Category: General

  • How To Avoid Lifestyle Inflation as You Climb the Corporate Ladder

    How To Avoid Lifestyle Inflation as You Climb the Corporate Ladder

    Does the idea of receiving a promotion make your head swim with dollar signs? If you’re climbing the corporate ladder, congratulations! But don’t hit checkout on your online shopping cart just yet.

    Lifestyle inflation can sneak into the minds of those with newfound wealth and cloud your financial judgment. Today we’re covering three tips to help you avoid lifestyle inflation as your career grows. 

    What Is Lifestyle Inflation?

    Unfortunately, peer pressure doesn’t go away as you age. Have you heard of keeping up with the Joneses? A great example is the green monster of envy and the subconscious pressure to put in an in-ground pool in your backyard just because your neighbors did. 

    That (mythical) green monster is lifestyle inflation’s best friend. Lifestyle inflation (or lifestyle creep) is when your living expenses and non-essential costs grow as your income grows. 

    Lifestyle inflation can also manifest in simple ways like eating at a restaurant one extra time per week, buying a membership to a desirable golf course, or purchasing an additional streaming service to watch all the shows you didn’t have access to before.

    Why Is Lifestyle Inflation Harmful?

    There’s nothing wrong with enjoying your money. We’re not trying to squash your dream of having a new pool. In fact, as your career grows, we fully expect that your lifestyle will change accordingly. Working hard and not enjoying the fruits of your labor can lead to long-term burnout and other problematic spending habits – we want to avoid that! 

    The trick is to ensure that as your lifestyle changes and your career takes off, you don’t find yourself living and spending beyond your means or outside of your values.

    Lifestyle inflation can become detrimental to your financial life when it begins to cut into your savings efforts, like retirement funds, emergency funds, other investments, etc. 

    How do you know if you’re creeping in that direction? An internal alarm should sound if you find yourself thinking the following: 

    • How did I ever make less money than I do now?
    • How did we ever live with less money than we have now?

    3 Ways You Can Lifestyle Inflation

    If you spend all your money on “wants,” you can lose sight of your financial priorities. Ultimately, this could lead to a complete derailment of your financial plan. So, how do you avoid the effects of lifestyle inflation?

    Return To Your Values 

    The #1 way to avoid lifestyle inflation is to return to your values and financial goals. We like to do this at AVID Planning through our Purpose-Driven Money System. It asks, how can you make your money work for you? 

    By focusing on the bigger picture, you can concentrate on reaching your financial goals and spend money and time in areas that give your life meaning.

    Pay Yourself First 

    You and your financial priorities should get first “dibs” on any newfound funds. 

    Ask yourself where you stand on your financial goals:

    • Do I have debt that needs to be paid off?
    • Am I contributing the maximum amount to my retirement savings?
    • Do I need to complete or bump up my emergency fund?
    • Do I want to open a college savings plan to pay for my child’s education?

    Once you’ve tackled your financial priorities, you can explore ways to use your new funds to better your lifestyle. Your values also play a part here!

    If you value quality family time, putting in a new pool at your home may make sense. Or, you could save for a family vacation. 

    If you value education, you could use the funds to further your education or save for your child’s education. 

    If you value community or philanthropy, you could use funds for charitable giving. The options are endless!

    Practice Intentional Spending

    Intentional spending, utilizing your money to benefit your short and long-term financial goals, is a great way to balance “needs” and “wants.” If you find the balance, you can not only save for retirement and your children’s college education but also save for a family vacation, too.

    “Status-spending” (keeping up with the Joneses) likely isn’t aligned with your values. Just because you think an upper-level manager should dress a certain way or drive a particular vehicle doesn’t mean you must follow suit. 

    Other Considerations With Newfound Funds

    There are other things you need to be aware of if you have an influx of income. First, know that you may not see the entirety of your raise, stock gains, etc., so don’t make income plans that you might not end up with. 

    Before you plan for your new funds, look at your pay stub. It’ll help you see how much income you’re getting vs. what’s automatically going to your retirement savings, healthcare premiums, state and local taxes, etc. 

    Speaking of taxes, check to see if your professional growth has bumped you into a higher tax bracket. If this is the case, ensure you account for a higher tax bill or work with your advisor to consider other solutions like tax-loss harvesting, income deferral, etc. 

    Your values and financial goals should ultimately guide your use of your wealth. If you’re unsure of where to start, we can help! Our Purpose-Driven Money System can help you identify your values and financial priorities, giving you a roadmap for how to make your money work for you. 

    Please set up a call, or stop by our office in St. Petersburg, FL, today if you’re ready to get started. 

  • 5 Items to Help You Crush Your Mid-Year Investment Check-In

    5 Items to Help You Crush Your Mid-Year Investment Check-In

    Busy adults love things that we can “set and forget.” Things like a meal cooked in a crockpot, a dishwasher scheduled to run once you’re asleep, an automatic tennis ball launcher for your pet, etc. 

    Unfortunately, for many, investing doesn’t feel like a “set and forget” task. There’s always the anxiety of watching markets ebb and flow, and trying to balance your financial goals with your own personal risk tolerance. Of course, there’s also the added stress of focusing on a long-term game plan and rebalancing in a non-reacitve way. For the average investor who also is balancing a career, family, friends, and hobbies – this is a tall order! 

    This is where teaming up with a financial advisor can come in handy. A financial advisor can be an asset by managing your investments for you. They keep a pulse on the ups and downs of the market while you get to spend time and energy doing what you love. At AVID, we take this one step further and have a unique approach to investment management that allows us to rebalance regularly, focus on the long-term goals of our clients, and skip the often-reactive (and often-ill-advised) “active” management tactics used by day traders.

    But, even if you work with an advisor, you’re not totally off of the hook! Here are five things you should do this month for a mid-year investment check-in. 

     #1 – Review Your Long-Term Financial Goals

    Investing is a long-term financial strategy, and one way you can work to reasses your portfolio regularly (while avoiding market “timing”) is to regularly evaluate your goals. 

    First, have you had any significant life changes occur? 

    • Did you get married?
    • Did you have a child?
    • Have you switched employers?
    • Have you moved to a new location?

    If significant changes have occurred in the last six months, some of your long-term goals may need to be adjusted. For example, let’s say that one of your long-term goals was saving up for a house renovation. If you moved to a new home, that goal has likely changed. Now is the time to re-frame your goals!

    Remember, your financial goals should align with what matters most. If you value quality family time, you may greatly value saving for a family vacation. It’s okay to prioritize that! 

    Let your values lead the charge in determining what your financial goals are. And remember that it’s okay for them to change.

    #2 – Check for Tax Loss Harvesting or Tax Gain Harvesting Opportunities

    Investing comes with some potentially complicated tax implications. Let’s check to see if there are any opportunities for you to save on your tax bill. 

    Tax-loss harvesting is done by selling one investment at a loss to offset gains from the sales of other investments. After a well-performing investment is sold to generate a loss, you can buy into a similar (but not identical) investment. This offsets your costs while retaining a similar position in the now low-performing investment for potential future growth. 

    On the flip side, tax-gain harvesting is selling high-performing investments precisely to capture capital gains. This would be a strategy to use if your current capital gains tax rate is lower than you expect it to be in the future. This would allow you to sell your high-performing investment and pay the lower capital gains tax now rather than selling later and paying a higher capital gains tax.

    Navigating these strategies can be complicated, so work with your financial advisor to determine if either will work for you. 

    #3 – Check for Roth Conversion Compatibility

    You can use many different types of accounts to save for retirement. And you’re likely familiar with most of them. But have you ever heard of a Roth Conversion?

    This is a strategy where an investor takes all or a portion of their traditional IRA (or 401k) balance and converts it to a Roth IRA. 

    Why would someone do this? Since the funds to be moved were contributed originally to a traditional IRA or 401k, they were made with pre-tax dollars. You’ll have to pay income tax if you convert these funds via a Roth Conversion. But, once those taxes are paid, your money will grow in the Roth account tax-free, and you can make tax-free withdrawals during retirement. 

    This could be helpful if you anticipate being in a higher tax bracket during retirement. Moving the funds now can avoid a higher tax bill later on. 

    #4 – Re-enforce Your Commitment to the Buy and Hold Investment Strategy

    We’ll let you in on a secret: timing the market doesn’t work. To do it successfully, you must buy at the lowest prices and sell at the highest. This is, of course, easier said than done. 

    If it sounds too good to be true, it probably is. Even the most committed investors can try to time the market, but it’s unreliable. 

    Market timing is the opposite of the buy-and-hold investment strategy, which means you focus on the short-term rather than the long. Inevitably the market will have ups and downs, and allowing emotions to drive your decision-making can hurt your financial growth. What goes down must come up!

    By moving your investments around frequently, you risk not having your assets in the “right” places when the market moves in your favor. In addition, you’re potentially missing out on the benefit of compound interest.

    #5 – Assess Your Portfolio’s Performance, and Your Own Risk Tolerance

    An ideal investment portfolio falls within your risk comfort zone and is diverse. Diversification involves holding various investments and securities from different issuers and industries. The idea is that if one of your investments “fails,” you have others to help ensure your portfolio as a whole remains secure. 

    A mid-year check-in is an excellent time to see how your portfolio is performing. But remember not to make any rash decisions! Investing is a long-term strategy, so it will likely take time to see the results you’re looking for. 

    Now you’re ready for your mid-year investment check-in! If you’re ready to talk strategy or are just starting your financial planning journey, please contact us today. 

  • What Are Money Scripts? And How Understanding Them Can Improve Your Relationship with Money

    What Are Money Scripts? And How Understanding Them Can Improve Your Relationship with Money

    Are you a saver or a spender? Do you like to create spending plans (budgets), or do you find it tedious and frustrating? Are you comfortable talking about money to family, friends, etc., or do you avoid it altogether? 

    All of these types of tendencies make up what is called money scripts. Today we’re looking at what they are, their impact on your behavior, and how acknowledging your money script can improve your relationship with money.

    Key Takeaways

    • Most of us fall into a category (or multiple categories) of money scripts. 
    • You and your partner may have different scripts, which can mean you view finances differently. 
    • Being aware of your money scripts can help you identify where you can make better financial decisions.

    What Are Money Scripts?

    Money scripts are unwritten rules that dictate your financial behavior. They represent your ideas, thoughts, and beliefs about your finances. 

    In 2011, Brad Klontz and his team studied the phenomenon of money scripts. Through their research, they uncovered that people tend to fall into one of four money script categories:

    • Money Avoidance
    • Money Worship
    • Money Status
    • Money Vigilance

    Let’s dive into the nuances of each. 

    Money Avoidance

    People in this category tend to find money a source of anxiety or stress. In addition, they may envy those they think have more money. 

    Klontz found an interesting moral connection familiar to the individuals in this category. They think money is “bad” but also believe it will solve their problems. 

    In addition, this script includes people that feel undeserving of money, feel guilty about desiring money, and ultimately avoid thinking about money altogether. 

    How do you fix this? Start by reacquainting yourself with money! Set intentional goals, and give yourself and others grace regarding their financial decisions.

    Money Worship

    This script includes those that believe money is the end-all-be-all. Money is the key to life, love, and happiness. Which most of us know isn’t true. 

    People within this script are constantly chasing what they view as “enough” money. They get caught up in what’s called a scarcity mindset. This is harmful because it can limit your thinking “small” regarding your finances. A scarcity mindset makes you believe that you don’t have enough money, you’ll never have enough money, and that there’s very little you can do about it.

    Other common characteristics of people that fall into this script are seeking fulfillment in buying more tangible items, overspending and making risky financial decisions, and becoming a “workaholic” to fund their habits.

    How do you fix this? Remember that money is a tool to help reach your goals, not the goal itself.

    Money Status

    People in this category tend to tie their self-worth to their net worth. This is a highly challenging script to get caught up in because it can bring familial or societal pressure to live extravagantly. 

    Common tendencies of those in this script are gambling, lying about money, and overspending. All of which can lead to overspending, unhappiness, and anxiety. 

    How do you fix this? Bring intention back to your spending – make it purposeful and meaningful. Examples could be donating to charitable causes, cutting back on extraneous costs, etc.

    Money Vigilance

    Those with this mindset tend to approach money from a logical perspective. People in this category view money as a reward for hard work and thus make thoughtful financial choices. 

    Common beliefs of those in this script are that money should be saved and avoid buying things with credit. 

    While this script isn’t perfect by any means, its core values should be considered goals to strive for.

    Where Do I Fit?

    Where do you fit in personally? Take another look at each of the scripts and see where you fit. But it’s important to know that you may overlap in several categories, too. 

    Regardless of your category, remember that this exercise isn’t supposed to make you feel wrong about money but instead bring attention to how you view, discuss, and use it. Why is this important? The first step to creating healthier financial habits is to know your current ones.

    Considerations for Couples

    Couples can have different love languages, and you may also have different money scripts. Just like discussing and being aware of whether your partner appreciates when you do tasks without them asking or simply words of affirmation, it’s essential to be aware of your financial scripts. 

    Finances are one of the most common things that couples butt heads on. Knowing your and your partner’s script can help you understand where they’re coming from when making financial decisions and how you can incorporate their tendencies into your financial plan. That way, you’re both comfortable with how money is viewed and utilized in your financial plan. 

    Creating a financial plan aligned with your values and goals can be difficult. This is why AVID Planning created our Purpose-Driven Money System. It’s a guide that helps you identify how to make your money work for YOU. 

    If you need help creating a financial plan or want to create better financial habits, our team is here to help. Please contact us today. 

  • Student Loan Payments Could Resume. Here’s How to Plan for It

    Student Loan Payments Could Resume. Here’s How to Plan for It

    The question on many former students’ minds: “When exactly do federal student loan payments re-start?”. We’re nearing the end of President Biden’s student loan pause, but things get extra complicated because of the pending student loan forgiveness plan. 

    As with most finance-related things, planning is better than being surprised. Let’s look at a scenario where the student loan forgiveness plan doesn’t pass; what will you do? 

    Key Takeaways

    • The Student Loan Forgiveness Plan is awaiting Supreme Court approval. 
    • Various repayment options are available to help you afford your monthly payments, but they do have some caveats. 
    • Planning for debt repayment is the best thing to do in this situation so you’re not caught up with unexpected costs.

    Student Loan Pause Timeline

    Most federal student loan payments have been paused since March 2020 in response to the COVID-19 pandemic. In addition to pausing all federal student loan payments, interest and collections against borrowers were also halted. 

    The most recent extension of forbearance resulted from a legal dispute over President Biden’s student loan forgiveness plan (separate from the current pause). The plan is currently stuck in the Supreme Court awaiting approval. 

    Federal student loan payments are paused for up to 60 days after either June 30 or the date the Supreme Court decides whether or not to move forward with the forgiveness plan. 

    If the Supreme Court doesn’t approve the plan, are you ready to repay your federal loans?

    Step 1: Housekeeping

    Some have chosen to continue making payments during forbearance to take advantage of paying off the principal without incurring interest. If you haven’t been making payments (which is nothing to be ashamed of!), it’s likely been a while since you thought about student loan payments. 

    That being said, there are a few housekeeping items you’ll want to make sure you take care of before repayment starts.

    First, remember who your loan servicer is and how to log in to your account. This is important to check because loan servicers have been changing. You may have gotten an email if your servicer changed, but you can use this site if you need clarification.

    Second, take an inventory of what you owe. You can contact your servicer to determine your remaining balance and ensure your payments are heading to the right place. 

    This is also an excellent opportunity to check your interest rate and ensure you’re on the right repayment plan. If you’re worried you can’t afford it, options are available.

    Step 2: Examine Your Repayment Options

    The Department of Education offers a variety of repayment plans for federal student loans. Let’s take a look at what each of them entails so you can decide which fits your spending plan the best.

    • Standard Repayment Plan: Payments are fixed based on a 10-year repayment plan.
      • This type of plan usually pays less over time.
    • Graduated Repayment Plan: Payments are lower at first and increase every two years. The gradual increase ensures your loans are paid off within 10 years. 
      • You may pay more over time than under the standard plan.
    • Extended Repayment Plan: Payments are fixed or graduated over a 25-year repayment period. You must have at least $30,000 outstanding loans to qualify for this plan. 
      • Monthly payments will be lower than under a 10-year Standard or Graduated plan.
    • Revised Pay As You Earn Repayment Plan (REPAYE): Monthly payments are 10% of your discretionary income. They are re-calculated every year and based on your family size and updated income. 
      • You’ll usually pay more over time than under the Standard 10-year repayment plan. But, any outstanding balance left after 20 years (undergraduate) or 25 years (graduate) will be forgiven. 
    • Pay As You Earn Repayment Plan (PAYE): Monthly payments are 10% of your discretionary income but never exceed what you would pay under the 10-year Standard plan. Payments are recalculated annually based on your income and family size. 
      • You’ll typically pay more over time than under the 10-year Standard Plan and may have to pay income tax on any forgiven amount.
    • Income-Based Repayment Plan (IBR): Monthly payments are 10 or 15% of your discretionary income, but only under the 10-year Standard plan. Any outstanding balance will be forgiven if you haven’t paid off your loan in 20-25 years. 
      • You may have to pay income tax on any amount forgiven, and you’ll likely pay more over time than the 10-year Standard plan.
    • Income-Contingent Repayment Plan (ICR): Your monthly payment will be the lesser of 20% of your discretionary income or the amount you would pay on a repayment plan with a fixed payment over 12 years (adjusted to your income). 
      • Any outstanding balance will be forgiven after 25 years, but you’ll usually pay more over time than the 10-year Standard plan.
    • Income-Sensitive Repayment Plan: Monthly payments are based on your annual income, but your loan will be paid within 15 years. 
      • You’ll likely pay more over time than under the 10-year Standard plan.

    Step 3: Rework Costs Into Your Spending Plan

    Now that you know what repayment plan works the best for you and your financial goals, it’s time to work that cost into your monthly spending plan. 

    At AVID Planning, paying off debt is as important as investing. Paying off your loans quickly will save you money on interest and allow you more room to focus on other financial goals once the debt has been paid.

    Use our Purpose-Driven Money System to make your money work for you and your goals.

    Where Do You Go From Here?

    A Supreme Court decision on the student loan forgiveness plan should be made in June. Until then, planning in case the plan doesn’t pass is the best way to set yourself up for success.

    A few other ideas are being tossed around, including extending interest forbearance until September 2023, pushing monthly payments resuming until October 2023, potential loan write-offs for low balances, etc. But none of those things are guaranteed!

    Our team at AVID Planning is here to help you pivot your financial plan during times of uncertainty or unexpected costs. Please contact our team today if you need help deciding on your repayment plan, adjusting your financial plan, or have questions about paying off debt in general. 

  • How To Budget for Buying Your Dream Home This Spring

    How To Budget for Buying Your Dream Home This Spring

    Are you the type to scroll through real estate listings and daydream about what your life could look like in the different homes? Do you see a fixer-upper, and your mind starts to spin with ideas on how to make it perfect for you and your family? 

    Buying a home is a goal for many adults, but with an ever-changing housing market, rising interest rates, and seemingly insufficient housing, the task can be daunting. 

    Today we’re sharing tips for budgeting to buy your dream home this spring. 

    Key Takeaways:

    • It’s important not to forget about the costs that come up after you get the keys. You don’t want to get caught in your home without a bed, vacuum, or washing machine!
    • Don’t get caught up in feeling like you must only cut high costs to budget for your home. Small things like making more meals at home can also add up over time.
    • Starting the home-buying process knowing your ideal neighborhood, type of home, etc. Being prepared can help you secure your dream home.

    What Type of Buyer Are You?

    Are you a first-time buyer or home buying veteran? Surprisingly, what kind of buyer you are can impact the home-buying process. 

    Did you know that different lending options and programs are available to first-time buyers? They can include benefits like low-down-payment mortgages, no-down payment mortgages, mortgage loans with discounted interest rates, loans with lenient approval standards, etc. 

    In addition to these programs, first-time home buyer grants are available at the federal, state, and local levels. There are many popular home-buyer grants, and if you’re interested in learning more, you can visit this website.

    Experienced Home-Buyers

    If this isn’t your first home, there are things you need to consider before you start searching. Do you have equity in your home? Is it worth more than when you bought it? Are you in a desirable neighborhood or school district? You want to keep these things in mind when deciding on your budget.

    Avoid Being “House Broke”

    The type of situation you want to avoid is buying a home that is well beyond your means. This issue is because if your discretionary income goes to home repairs or mortgage payments, you need something to put toward your other financial goals. 

    So, how do you avoid this? A good rule of thumb is using the 28% rule. This rule says your mortgage shouldn’t be more than 28% of your monthly gross income. 

    That might not seem like much but don’t forget that you likely have other expenses or debts like car payments, student loan payments, etc., that you also need to put monthly income towards. Or, if you find yourself in a situation where you need to access cash quickly, you might not be able to if it’s all tied up in your home.

    Mortgage lenders will look at your debt-to-income ratio when determining whether or not you’ll be approved for a loan, but don’t make the mistake of buying a home that’s too expensive.

    Remember the “Hidden” Expenses

    Congratulations if you’ve found your dream home, gone through the mortgage process, and finally got the keys! But, now what? 

    Some sneaky expenses aren’t always top of mind when purchasing a home, so don’t forget to budget for these items, too!

    • Home Insurance
    • Closing costs
    • Moving expenses
    • Renovation Costs
    • Home Furnishings
    • Utilities
    • Landscaping
    • Cleaning supplies
    • Appliances or appliance repair
    • Home security system and fees
    • Home emergency fund

    Sure, you could live using lawn chairs instead of a couch for a while, but don’t let these expenses sneak up on you. 

    This is especially important regarding a home emergency fund. Even with a house inspection, you never know what could happen with your new home. A new water heater, roof, or appliance can be an expensive emergency if you’re not ready. 

    Choosing the Right Home

    This is the fun part! It’s time to brainstorm what type of home you like and what neighborhood you’re looking for and create your wish list. 

    Your wish list can be as extensive as you want it to be. For example, a fenced-in yard might be on your wish list if you have a dog. Or, if you’re in an urban area, walkability to restaurants could be vital to you. Whatever it is, write it down!

    A wish list can get out of hand quickly. For example, you might want an in-ground pool, but is that a “need” on your wish list? Or, maybe you can’t get precisely into the neighborhood you’re hoping for, but otherwise, the house has everything you need. Is the neighborhood truly make or break? 

    In addition, think about the longevity of your home. Is this the home you’ll be in for the next 30 years? If so, is it accessible when you get older? Or do you need to budget for future improvements or renovations? 

    St. Petersburg Area Homebuyer Considerations

    If you’re specifically looking for a home in the St. Petersburg area, there are a few specific things you should keep in mind.

    • Current Real Estate Climate: Generally, there is a low number of homes available for purchase at a given time. That being said, homes can garner a variety of offers, quickly. This emphasizes the importance of doing your homework and being prepared once you begin the home-buying process. 
    • Choosing Your Desired Area: The St. Petersburg area provides a variety of neighborhood options for you to choose from. Are you looking for entertainment and easy access to downtown shops and restaurants? If you have the budget Historic Kenwood, Old Northeast, Snell Isle, or a downtown condo can be a great fit. If you want something with quick access to the beach, Pasadena, Terirra Verde, or Gulfport. If you want a little of everything, try more centrally located neighborhoods like Crescent Lake, and Allendale.   
    • Weather: While the sun and sand are beautiful and desirable, Florida can be subject to intense storms like hurricanes. So, depending on where you choose to live, it may be smart to increase your homeowner’s insurance rates, or, choose a home based on its ability to withstand severe weather. And, make sure you choose a home with good air conditioning!

    The many things to consider about your “right” home can be daunting, but remember what’s truly important to you. After all, you should love the home you’re in!

    Creating Your Spending Plan

    Once you know the amount you need to save for your home, it’s time to create your spending plan

    First, add up all of your income sources in your bank account each month. For example, your and your partner’s paycheck, bonuses, commissions, etc.

    Then, list your monthly expenses like utility payments, groceries, transportation, car payments, health insurance premiums, clothing, recreational use, etc. 

    Now, separate that list into what monthly expenses are non-negotiable. This will likely be your utility, groceries, medical, etc. 

    This is where you have to identify areas that you can cut. For example, it might mean eating at restaurants less or not buying new spring clothing. While cutting these costs may not seem like much at first, it will add overtime and help you save money. 

    Don’t Be Afraid to Ask for Home-buying Help

    If you’re just starting your home-buying journey, are stuck on saving money, or have questions about mortgages, interest rates, etc., a financial advisor could be an excellent resource. 

    Please reach out to us today if you have any questions about how you can buy your dream home. We can’t wait to work with you!

  • How Much Risk Are You Comfortable with In Investing? And Why It Matters

    How Much Risk Are You Comfortable with In Investing? And Why It Matters

    Are you the type of person first in line to ride a new roller coaster? Or can’t wait to try skydiving or bungee jumping? 

    If you live for an adrenaline rush, It’s safe to say that you enjoy a certain amount of risk in your personal life. But what about with your money?

    All investing carries some risk, but how much risk you’re comfortable with and how much you have to take impacts your finances. 

    Key Takeaways:

    • Risk tolerance and capacity are two different things that work together to drive your investments. 
    • Your risk tolerance and capacity are likely to change throughout your life as your personal and financial priorities change. 
    • The key to a well-balanced investment portfolio is diversification.

    What Risk Tolerance Is

    Risk tolerance is a measurement that describes how much loss an investor is willing to have through their investments. 

    The amount of risk tolerance an investor has typically determines their chosen investments. For example, someone with higher risk tolerance may invest more funds in cryptocurrency, stocks, etc. On the other hand, an investor with lower risk tolerance may stick to bonds. 

    A person’s risk tolerance can also be affected by stock market volatility, interest rate changes, market swings, economic or political events, or personal life events. 

    The average investor will typically fit into one of three risk tolerance categories:

    • Aggressive: These investors are more willing to lose money for significant gains. Their portfolio will likely include primarily stocks and little bonds or cash. 
    • Moderate: If investing were Goldilocks and the Three Bears, this would be the “just right” porridge! Moderate investors want to grow their money, but not lose too much. This is why this category is sometimes called “balanced.” Their portfolio will likely include a 50/50 or 60/40 mixture of stocks and bonds.
    • Conservative: These investors want little to no risk in their portfolio. This person will commonly be a retiree or someone close to retirement age. Essentially, they’re unwilling to risk a significant loss because they don’t have time to recover. This type of portfolio would likely include CDs, money markets, or U.S. Treasury Bonds.

    Now, how do you decide which category suits you best?

    Discovering Your Risk Tolerance

    When determining your personal risk tolerance, a great place to start is by asking yourself these questions:

    1. In how many years will you begin making withdrawals from your investments?
    2. Approximately how many years will you be making withdrawals?
    3. Is protecting your portfolio more important than high returns?
    4. Do you predict your income level staying the same, increasing, or decreasing over the next few years?
    5. What do you expect to be your next significant expenditure? Buying a house, paying for your child’s college tuition, providing for retirement, etc.?

    Your risk tolerance level will depend on your answers to these questions. For example, if you aren’t planning on making withdrawals from your retirement savings accounts for 30 years, it’s safe to say that you likely have a higher risk tolerance than someone who’s 5-10 years away. 

    Other things that can impact your risk tolerance are how much you have in your emergency account, HSA savings, 529 plan savings, etc. If you have a bit of a “safety net” regarding your savings, you may feel more comfortable taking risks. 

    There’s another aspect to investment risk that surrounds the concept of the amount of risk you must take to make progress (gains) through your investments. That’s called risk capacity.

    What Risk Capacity Is

    Risk capacity and tolerance are different, but they work together to help you create an investment portfolio. Where your comfort level determines risk tolerance, risk capacity is a threshold determined by your goals. 

    What does this mean? If you want to increase your retirement savings by a large percentage strictly through your investments, you must invest in risky investments like stocks. 

    Risk capacity is the risk you must take to reach your financial goals. So, you could be a person that maybe is more of a conservative investor, personally, but your financial goals push you into the moderate category. 

    Risk is Unavoidable

    The risk still exists even if you and your skydiving instructor take all necessary safety precautions, like triple checking your parachute. The same goes for investing. 

    Unfortunately, it’s nearly impossible to create a risk-free investment plan. The stock market is, in its nature, turbulent, but what goes down must come up! Even if you try to avoid potentially significant losses by “timing the market,” you could ultimately cost yourself money in the long run. 

    Market Timing

    Timing the market doesn’t work. It’s as simple as that! Market timing is moving investments in and out of the market or switching funds between assets based on predictions. So, in theory, if investors can predict when the market will go up and down, they can make trades to turn that market movement into a profit. 

    If it sounds too good to be true, it’s because it is. Even the most committed and researched investors can try to time the market, but it’s not reliable. 

    Market timing is the polar opposite of a buy-and-hold investment strategy. Meaning you focus on the short-term rather than the long-term. But why is this harmful?

    As we mentioned earlier, what goes down, must come up! It’s tough for investors to accurately pinpoint a market high or low until after it’s already happened. By switching your money around, you risk not having your assets back in the “right” place to take advantage of the inevitable upswing. 

    A J.P. Morgan study found that the best market days come right after the worst. For example, in 2015, the best market day was August 26th, two days after the worst day. This is an argument in favor of the buy-and-hold strategy. Investors usually are rewarded for sticking to the investment strategy and riding out the bad market days. 

    Your Risk Tolerance and Capacity Can (and probably should) Change Throughout Your Life

    The amount of risk within your investment portfolio will likely change. For example, if you’re 30 years away from retirement, your focus will likely be on earning funds rather than maintaining them. Your portfolio at this phase of your life will likely include riskier investments like stocks. 

    On the contrary, as you near retirement, your focus will likely be on maintaining your savings rather than earning. You’ll likely move towards safer investments like bonds with lower earning potential but less risk for more significant losses. 

    The key to a well-balanced portfolio is diversification.

    The Recipe For a Successful Investment Portfolio

    The three bears could argue that this is their secret to having porridge that’s “just right.” 

    All solid, well-balanced portfolios have one thing in common, they’re all diverse. 

    We know you’ve heard the saying, “don’t put all of your eggs in one basket,” which is the same idea. You obtain a diverse portfolio by including various investments and securities from different issuers and industries. 

    The idea behind diversification is that if one of your investments “fails,” you have others to help ensure your portfolio as a whole remains secure. 

    If you have questions about your risk tolerance, capacity, or even where to start with your investment portfolio, we are here to help! 

    We know it’s hard to find time in your busy day to discuss financial priorities and decide about your life and financial goals. At AVID Planning, we use a unique process called our Purpose-Driven Money System that guides you to explore and gain clarity on all aspects of your lives. 

    Please schedule a time to chat today. 

  • How to Care for Aging Parents Without Forgetting About Goals

    How to Care for Aging Parents Without Forgetting About Goals

    No matter how much we try and plan, our financial and life plans will change. 

    Some Gen X and Millenial members are at the point where they are at a crossroads in their financial planning journey. They could be at their maximum earning years and are aggressively saving for retirement or are updating their strategy as they near retirement. 

    One thing that might not be on many adults’ minds is a potential unexpected expense, your parents. It’s common for adults to help out their parents financially as they age and cannot care for themselves entirely. Even if you don’t need to care for your parents, by preparing ahead of time, you’ll have the flexibility to do so without completely derailing your financial goals.

    In this blog, we’ll cover the process of sorting through both your and your parent’s finances and how to decide on a plan that will work best for everyone.

    Key Takeaways

    • It’s essential not to procrastinate on this conversation. The earlier you can make plans as a family, the better. 
    • Make sure to include siblings in the conversation. Relationships can be strained if one feels as if they’re helping their parents on their own. 
    • A financial advisor can be an ally in this conversation for your family. They can help facilitate and mediate the discussion to keep things on track and ensure everything gets noticed.

    Remember, It’s Not All About Finances

    Before diving into the finances, it’s important to remember that this is a potentially challenging conversation with your family. When discussing this topic with your parents, be respectful and empathetic. 

    If your parents need financial or lifestyle support, it’s likely due to declining health. This can be scary to think about, so be prepared for it to be a potentially difficult conversation. In addition, it can be challenging for you and your parents to process a shift in your relationship from them taking care of you to vice versa. 

    Be kind and give your family and yourself grace during these discussions and decisions. Lean on your trusted friends and family members and process your emotions together. If you don’t, it could make the decision-making process more difficult. 

    Knowing Your Options

    We’re not diving into finances yet; this is now the time to brainstorm as a family and put all your options on the table. Here are some questions that can help you get started: 

    Could your parents continue to live in their home? 

    • Is their home suitable for aging adults’ needs? 

    Could your parents live in your home? 

    • Is your home suitable for aging adults’ needs? 
    • Is your spouse or partner okay with this?
    • Do you have enough space in your home?

    Do you have a sibling your parents could live with? 

    • Is their home suitable for aging adults’ needs? 
    • Is their spouse or partner okay with that?
    • Do they have enough space in their home?
    • How will this impact your relationship with your sibling?

    Do any housing options require renovations or updates to suit aging adults’ needs? 

    • Who will be responsible for associated costs?

    Do you anticipate your parents needing services from a long-term care provider or facility? 

    • How does this affect your housing plans? 

    Of course, all of these different routes have unique financial implications. It’s time to dive into the financial analysis!

    Assessing Your Parent’s Finances

    It’s no secret that finances can be hard to discuss, so empathy and grace are required during this financial deep dive with your parents. 

    Establishing what type of insurance coverage your parents have is a great place to start. Here are some questions to get the conversation rolling: 

    • Do your parents have long-term care (LTC) insurance?
    • Are their estate planning documents in place and reflective of their wishes?
    • What type of health insurance coverage do your parents have? 
    • Do they have a health savings account (HSA)?
    • Do they qualify for Medicare or Medicaid?
    • Do they have accessible funds for items not covered by insurance (prescription medications, visits with specialists, etc.)?

    Let’s dive into the nuances of some of these topics you may be unfamiliar with. 

    Long-Term Care Insurance

    This type of insurance can cover all or part of the costs associated with care for activities of daily living either in the home or in an assisted living facility. 

    LTC is nice to have but can be expensive. In 2020, the average annual premium for a couple aged 55 years old was $3,050, and these premiums can increase while you own the policy.

    If your parents don’t have LTC insurance and want it, it’s not too late! But, just know that their premium may be higher due to an older age. 

    Health Savings Account

    This tax-advantaged savings account covers qualified healthcare costs like prescription drugs, copays, etc. It’s only available to those with a high deductible healthcare plan (HDHP), so your parents might now have one. 

    HSAs are also great because the funds always stay active. Contributions are excluded from your taxable income, and they grow tax-free in the account. But be sure to note that they do have annual contribution limits. In 2023, the limit is $3,850, $7,750 for families, and a $1,000/year catch-up after age 55. These can also be used to pay some Medicare premiums. It’s also important to keep in mind that your parents cannot continue to contribute to an HSA after they’re eligible for Medicare.

    Medicare & Medicaid

    While these terms are often used interchangeably, they’re two different federal government programs designed to provide equitable access to healthcare. 

    Medicare covers those age 65 and older, and people with certain chronic conditions or disabilities. We won’t get too into the weeds on the details, but know that Medicare has three parts – A, B, and C (Medicare Advantage). “Original Medicare” is parts A and B and includes inpatient and outpatient hospital services. Part C, or Medicare Advantage, covers prescription drug coverage and dental, vision, and hearing care not included in Original Medicare.

    Medicaid is designed for those that have low income. It covers things like hospital stays and treatments, and routine care.

    Remember, your parents aren’t eligible for Medicare until they reach the age of 65 or have specific disabilities, and Medicaid is only available to those that meet the income requirements. 

    Now would be the time for you to discuss your parent’s retirement savings and their available disposable income. This is important because it can help you narrow down what types of care, renovations, etc., they can afford independently.

    After all of their cards are on the table, this is where you come in.

    Assessing Your Finances

    Like you would do with any financial inventory or check-in, looking at your existing recurring costs is a great place to start. This includes your mortgage payment, student loan payment, utilities, childcare costs, insurance premiums, etc. 

    Then, take inventory of what you need to do in order to reach your financial goals. Walk through these questions to determine what funds you have available to help your parents. 

    • How much do I need/want to contribute to my retirement savings? 
    • How much do I need/want to contribute to my HSA? 
    • Do I need to contribute to an emergency fund, or do I have one already?
    • Do I need to pay off any debts? 

    After this, you should have a good idea of what funds you could have available that could be used to help your parents. 

    Don’t Forget About Your Siblings

    One way that sibling relationships can be strained is if one person feels as if their sibling isn’t “pulling their weight” or not helping their parent’s in the same way you are. 

    It’s important to remember that they may not be in the same financial situation as you and may not be able to help in the same way you can. But be sure to walk through the same financial inventory process with them to see where they stand regarding being able to assist.

    Coming to a Decision as a Family

    When all is said and done, this is a decision you’ll have to make as a family. Financial and health-related conversations can be difficult, so it’s important that you don’t procrastinate this conversation. 

    In addition, don’t be afraid to bring in a financial professional to help facilitate or mediate the conversation. 

    If you need help navigating your financial plans or are unsure if you’re in a place to help care for your aging parents, please contact us and schedule a time to chat today. 

  • You’re Getting a Raise, Great! How to Make the Most of that Extra Cash

    You’re Getting a Raise, Great! How to Make the Most of that Extra Cash

    There’s no workplace win quite like earning a raise, but once you get it, what happens? 

    While you might be tempted to spend it all in one place, here’s what you can do instead. 

    Key Takeaways

    • There’s a way to both use your new income to save for the future, and still enjoy it in the present. 
    • New, unexpected income can result in lifestyle creep, which can be detrimental to your financial plans. 
    • If you think your raise might have bumped you into a higher tax bracket, don’t panic, there are strategies you can use to lower your taxable income. 

    How Much Money Are You Truly Getting?

    Don’t hit checkout on your online shopping cart just yet. Do you know how much of your raise you will see in your bank account?

    If you look at a pay stub, you’ll notice that some of your paycheck automatically goes toward state and federal taxes, health insurance premiums, Social Security, Medicare, and of course, your retirement savings. 

    Before making big plans with your new funds, it might benefit you to look at your first few paychecks once your raise kicks in. It’ll give you a better idea of how much of your raise you have at your disposal. 

    Check-In On Your Financial Goals

    Once you know how much of your raise you have at your disposal, it’s time to decide how to use the funds. Now it’s time to re-visit your financial goals. 

    How’s your progress toward your short and long-term goals? The roadmap for how to use your additional funds follows your financial priorities. Depending on your goals, ask yourself: 

    • Do I have debt that needs to be paid off?
    • Am I contributing the maximum amount to my retirement savings?
    • Do I need to bump up my emergency fund? 
    • Do I want to open or add to a college savings plan to pay for my child’s education? 
    • I’m progressing toward my goals! Do I want to donate any money to charity?

    Looking back at your financial goals and getting a bird’s eye view of your financial picture will help you steer clear of lifestyle creep. 

    What’s Lifestyle Creep?

    Lifestyle creep, or lifestyle inflation, occurs when an individual spends more as their income increases. The real kicker to identify lifestyle creep, is if you start seeing “want” items as “needs” and have the thought “how did we ever live without this extra income?”. 

    It’s fun, and even expected to spend more as you make more, but it’s important to keep that new spending in the context of the rest of your financial plans.

    Lifestyle creep can be harmful because it can stand in the way of you achieving your financial goals. If you spend all of your money on “wants”, it can lead to even more extravagant spending, and losing sight of priorities like retirement savings, investing, etc.

    Don’t Forget About Tax Considerations!

    How could we forget about taxes? Depending on the size of your raise, you might have bumped into a higher tax bracket. 

    If this is the case, don’t panic, because a financial advisor can help you potentially lower your tax liability. There are a few strategies that might work for you: 

    • Tax-Deferred Retirement Savings Plans: You’re likely familiar with this strategy, because they’re common retirement savings accounts. Retirement savings plans like individual retirement accounts (IRAs) and 401ks can save an investor money because the funds saved won’t be taxed as income until withdrawals are made. 
      • Why would someone do this? Any contributions made to tax-deferred savings plans are deducted from your gross income (the income you make, pre-tax), so the investor will get an immediate tax break. But remember, IRAs do have qualifying income limits, so an IRA may not be an option depending on your income level.
    • Health Savings Account (HSA): This is a tax-efficient account that can be used to save money that can be spent on eligible healthcare expenses. Keep in mind that HSA plans are only available to those with high deductible healthcare plans (HDHP), so this may not be an option for you. In addition, HSAs have contribution limits ($3,850 in 2023 for those under the age of 50).
      • Why would someone do this? HSA dollars never expire, so you can also think of them as a unique retirement savings account that can be utilized for healthcare costs. An HSA helps your tax bill by using tax-free dollars as contributions that lower your taxable income.
    • Claim All Applicable Deductions and Credits: Tax deductions and credits are two different things. Tax credits are dollar amounts that directly subtract what you owe from the IRS. Tax deductions subtract from your taxable income which can potentially put you into a lower tax bracket.
      • Why would someone do this? They’re there for you to use! You might qualify for more deductions and credits than you think. Common tax deductions are: student loan interest, self-employment expenses, charitable contributions, state and local taxes, mortgage interest, etc. Common tax credits include: child and dependent care, energy efficient home improvements, electric vehicles, etc. 

    Work with your financial advisor and certified public accountant (CPA) to find unique tax savings strategies that work well for you and your financial goals. 

    Invest In Yourself

    Now that you’ve tackled all of the important financial priorities and considerations, you can focus on how you’ll use your new funds to better your lifestyle. 

    This decision will likely be tied to your values. For example, if you place value on your education, you might use your raise to pay for a few college courses towards your masters degree. 

    Some other examples could include making home renovations, taking your family on vacation, or finally throwing the wedding of your dreams. This is your opportunity to use these funds in a way that improves your current life, rather than focusing on saving for the future. Because it’s possible to do both!

    If you’ve recently received a raise and are unsure on where to start utilizing your new funds, we can help! We specialize in creating a Purpose-Driven Money System that makes you money work for you, and focuses on the idea that an amount of money isn’t the goal, but rather what your money can do for you. 

    If you’re ready to get started, please set up a time to meet with us.

  • Why Effectively Paying Down Debt is Just as Important As Investing

    Why Effectively Paying Down Debt is Just as Important As Investing

    The average American has a whopping $90,460 in debt. If we narrow it down to just the average debt Gen X individuals carry, that number climbs to $135,841. Millennials, on average, carry $78,396. While the type of debt varies, the most common are credit cards, auto loans, mortgage loans, personal loans, and student loans. 

    Is debt weighing you down? Or torn between paying off past purchases or investing to help your money grow in the future? 

    What if we told you that they’re essentially the same?

    Key Takeaways:

    • Making on-time debt payments saves you money on interest and is also great for your credit score. 
    • The snowball method is an excellent way to approach paying off debt if you’re unsure where to start. 
    • Your financial priorities will change throughout your life. If you need to focus on paying off debt now, that doesn’t mean you won’t reach your financial goals.

    How Are They Different?

    Before diving into their similarities, let’s first discuss their differences. 

    Investing is a way to set money aside for the future through assets like stocks, bonds, and real estate. Invested funds grow over time and are a long-term wealth-building strategy.

    Debt is money you’ve essentially already spent/borrowed. Debt that goes unpaid usually gets charged interest. Interest adds charges to your principal balance, meaning you’ll likely end up paying more than what you spent/borrowed in the first place. 

    You Should Do Both! (If You Can)

    Look at one of the most common types of debt, a mortgage. Is it more beneficial to make extra payments to your mortgage or invest that money? 

    Here’s a hypothetical situation: 

    • Your mortgage has an interest rate of 5%.
    • Your investment has an average return of 10%.

    In this situation, investing the money may make more financial sense rather than making additional mortgage payments. 

    But let’s throw a wrench in the plan and say you have a balance on your credit card with a 21% interest rate. Then, paying off the credit card rather than investing makes more sense. 

    Of course, we can’t forget that investments always carry some risk. That annual average return of 10% can’t be guaranteed, so you have to be comfortable with the possibility that the return might be lower.

    How Are They The Same?

    Let’s keep using the same scenario, except you decided to invest the funds rather than pay off the credit card. 

    How might this be a mistake? Since the return on investment will likely be lower than the credit card’s interest rate, you’re not saving any money. Instead, you’ll likely end up spending more!

    Your credit card balance will continue to grow, and your investment might grow at a lower rate which won’t offset the additional interest costs.

    So, what’s the best way to tackle paying off debt? 

    Why It’s Important To Pay Down Debt

    Paying down debt can impact more than just your wallet. By paying down debt effectively (AKA making on-time payments), you can help boost your credit score. 

    Ah, yes, the elusive credit score! Why is it so important anyway? 

    Your credit score has an impact on your financial life in a variety of ways. Credit scores can affect insurance premiums, whether a landlord will rent an apartment to you, whether or not you’ll be approved for a car or home loan, and much more. 

    Debt also carries a psychological effect with it. Carrying debt and raising interest costs can cause a great deal of stress on your financial and personal life. For that reason alone, paying down debt can be beneficial, so it doesn’t keep you up at night.

    How To Pay Down Debt

    If you’re thinking: “I should prioritize paying off debt, but I don’t know where to start.” We have a few ideas that could help you!

    Snowball Method

    Debt can be a “slippery slope.” Once you borrow money and interest starts piling up, things can quickly get out of control, and you could slip over the edge. However, trying and pay down your debt all at once is also intimidating. It can be hard to know where to begin.

    The “snowball” method allows you to gamify your debt paydown strategy. Like when you build a snowball, you first start with the smallest debt. This could be a low-balance credit card, auto loan, or personal loan. The interest rate doesn’t come into the picture at all. 

    If you’ve ever made a snowball (or snowman), you know you take a small handful of snow and roll it. Eventually, it picks up snow and grows. Pretty soon, you’re looking at a decently sized snowball – or a full-sized snowman (carrot nose is optional).  

    The idea of the snowball method of paying down debt is similar. You start with your lowest balance debt. When you pay that off completely, you take the monthly payment you were making toward that liability and “roll” it into the next-smallest debt. 

    This works for a few different reasons. First and foremost, you’re knocking out debt quickly. Tackling larger loans or a hefty credit card balance first can feel insurmountable, especially if it takes a long time. By paying off a low-balance liability right away, you’re motivating yourself to stay on track. 

    Asking For Help

    If the snowball method is too much for you to approach, consider talking to your lender about changing your monthly minimum payment. 

    While this isn’t a great long-term solution, it can help if you’re in a tough spot and can’t afford your loan payments. You won’t be avoiding interest, but your credit score won’t be harmed if you continue to make on-time payments.

    Adjust Your Financial Goals As Needed

    If we know one thing for sure, your financial goals and priorities will change throughout your life. 

    While your goal today might be paying down debt rather than investing, you’re setting yourself up for a successful baseline to build an emergency fund, contribute to your retirement accounts, etc. 

    A financial advisor can be a great ally when navigating the debt repayment process. If you’re looking for the best path for you and your money to achieve your personal and financial goals, please contact us today. 

  • Our Top Tips to Confidently Handle a Windfall

    Our Top Tips to Confidently Handle a Windfall

    Should you find yourself in a situation where you received a large sum of money for a reason out of your control, do you know how you’d handle it? 

    Before you race to the car dealership to test drive that sports car you’ve always dreamed about, you should check out our tips on confidently handling a windfall. 

    Key Takeaways:

    • A windfall can have both emotional and financial impacts.
    • It’s essential to have a comprehensive plan of how you’ll use your sudden wealth. 
    • When setting goals, you must consider your values and the “why” behind the goal. 

    What Is A Windfall?

    The definition of a windfall surrounds any significant unexpected monetary gain resulting from an event out of your control. Think of things like winning the lottery, transitioning from a part-time position to full-time, graduating with an advanced degree and receiving a pay increase, earning a large bonus, or finding a rare comic book at the thrift store and selling it for a profit.

    Another example is retiring and realizing the money that was once in your retirement savings bucket is now your “to be spent” bucket. 

    There are also ways to experience a windfall that aren’t so exciting. Examples might include receiving a settlement from a court case or inheriting money from a loved one who has passed away. 

    Even more serendipitous reasons could include a sudden change in market structure, trade policy, government statutes, etc., positively impacting your investments.

    You don’t need to stumble across an undiscovered gold mine to experience a windfall. That’s why it’s essential to be prepared!

    Emotional Impacts Of A Windfall

    Think of how your life could change due to sudden wealth. Unfortunately, not all of those changes are always good. Additionally, some non-tangible impacts of sudden wealth may cause you to spend it without putting it to practical use. 

    The nature of how sudden wealth came to you can have emotions tied to it. For example, if your sudden wealth is inherited from a family member passing away. 

    Before worrying about specific financial plans, you must take time to grieve and sort through your emotions, priorities, etc. 

    Of course, the nature of how you received your sudden wealth also has tax implications. If you receive a settlement from a court case, the IRS will treat it differently than someone who won the Powerball jackpot. So, make sure to take this into account when you start making plans for how you’ll use your windfall funds.

    Potential Consequences Of A Windfall

    The National Endowment for Financial Education reports that 70% of people who come into sudden wealth are “broke” within a few years. 

    Now, you might be wondering how that’s possible. Unfortunately, having a windfall dwindle quickly can happen if you aren’t prepared. 

    What would you do if you won the lottery? Immediately posting the news on social media, quitting your job, and buying a private jet are not the first things you want to do. 

    Those with sudden wealth could see family and friends coming out of the woodwork. Your long-lost cousin Sam might come to you with his new invention idea and ask you for a loan to get started. 

    And while you may want or even plan to share some of your newly earned wealth with family and friends, it’s better to work through a complete financial plan before you start “spending.” 

    While you may be tempted to be Sam’s angel investor, you likely shouldn’t jump into high-risk investment scenarios. 

    In addition, you may be tempted to immediately buy a new home or car or take a trip worldwide. Not that you can’t or shouldn’t, but the best practice would again be to make a comprehensive plan before making expensive purchases. 

    So, what should you do?

    The First Step

    No surprises here! If you don’t already work with a financial advisor, you should find one.

    A financial advisor will work with you to help determine how the windfall falls into your financial life planning. By working through your personal goals, values, and, ultimately – financial goals, you will naturally start to unveil a roadmap for your finances. 

    At AVID Planning, we view your money as more than what it is on the surface. Some think reaching a certain amount of money in a savings or retirement account is your ultimate financial goal. But money is the tool you use to reach your goals. 

    How To Set Goals That You’ll Achieve

    Let’s switch gears and talk about goal setting. Did you make a New Year’s resolution this year? What does that goal look like, sound like, or mean to you? 

    If your goal is to “exercise more,” we challenge you to develop it further. Ask yourself these questions: 

    • What does “more” mean to you? Running three times a week, walking the dog every day, etc.?
    • How will you know if you have met your goal? How will you measure it? 
    • What’s the timeline in which you hope to achieve your goal? Six months, one year, two years?
    • Does the goal mean something to you? What’s the “why” behind exercising more?

    Let’s apply this same idea to financial goals. How can you boost a goal of saving one million dollars before retirement? 

    First, we need to focus on the “why.” Why specifically do you want to save one million dollars? 

    • Do you want to live in a particular location?
    • Do you want to be able to travel? 
    • Are you planning for unexpected expenses? 

    Creating specific, meaningful goals gives you the motivation to achieve them. Traveling to Asia likely means more to you than a number on paper. 

    Utilizing Your Windfall In A Positive Way

    Now that you have a financial advisor on your team that knows your values and goals, you’re ready to start making decisions regarding your windfall. 

    Your values will ultimately guide how you’ll use your sudden wealth. If you value spending time with your family, maybe that means cutting down your work hours to part-time. Or, if you’re saving up to buy a home or are looking to start a family, maybe you start by paying off your debts. 

    What’s important to you and what you need to push you towards achieving your goals will determine how best to utilize your windfall. If becoming your cousin Sam’s angel investor is valuable to you, go for it!

    If you’re in a situation where you’ve come upon sudden wealth and are unsure where to start, please reach out to us today. We’ll help you create a financial plan with a purpose. 

  • How to Best Balance Saving for Tomorrow and Living for Today

    How to Best Balance Saving for Tomorrow and Living for Today

    Creating a balanced approach to your finances can be a challenge. Competing goals can pull our attention in two different directions, which can cause stress. The good news is that setting and working toward your financial goals doesn’t have to be this hard. Let’s go over a few easy-to-implement ways to save for tomorrow while living for today.

    Key Takeaways: 

    • Create SMART goals to help you stay on track and take bite-sized action.
    • Align your goals with your values to ensure that your finances and personal goals are in sync.
    • Practice intentional spending habits to help your finances contribute to your overall sense of fulfillment and well-being.
    • Save in ways that don’t limit your ability to enjoy life now.

    Creating Your Financial and Personal Goals

    Have you ever heard of SMART goals? SMART goals are:

    • Specific & Significant
    • Measurable & Meaningful
    • Actionable & Attracting 
    • Realistic & Rewarding
    • Timely

    Setting SMART goals in both your personal and financial life can help you to set goals with reasonable expectations and that is easy to stick with over the coming year. Too often, we set goals for ourselves that are so far out of reach or lack significant meaning. Think of the last time you set a New Year’s resolution. 

    “Reading more” or “getting back in shape” may have felt like they were closely aligned with your values and the lifestyle you wanted for yourself – but they were too vague to stick with, and there wasn’t anything motivating you to accomplish them.

    Let’s look at an example of a few SMART goals that tie money and values together:

    Joe and Kylie have been married for six years and have a toddler with another on the way. They are interested in making the best possible financial decisions for their family and have already “checked the boxes” on many of the to-do’s they should be doing. They contribute toward their 401k, have funded emergency savings, and have successfully knocked out their one auto loan. 

    Still, they often feel like their cash flow seems to disappear after each paycheck. Daycare costs, family activities, the endless need for more toddler snacks and groceries, and now medical bills for Kylie’s pregnancy all seem to add up too quickly. 

    They decide to set a few goals going forward that will prioritize their values (family, taking care of their kids, and getting involved in their community). 

    1. College savings. Even though it’s a ways off, they decide to start contributing to two 529 Plans for their toddler and their new addition. They set a goal to contribute $1,200/year ($100/month) per child and automate this contribution from their checking account on the 1st of each month.
    2. Family time & Community involvement. Although travel may not be on the immediate horizon with a new baby due soon, they decide to set a goal that, 6 months after their new baby is born, they will attempt a family stay-cation at a local Airbnb. They put funds away in advance to visit several local community parks and events to have a small long weekend together!

    Spending Intentionally

    Both of the goals that Kylie and Joe outlined for themselves are in addition to the things that they’re already doing. One is a long-term goal of helping to fund their children’s college education, and the other is a short-term goal to help them prioritize family time and community involvement in the not-so-distant future. 

    Having a balance of both short and long-term SMART goals can help you to protect your future without sacrificing a joyful life right now. Additionally, having several short-term goals can help you to spend your money intentionally in your day-to-day life. It’s easy to shortchange retirement savings or another goal in the distant future because it doesn’t feel real. Joe and Kylie are much less likely to overspend in other areas of their lives if it means jeopardizing a family trip they’re looking forward to in the next few months. 

    This strategy can also help you to prioritize your savings and organize your daily cash flow in a values-driven way. When you take a look at all of your savings goals, as well as necessary expenses, you can easily determine whether the cash flow you have left over will cover your current lifestyle. If it doesn’t, it’s time to prioritize! What non-critical expenses (eating out, etc.) best match your values? 

    For example, Joe and Kylie may find that eating out for lunch at work is a lot less satisfying than a less often but more-fulfilling date night where they get to spend time together amidst their hectic work schedules.

    Beware: We’re All Master Justification Machines!

    Regardless of what your goals are, it’s important to set a cash flow plan ahead of time to help yourself stay on track. We are all master justification machines! It’s easy to tell yourself that you need a fancy new SUV, even if it wasn’t in your budget because you “value your family” and they deserve to be comfortable. Having SMART goals set in advance, along with a cash flow plan and Purpose Driven Money System™, can help you to avoid some of these “on the fly” decisions that could derail your other short-term goals and delay long-term goals.

    Need Help? 

    Reach out to us! We’d love to hear about your unique goals, and how your money can help you find fulfillment and connect you more closely to your values.

  • What Is Tax Planning, and How Is It Different From Filing Your Return?

    What Is Tax Planning, and How Is It Different From Filing Your Return?

    Ah yes, the sound of ruffling pages, crinkled receipts, clicks of a calculator, and finally the exhale of relief. All of that means only one thing – it’s tax season!

    While you’re likely used to tax preparation, have you heard of tax planning? And no, they’re not the same thing. 

    Tax planning can significantly impact your financial plan and your wallet. And it’s not too late to tax plan for the 2023 tax year. 

    Ready to tackle your tax plan? Let’s dive in!

    Key Takeaways

    • Tax planning is a multi-year process that serves your long-term financial goals. 
    • Any solid financial plan should include some sort of tax planning. 
    • A close, trusting relationship with your advisor can strengthen your tax plan.

    What’s Tax Preparation?

    Aside from being something we look forward to doing all year (or not), it’s the process of accounting for all of your financial matters within the tax year and providing the Internal Revenue Service (IRS) with the required tax information. 

    Typically, you might work with a Certified Public Accountant (CPA) during your tax preparation. Because let’s face it, taxes can be complicated! 

    Some planning is involved in the tax preparation process, but it’s mostly reactive rather than proactive. Essentially, preparation will focus on maximizing what you can based on what you’ve already done during the tax year. This includes making the most of the available deductions, tax credits, etc, etc., available. 

    The Low-Down On Tax Planning

    On the other side of the coin, tax planning is the process of strategically thinking of ways to reduce your total tax liability. 

    Most tax plans are a multi-year strategy making them proactive rather than reactive. A tax plan focuses on the future rather than the present or past. Unlike preparation, a tax plan gives you the roadmap for what you should be doing moving forward, rather than making the most of what you have now.

    Why Tax Plan?

    Taxes are non-negotiable, so you may as well make the best of them! 

    Unless you’re a lawmaker, you don’t get a say in how much tax you owe to the IRS. A tax plan allows you to take control of your tax impact. 

    In addition to hopefully reducing your taxes, tax planning is another way for you to have a clearer bird’s eye view of your finances. Having a handle on your taxes and finances, in general, can give you flexibility with your income plan, savings plans, and help keep your investments running smoothly. 

    A well-thought-out tax plan can also potentially save you from making expensive mistakes like missing required minimum distribution requirements (RMDs) or going through the year with improper tax withholding. This could not only leave you with a large tax bill but also additional penalties depending on the infraction. 

    What Your Tax Plan Needs to Consider

    You might be thinking “This all sounds great, but where do I start”?. 

    Before diving into the thick it, ask yourself these questions:

    • Is your income higher or lower today than it will be in the future? 
      • Your answer can suggest which type of savings accounts are right for you. For example, if you think your income will drop significantly during retirement, it may behoove you to place your retirement savings in a tax-deferred account (like a Roth account). Why? If you’re in a lower tax bracket, your tax bill will also be lower. 
    • When do you anticipate needing to access your money?
      • For most retirement savings accounts you’re not allowed to withdraw funds without penalty until after the age of 59.5. If you’re planning to retire early, or are worried about not being able to access your money when you need it, it can impact what type of savings accounts you should utilize.
    • What does your ideal retirement lifestyle look like?
      • Will you be moving to a new home, keeping a part-time job, watching your grandchildren full-time, or spending your days volunteering? All of these things have an effect on your retirement income plan and thus the best ways for you to save money effectively.

    Tax Planning Strategies

    We’ve compiled a snapshot of some tax planning strategies that may be helpful to you and separated them into three categories: tax bracket management, tax-savvy investments, and tax-friendly savings accounts.

    Tax Bracket Management

    Unsurprisingly your tax bracket has a large impact on your tax bill. These strategies can be used to potentially lower your taxable income and bracket. 

    • Tax Credits: There are so many tax credits out there! They range from solar tax credits, electric vehicle credits, child tax credits, etc. Work with your financial team to make sure you’re taking advantage of the ones you qualify for. 
    • Charitable Giving: There are no taxes on any capital gain if you donate cash or securities to charity. And, as an added bonus, it won’t be included in your taxable income. Just remember to be wary of the Gift Tax if you donate cash. 

    Tax Savvy Investments

    You don’t have to be the Wolf of Wall Street to be a strategic investor! These strategies can help you make the most of your investment gains.

    • Asset Location: Each investment type has varying degrees of tax-efficiency. This strategy seeks to place your investment types (stocks, bonds, ETFs, mutual funds, etc.) in the investment account that offers the best tax treatment. 
    • Long-term capital gains: You will be taxed at a lower rate if you sell assets that have long-term capital gains, aka investments you’ve held for at least a year. For most people, the long-term capital gains tax rate is lower than the ordinary income tax rate (how the IRS taxes short-term gains).
    • Tax Loss Harvesting: This is a strategy that includes selling certain investments at a loss to offset a current or future capital gain. This can be tricky to do, but if done properly can help you manage your tax bill when it comes to your investment profits. 

    Tax-Friendly Savings Accounts

    During retirement, your income comes from many different sources that all have unique tax characteristics. Depending on your retirement savings plan and lifestyle plan, your tax plan could include any combination of pre or post-tax retirement savings accounts. 

    • Pre-Tax Accounts: Examples of these accounts are 401ks and Traditional IRAs. They allow you to contribute pre-tax dollars that will grow tax-free until you make withdrawals. When withdrawals are made, all of your contributions and earned interest will be taxed as income. 
    • Post-Tax Accounts: You may have heard these accounts described as “Roth”. They allow you to contribute after-tax dollars and let it grow tax-free. Since the money you contribute is post-tax, you don’t have to pay any taxes upon withdrawals. 

    Why Is This Important For Tax Planning? The ways in which you save money for retirement can affect your retirement income upon withdrawal. By thinking strategically about what your retirement income and lifestyle plan will look like, you and your financial team can decide which methods best serve your needs. 

    Ultimately, a solid tax plan will contain a mix of strategies that fit you and your financial goals. It’s an ongoing process, but when done well it will help you create a holistic financial plan that is aligned with your short and long-term goals.

    Who You Can Turn To For Help

    Tax planning requires a deeper connection between you and your financial professional. To create a plan that will last in the long run, you will need to establish trust and transparency in your advisor-client relationship.

    Why? Because any good financial plan needs to be tied to your values and personal goals. 

    At AVID Planning we take great pride in creating a financial plan that gives purpose to your money. Our Purpose Driven Money System combined with a solid tax plan is a great way to set yourself up for financial success. 

    If you’re ready to take your finances to the next level, please reach out to us today.