

• Hydration: Opt for water over sugary drinks and alcohol. This simple choice positively impacts both your health and your budget.

• Mental Stimulation: Challenge your mind by continuously learning new skills. A sharp mind contributes to overall health and longevity.

(Source: American Heart Association, link below)

Advice from Warren Buffett

Warren Buffett once told a story about what he would do if a Genie appeared and granted him a wish for a brand-new car. Being a wise man, Warren knew there would be a catch, so he asked the Genie what it was. The Genie responded that this would be the only car he would have for his entire life. Warren said he would accept that stipulation to get the car. Knowing that it would be the only car he would have for his entire life though, he would take very good care of it. He would read the entire manual front to back. He would get the oil changed on time or early. He would get the recommended preventative maintenance completed. He would fix any dents to prevent rusting. He would keep it clean inside and out.

Then he broadens the analogy by equating our mind and body as the one vehicle that has to last our entire lives. Our minds and bodies are much more important than vehicles, yet we do not always treat them as such. The decisions we make today will determine how well our minds and bodies operate many years from now. 

Your health is a vital component of your financial well-being. By prioritizing your health, you can secure not only a healthier and more fulfilling life but also a more robust and resilient financial future. If you have any specific questions on this topic, feel free to reach out.

Sources:

National Heart, Lung, and Blood Institute https://www.nhlbi.nih.gov/health/metabolic-syndrome#:~:text=About%201%20in%203%20adults,that%20it%20is%20largely%20preventable.

Centers for Disease Control and Prevention https://www.cdc.gov/chronicdisease/about/costs/index.htm

American Heart Association https://www.heart.org/en/healthy-living/healthy-lifestyle/lifes-essential-8

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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.

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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Home for the Holidays Magazine - Seeking Peace with Leanne Rahn

Leanne Rahn had the privilege to be featured in Real Estate By Aubree’s Home for the Holidays Magazine to talk to readers about “Seeking Peace”.

With a Christmas twist, Leanne emphasizes the importance of initiating peace within your financial life and the costly price that can result without it. Leave feeling encouraged, motivated, and driven to seek peace and to stop procrastinating. Turn the corner into 2024 with peace at the top of your mind.

Leanne, Aubree, along with many other West Michigan businesses are wishing you a very Merry Christmas!

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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.

A Beginner’s Guide to Investing

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If you’ve ever felt that the world of investing is confusing and intimidating, you’re not alone. There is a lot of information, but it can be a challenge to know where to start. Let’s explore the steps necessary to begin investing, simplify your approach, and figure out what is going to work for you.

Investor Types

There are three main types of investors. The first is someone who prefers to be hands-off and hires an advisor to manage their entire financial picture, like a personal CFO. The second person likes to take the DIY approach to financial management. The third individual falls somewhere in between, opting to hire a financial advisor for their investment management while staying informed on the strategy and approach being used. Each of these approaches has its pros and cons, but it is important to know that all can be effective at different times.

Establish an Emergency Fund

Regardless of your approach, before you start investing, it is wise to establish an emergency fund that will protect you and your family in case of… well, an emergency! Having this fund in place will allow you to start investing and stay consistent, even if you have major expenses arise. Once your emergency fund is established, you can sort out the remaining information needed to begin investing.

Goals and Risk

The first step to investing is to understand your individual goals and risk tolerance. This is entirely custom to your financial situation, so it is important to not take a blanket approach. Examples of financial goals might include saving for your child’s college education, retirement planning, or vacation. Each of these goals will come with its own timeline and risk tolerance. It is important to select accounts that will line up with your savings goals. For instance, if you are saving for a college education, you might choose to invest in a 529 plan since it is an education-specific account.

Once the account is established, you can determine the timeline of your investment, and what risk you are willing to absorb. You will often see longer investments placed into a more aggressive allocation because you have more time to absorb the fluctuations of the stock market. If your timeline is short, however, you may prefer to use a more conservative investment approach. It is important to continually adjust your risk tolerance over time, and if you are not confident in your ability to manage this, don’t hesitate to seek out a professional.

Investment Capacity

In this example, we will assume that you are already contributing to an employer plan to get the employee match, which can often be a great starting point for investing. Beyond that, you have to decide how much money you are willing to invest consistently, based on your current budget. I discuss this in my post, “Mastering Your Money: Budgeting Essentials and When You Need Them”. I am a fan of incorporating investment contributions into your monthly budget if possible, and automating those contributions. This eliminates the concern of “timing the market” and allows you to take advantage of time in the market.

Pick a Strategy

Now that you have your emergency fund, established goals, risk tolerance, and your investment capacity, you can now decide on your approach to investing. For the DIY investor, it is important to do your research and find a strategy that has historically performed consistently well. This is not the time to dump all your money into the newest investing “fad”. Find a good balance of investments that aligns with your goals and risk tolerance. The balance that you want to see here is called diversification. This means that you are intentional in picking funds that give you broad exposure to the stock market, as opposed to putting all of your eggs in one basket.

If the thought of picking investments, or even doing the research is intimidating, it might be time to seek out a certified investment advisor who can help guide you through everything I’ve outlined here. When doing so, make sure to find a fiduciary advisor who is not going to make commissions on your investment selection.

Stay the Course

The final piece, and perhaps the most important is to stay the course. Investing is a long-term play that will have fluctuations over time. Some people handle this fluctuation better than others. If you struggle with the fluidity of the market, try not to view investments on a weekly or monthly basis, but on a yearly basis or longer. As we saw in the graph above, avoiding the market is not the answer.

Keep in mind that there is no one-size-fits-all approach to investing, and what worked for someone may not be what is best for you. Have confidence in your approach, and stay the course.

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References:

https://investor.vanguard.com/investor-resources-education/how-to-invest

https://www.schwab.com/how-to-invest/how-to-start-investing

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.

A Tale of Two Doctors: Wise Money vs. Lavish Lifestyle

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After completing medical school, you face a crucial crossroads regarding how you are going to manage your finances as a high-income earner. Here is a quick story contrasting how Dr. Wise and Dr. Lavish dealt with money during their careers. As you read through their experiences, consider which one you want to emulate for your life.

Meet Dr. Wise

Dr. Wise and Dr. Lavish were both young doctors who just finished their residency programs and began their first job as an attending. Dr. Wise immediately started managing her finances wisely. She created a budget and lived within her means, even though she had a significant amount of student loan debt. She prioritized paying off her loans quickly, and with disciplined monthly payments, she managed to become debt-free in just a few years.

After becoming debt-free, Dr. Wise continued her financially responsible journey. She started contributing a significant portion of her income to retirement accounts such as a 401(k)/403(b), a Backdoor Roth IRA, and a Health Savings Account. She diversified her investments and regularly reviewed her portfolio to ensure it was aligned with her long-term goals. Over the years, her investments grew steadily, and she built a substantial nest egg for retirement.

Meet Dr. Lavish

On the other hand, Dr. Lavish had a different approach to managing his finances. He immediately purchased a luxurious house and an expensive sports car right after getting his first attending paycheck. He wasn't very concerned about his student loans so he made only minimum payments. He believed that his high income as a doctor would take care of everything.

As the years went by, Dr. Lavish found himself struggling to make ends meet. He was burdened by high mortgage payments, car maintenance costs, and growing student loan interest. He didn't have much of an emergency fund and when it came to retirement, he had very little saved.

Results After Decades of Financial Decisions

Fast forward a couple of decades, and the two doctors had vastly different financial situations. Dr. Wise had not only paid off her student loans but had also built substantial wealth through disciplined saving and investing. She was financially secure, and her retirement was looking to be quite comfortable. She continued to work as a healthcare professional because she enjoyed it, not because she had to.

In contrast, Dr. Lavish was still working long hours to maintain his expensive lifestyle and living above his means. He had only a fraction of the retirement savings and investments that Dr. Wise had. The stress of financial insecurity and the burden of debt had taken a toll on his well-being. He started regretting not being more financially responsible when he was younger.

The story of Dr. Wise and Dr. Lavish illustrates the importance of taking control of your financial life early, especially for healthcare professionals who often face significant student loan debt. Wise financial decisions, like paying off loans and investing for the future, can lead to a secure and comfortable life, while lavish spending can lead to financial stress and insecurity. 

You need to choose if you are going to be a Dr. Wise or a Dr. Lavish during your life. I think it is save to assume which one I think is the better choice. If you have questions or feel that you need help building out your financial plan, please reach out as I would be happy to meet for a Free Consult.

References:

ChatGPT was used to assist with this story creation: OpenAI. (2023). ChatGPT (September 25 Version) [Large language model]. https://chat.openai.com

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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.

End-of-Year Financial Checklist: 7 Steps for a Solid Financial Plan

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To enhance your financial situation, consider doing an end-of-year financial review. This doesn’t need to be a complex or time-consuming process, but it can set you up for success in the next year. Here are 7 steps to help guide you through your end-of-year review, and gain confidence in your financial plan.

1. Review Your Budget and Spending

Begin by assessing your spending habits. If you don’t currently use a budget, I would look at your expenses and make your best guess at creating one for the coming year. If you’re already dedicated to your budget, this is the time to figure out what worked well, and what needs to be changed. Think about these questions as you forecast for the next year.

• Is my income going to remain the same?

• Do I need to be more strict in one area, or loosen up in another?

• What large expenses am I anticipating in the coming year that I can plan for?

• Am I saving and investing enough of my income?

Remember that your budget should be a fluid tool to ensure you know where your money is going.

2. Prepare for Tax Time

Much of your tax planning will have to wait until next year, but it can be helpful to get a few items in order before tax season. You can collect business expenses, charitable giving receipts, childcare expenses, and other tax-deductible items.

The final piece of preparation for tax season would be to decide how you plan to prepare your taxes. You might do it yourself or prefer to hire it out. There is no wrong way to go about it, but now is the time to reach out and find a good CPA that you can work with to optimize your tax situation.

3. Max out your Contributions

The end of the year is the ideal time to review the contributions you have made to your retirement accounts. While doing this it’s important to know the maximum limits you can contribute to each account. When dealing with retirement accounts, we are typically talking about an employer-sponsored plan such as a 401k, 403b, and 457; or a brokerage account such as a traditional or Roth IRA. The employer plan limits for the year 2023 are $22,500 for employee contributions. It is important to note that this does not include the employer match. On top of this, if you are 50 years or older, you qualify for what is called a “catch-up” contribution that allows you to contribute another $7,500, bringing your total to $30,000 max for the year. The IRA options max out at $6,500, with a $1,000 catch-up contribution if you are 50 and older. Even if you can’t max out these contributions, adding to a Roth IRA can still benefit your financial future.

4. Review Investments

If you work with a financial advisor, now is the time to reach out and see if you can sit down with them for a year-end review meeting.

If you are a DIY investor this is still a great time to reconfirm your approach, assess performance, and rebalance your portfolio. It may be time to consider working with an advisor, if so, opt to find a fiduciary advisor who has your best interest in mind.

5. Consider a Roth Conversion

Roth conversions are done by transferring pre-tax dollars into a Roth account which will then grow tax-free. This approach can be great for someone nearing retirement who has a large amount of their wealth in pre-tax accounts. It can also be beneficial for young professionals with plenty of time for the investment to grow. This does not make sense for everyone, so consult a financial professional to weigh the pros and cons of this option.

6. Open Enrollment

Open enrollment occurs at different times of the year and is dictated by your employer. It is most commonly presented around early November and allows you to review or change your employee benefits options.

This is a good time to ensure you’re getting the best value on your insurance plans. You may even find that you qualify for additional plans such as term life insurance or disability coverage at little to no cost to you and your spouse.

7. Confirm Beneficiaries

While this is not something that changes often, it is necessary to make sure that they are up to date. Here are some accounts that should have a beneficiary associated with them. 

• Retirement accounts (401k, 403b, 457, and IRAs)

• Investment Accounts

• Bank Accounts

• Life Insurance Policies

Having beneficiaries properly assigned can help you have peace of mind that your loved ones will be taken care of. 

Walking through this checklist can give you a clear picture of your current financial situation, and set you up for success in the coming year.

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References:

https://www.experian.com/blogs/ask-experian/year-end-financial-checklist/#:~:text=Otherwise%2C%20gather%20information%20about%20your,and%20invested%20over%20the%20year

https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500#:~:text=Highlights%20of%20changes%20for%202023,to%20%246%2C500%2C%20up%20from%20%246%2C000

https://www.bankrate.com/personal-finance/end-of-year-financial-checklist/#checklist

https://www.investopedia.com/terms/b/beneficiary.asp#:~:text=Beneficiaries%20should%20be%20designated%20for,may%20need%20your%20financial%20help

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.

Am I Doing Enough With My 401K?

Is Your 401K Doing Enough For You?

Is your 401k your biggest investment asset?

Have you ever had a financial professional look at your 401k?

Do you take advantage of the tax benefits of your 401k?

Are you upset with the return of your 401k?

How much do you really know about your 401k? Click here to listen about some of the most important points on employer sponsored retirement plans. If you have not had your 401k analyzed by a professional now is your chance to do so.

How Would You Like To Lose Money In 2022

How would you like to lose money in 2022? (Market Update)

Can the Fed Lower Interest Rates without causing a recession? 2022 has been filled with INFLATION, RISING INTEREST RATES and FEARS OF RECESSION. Within the last five months the S&P500 has declined by more than 15%, the Dow Jones over 10%, the NASDAQ tech-based growth index down over 25%.

Now let’s discuss why I worded this first paragraph in the way that I did. It enticed you to click on it and read more… This is not a new concept; the media makes money off of clicks and attention-grabbing headlines than ever before. Their goal is to scare, light a fire or entice you like never before. Now before we discuss the economics and actual statistical significance of the current market, I wanted to make one thing abundantly clear; IT PAYS TO BE A BEAR.  How do I know this? Because I am willing to bet my first line caught your attention, and it wasn’t even mine, it was taken from the headline of a Wall Street Journal article:

“Sadness and anger, for example, are negative emotions, but anger is much more potent. "It drives us, fires us up, and compels us to take action," Harvey Berger [Founder and CEO of ARIAD Pharmaceuticals] says. If you've ever found yourself falling for outrage clickbait or spent time hate-reading and hate-watching something, you know what Berger is talking about. "Anger, anxiety, humor, excitement, inspiration, surprise—all of these are punchy emotions that clickbait headlines rely on," he says.”

Within the graph above we can see the majority of news coming from four of the major mainstream media news sources are overwhelmingly negative.

Now since we have discussed why the world wants you to think a crash is coming lets analytically look at what actually causes a market crash? By observing the history of the markets and highlight what causes markets to decline, we know, markets move (in the short term) most commonly because of buying and selling. Below I have taken a screenshot of the S&P500 from 2007 to 2013 to highlight the 2008 market crash. If you look to the bottom of the chart, you can see a handful of green and red columns. These are called candlesticks, and they represent the volume at which people are buying and selling stocks. Red candlesticks represent selling and green candlesticks represent buying. As you can see on the decline of the 2008 crash the majority of the candlesticks are red, this forces markets to a bottom before someone steps in and says “This is now so cheap enough where I am willing to buy.” That is what we see right at the very bottom of the 2008 trough. On a very simple scale this is an explanation to how the markets tend to move.

The upside to the current conditions we are in is the fact that quite literally... There is currently no alternative to equities. Or as we say, TINA (There is no alternative). Let’s look at what that means, the chart below depicts the amount of interest a consumer would earn with $100,000 in the bank throughout the last few decades. As you can see in the years prior to the 2008 financial crisis you could sell your stocks, put your money in the bank and still make 2-5%. (If you are under the age of 30 this is where you laugh audibly). At this moment the average bank account yields .04%. This Is not a very attractive when compared to stock investing. Not to mention we have an extreme surplus of cash in the system. The average American has more money in the bank than ever before in history.  So, mix this all together, we have limited opportunities outside of stock investing (stopping a major selloff) as well as a surplus of cash to potentially fuel the market with buyers. 

What we have experienced thus far in 2022 is not a rare occurrence, we actually have seen this dozens of times throughout history. At some point in the year the market has pulled back negatively and still ended the year positive. In the illustration below the lowest point the market hit during a specific year is denoted by a red dot and the grey bar denotes where the market finished in that given year. There are 16 examples just in this illustration where we see a double-digit decline and by the end of the year the market is positive.

Now what you may be thinking is “This time is different.” That phrase has been uttered for hundreds of years through hundreds of economic cycles.  The fact of the matter should be, it does not totally matter if it is or isn’t. The market has proven one thing time and time again, the most patient investors are the ones who are rewarded with the greatest success. Tune out the noise, and let the beauty of “time in the market” not “timing the market” do what it does best.

The four most dangerous words in investing are

“This time is different”

-        Sir John Templeton (1933)

Maximizing Tax-Smart Charitable Giving: 4 Strategies to Consider

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If you are passionate about supporting your favorite charities while optimizing your tax liabilities, this blog post is tailored for you. We will explore four tax-smart strategies that could help you maximize your charitable giving. It's essential to consult your tax professional before implementing these strategies, as everyone's financial situation is unique.

1. Bunching Your Contributions

The standard deduction for 2023 varies depending on your filing status: $13,850 for Single Filers, $27,700 for Married, and $20,800 for Head of Household. To benefit from itemizing your tax return, your total deductions should exceed the standard deduction. Otherwise, choosing the standard deduction might be more straightforward.

For example, if you are married and plan to donate $15,000 annually to your preferred charity, and your standard deduction is $27,700, donating $15,000 alone wouldn't surpass the standard deduction. In this case, opting for the standard deduction makes more sense.

However, consider an alternative approach: accumulate $15,000 in year 1, year 2, and year 3, totaling $45,000. During the first two years, take the standard deduction, and in year 3 donate the $45,000 and itemize your tax return to deduct the charitable donations. This three-year "bunching" strategy could help minimize your overall tax burden.

"In general, contributions to charitable organizations may be deducted up to 50 percent of adjusted gross income…" (Source: IRS; link below)

2. Using a Donor Advised Fund (DAF)

A Donor Advised Fund (DAF) is a specialized account designed for charitable donations. When you make an irrevocable donation to a DAF, you become eligible for a tax deduction in that year. The funds in the account can be invested and directed to specific charities in the future.

You can combine the bunching strategy with a DAF, which can be especially useful if you donate to multiple charities. It simplifies tax recordkeeping and may be appreciated by your CPA.

3. Giving Appreciated Investments Instead of Cash

Donating appreciated investments from a taxable brokerage account directly to a charity can be advantageous. When you sell an investment in such an account, you typically incur capital gains taxes. However, donating the investment directly to a charity may allow you to avoid capital gains tax. Ensure you've held the investment for at least one year to qualify for long-term capital gains treatment and claim the deduction if itemizing. (Source: Fidelity; link below)

The cash you initially intended to donate can be used to repurchase the investments, effectively resetting your cost basis. This can lead to lower capital gains when you eventually sell the investments, resulting in reduced future tax obligations.

4. Qualified Charitable Distribution (QCD)

As you approach retirement, you'll be required to take Required Minimum Distributions (RMDs) from your traditional retirement accounts, typically starting between 70.5 and 75 years old, depending on your birth year.

If you wish to allocate some or all of your RMDs to charity to avoid paying taxes on them, consider a Qualified Charitable Distribution (QCD). You can direct your RMD to your chosen charity, provided it's the first withdrawal of the year. This strategy is beneficial if you are already planning on being charitable while facing RMD requirements.

Utilizing these strategies for charitable giving can significantly reduce your tax liability. Supporting charitable causes is admirable, and doing so while optimizing your tax situation is even better.

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Jurgen Longnecker

Action Tax & Accounting, PC 616.422.3297 actiontaxandaccounting.com

I'd like to extend my thanks to Jurgen Longnecker for his contributions to this blog post. Having insights from a CPA regarding charitable contributions and taxes is always incredibly valuable.

References:

https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions

https://www.fidelity.com/viewpoints/personal-finance/charitable-tax-strategies

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.

MoneyGeek Feature: Women’s Guide to Making Financial Moves After College

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

Leanne discusses challenges women face as they begin their financial journey after college and what they can do to set themselves up for a fruitful financial life.

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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