Category: General

It can be easy for busy professionals to let financial management fall to the wayside.

But did you know that there’s a tool you can use to optimize your money in a more meaningful way? A cash flow plan is a secret weapon that kicks budgeting to the curb and helps busy professionals prioritize their financial well-being. It’s simple, streamlined, and puts your biggest financial goals front and center.

Here’s what you need to know about developing and implementing a cash flow plan that works for you.

Key Takeaways

• A cash flow plan focuses on how much money comes in versus how much goes out.
• With automation, you can prioritize your savings without lifting a finger.
• Your cash flow plan should evolve alongside you.
• Let your values drive your plan.

What’s a Cash Flow Plan?

Let’s start with what exactly a cash flow plan is. Think of it as budgeting’s older, wiser sibling. Where budgets focus on the details, cash flow plans think big picture.

A budget encourages tracking every little expense—eating out, buying new clothes, grabbing coffee, etc. These are typically categorized as groceries, bills, utilities, or entertainment. Spend more in one category than you budgeted for, and it’s easy to become frustrated. Over time, that frustration leads people to abandon their budgets altogether. This, of course, defeats the purpose of establishing one in the first place.

Cash flow planning is relatively simple by comparison. It’s used to understand how much money is coming in versus how much is going out and how you can optimize both. Instead of the minutiae of budget allotments and constrictive categories, a cash flow plan gives you the power to allocate your resources intentionally. The primary focuses of cash flow planning include saving, investing, spending and giving.

Everyone’s cash flow plan will look different, and it should be based on your values, immediate needs, and long-term goals.

Interested in starting your own plan? Our team at AVID is happy to help you build out a custom cash flow plan that encompasses all priorities within your financial life.

Be Sure You’re Saving and Investing

It might have been a while since you’ve boarded an airplane. But we’ve all heard the spiel – put your oxygen mask on before assisting others.

Think of your savings as your oxygen mask. You need to pay yourself first (i.e. put money into savings) before focusing on anything else. Prioritizing your savings and investments now is a necessary component of caring for your future self. 

When money comes in, set aside a certain amount of money for yourself before spending. Too often, people spend first and save what’s left. Reversing the order prioritizes your long-term financial health first.

What’s considered the “right amount” to save will depend on various factors – your goals, your income, debts, etc. This number is also meant to fluctuate with your cash flow. The hope is that as you earn more, the amount you save will increase as well. Not sure where to start? Saving 20% of your income is a good rule of thumb.

While savings are important, make sure to create a comprehensive investment plan that aligns with your values. Investments, especially over the long run, are a critical piece of your financial puzzle.

Embrace Automation

Technology’s come a long way, and it’s done wonders to make your cash flow plan easier. Everything from paying bills to sending money to your savings has the power to be automated. Establish how much you went to pay and where the money’s going. Essentially, automation lets you set it and forget it.

When you don’t have to manually think about moving your money, it’s so much easier to complete the task month after month.

If you’re participating in your company’s 401(k) or 403(b), you’re actually already doing this! Your company is withdrawing money from your paycheck on your behalf and diverting it to a retirement savings account. Depending on when you opened your account, you might’ve even forgotten about it until just now.

It’s possible to automate other investments as well. As soon as your paycheck hits, you can have money automatically transferred to a brokerage account or IRA. Again, this simplifies prioritizing your financial future without lifting a figure.

Your bank may have the option to automatically transfer money to different accounts, so it’s not all just sitting in one place. Creating separate buckets for your goals is a great way to see how your money works for you. 

Create an emergency fund, save up for a vacation or start building a downpayment for a house. You can establish accounts for each goal and have your bank automatically transfer money into each one every month.

Put Your Spending To The “Values” Test

When you get a raise at work, do your spending habits tend to change? For most people, the answer is “yes.”

Lifestyle inflation (or lifestyle creep) refers to increasing your spending as you earn more money. Instead of putting the additional money towards savings or investments, people spend it on higher car payments, new apartments, eating out more, etc. 

Unfortunately, those aren’t things that make you happy in the long run. Financial wellness and the feeling of fulfillment are.

Instead of spending on extra and unnecessary things, consider how to spend the additional income intentionally. Maybe it goes towards an annual family vacation, increasing your investments, or buying a new home. Whatever you choose, this goal must be meaningful to you.

Make Changes When Needed

You go through stages in life, it’s only natural your wealth does too. Your cash flow plan won’t stay the same forever.

In fact, many factors impact your cash flow:

• Having children
• Changing jobs
• Getting married
• Moving to a new city
• Getting divorced
• Inheriting assets

As your situation changes, make sure you adjust your cash flow plan as necessary. And no matter what, remember to keep your values in the driver’s seat. 

Knowledge Is Power

At the end of the day, you want to know where your money goes and if you’re using it to the fullest. You can only determine that by establishing and regularly checking in on your cash flow plan. Knowing your priorities are being taken care of is essential for feeling financially confident.

We enjoy collaborating with people to develop a plan and monitor its progress through all stages in life. If this is something you’re interested in, please feel free to contact us today. 

People tend to think of money as the goal. They chase higher salaries, and focus on finding the “best” investments. It’s true; both can be effective ways to increase wealth and impact your mental or emotional well-being.

A higher-paying job means more responsibilities and pressure while chasing the “best” investment creates a high-stakes game of chance. In the end, is more money really equal to a better quality of life?

We challenge you to rethink the importance of money in your life. In fact, more money shouldn’t be your end game at all. Instead, consider it the means you use to obtain what matters most: personal fulfillment and satisfaction.

This is a challenging mindset shift to take on, and balancing your financial life isn’t always easy. So, how can you prioritize living for today while saving for the future while feeling financially fulfilled?

Let’s dive in.

Key Takeaways

• Money is the tool to achieve your goals, not the goal itself.
• Focusing on a goal rather than an abstract concept gives your money purpose and drive.
• A mindset of financial abundance is key.
• Impulsive spending is detrimental to long-term financial wellness and satisfaction.
• Giving your investments a purpose creates a holistic, goals-based strategy.

First, Forget “Enough”

Enough with “enough” already!

It’s easy to get caught up in the myth of having “enough.” In reality, there is no such thing as “enough.”

It’s not a number you can achieve; it’s a myth that nearly everyone has been sold. But, whether you realize it or not, the idea of chasing after “enough” has influenced the way you behave and approach money.

Instead of focusing on obtaining “enough,” think about what you need to be content and feel fulfilled. Set your sights on a goal (or several) like saving for retirement, paying off debt, traveling, buying a home, etc.

With your goals in focus, you can determine just how much is needed to make them happen. Now, instead of a concept like “enough,” you have some clear numbers to follow—and we can definitely work with numbers!

Goals in hand, you’re feeling much clearer about what your money is doing for you and how it’s working to better align with your values and priorities.

Actively Shift Toward Financial Abundance

How you think about money has real impacts on how you use and interact with it daily. Your mindset regarding your wealth stems from several influences. Consider how your parents viewed money, your family’s financial difficulties growing up, where you were raised, what your friends were like, how your spouse views money, etc.

Understanding the reason behind your relationship with money is a key step in making intentional adjustments where needed.

Your views towards wealth likely fall under one of two camps: scarcity or abundance.

Scarcity: You always feel like there’s never enough (there’s that word again!). You constantly stress about covering your bills, feel fearful about the future, and are unsure about your ability to save.

Or

Abundance: You’re content that you have what you need. You have a clear vision of what your money is doing to help you achieve greater financial wellness. Your goals are set, and you’re progressing towards them.

Needless to say, feeling financially fulfilled requires a mindset of abundance. But how do you get there?

Once you have your goals laid out, get a good look at your cash flow. What’s coming in every month, and where is it going? It’s tough to face your bank statements and credit card bills, but they give you the greatest indicator of your monthly cash flow.

First and foremost, it’s important to acknowledge that the way we’ve been conditioned to think about savings is inherently backwards. Often, we’re trained to think about saving as an afterthought. It comes behind covering debt repayment and other daily expenses. However, if you truly want to feel financially abundant and secure, you’ll put “paying yourself” first. Set a clear savings objective based on your unique future goals. These could include an emergency savings, retirement, etc. 

Then, you can think thoughtfully about where else you want your remaining cash flow to go. 

Identify all recurring bills and debts, including mortgages, car payments, student loan payments, utilities, streaming services, gym memberships, etc. If, after paying yourself first, and tallying up your lifestyle expenses, you find that there’s a negative balance you may be in a position where you need to trim some of your spending. This is where assessing your spending can help you to ensure you’re aligning your finances with your values. For example, if you want to prioritize travel but have a hefty car payment eating into your cash flow, you might look at trading your vehicle in for something that costs less and still gets you from Point A to Point B. 

Knowing you can pay yourself first, while still covering your debts and having money leftover for lifestyle spending can help you to start feeling financially abundant. 

Remember to be realistic and kind to yourself when building a budget. Make room for fun stuff like eating out or entertainment, and be forgiving if you aren’t perfect at sticking to the numbers every month. Following a budget takes practice, time, and a lot of patience. But finding a good balance is important for meeting the immediate need to enjoy your money while being cognizant of future goals.

Align Spending With Values

Remember when we all watched Marie Kondo ask, “Does it spark joy?”

Consider using the “Kondo method” with your money as well. Just because you can afford to do or buy something doesn’t necessarily mean it will spark joy. 

Instead of buying more material goods just because you can, consider spending intentionally on things that lift you up. For example, if you’re a travel bug stuck at home during the pandemic, it’s safe to say a trip would be a well-intentioned use of your money.

The point of having money is to give you options, and it’s up to you to choose the choices that make you feel more fulfilled.

Be Wary of Impulse Spending

What we’re trying to avoid here are the perils of impulse spending. Everyone’s done it, and an impulse-buy every now and then is just fine. But a chronic case can be detrimental to your financial wellness and feeling of fulfillment.

Impulse spending takes away intention, relies on gut feelings, and offers short-lived elation. While these can provide immediate gratification, they don’t help achieve long-lived wellness.

Save Purposefully

We talked above about the importance of setting goals and using them to fuel your savings habits. Just as your savings should tell a particular story, your investments need to as well.

When you give your investments purpose, you create a holistic strategy designed to address and achieve your goals. Investing without a goal is like driving without a destination; you need to know what you’re working toward and what success will look like. 

Saving for retirement, for example, will look different than saving for your kid’s college expenses. Each goal has its own timeline, investment vehicle, and dollar amount. Understanding and accounting for this allows you to save and invest with purpose.

Finding Fulfillment in Your Financial Life

Above all else, you look to lead a life of happiness, fulfillment, and success. Aligning your wealth with your values gives you the power to make impactful financial decisions for the rest of your life. 

Here at AVID, we’re passionate about identifying and prioritizing your goals and making a plan so that you can start living your ideal life. If you’re excited to create a better balance, reach out to our team today. 

It’s a tale as old as time, a question that stumps nearly everyone who encounters it, and one that doesn’t have a clear answer,

Should you pay off debt or invest?

On one hand, debt holds you back from your goals, so you want to ditch it as soon as possible. On the other hand, investments help you build wealth and reach your goals, so you don’t want to wait too long to start.

What should you do when you’re faced with both?

You will need to manage and prioritize competing financial goals and responsibilities throughout your life. And these can be tough decisions!

A balance that many people are dealing with right now is paying off their student loans while still saving for retirement. On the surface, it may seem like funding both is merely a pipe dream.

But it is important to remember that these goals, among others, are not mutually exclusive. With proper planning and a strong debt repayment plan, you will be able to contribute toward both and set yourself up for financial success. 

Key Takeaways

• You can still save money with debt. Let’s repeat that: you can still save money when you have debt. 
• Create a comprehensive debt repayment plan and brainstorm smart ways to lower your balance. 
• Through your debt-repayment journey, be sure to prioritize investing for retirement, even if it’s a little at a time. With compound interest, a little can go a long way.
• Find a balance between debt and investing that works for your short and long-term financial goals. 

Let’s look at a few ways to prioritize investing for your future self while still paying student loans.

Create A Debt Repayment Plan That Will Get Your Student Loan Balance To $0

Student loans are certainly in flux. 

Based on government intervention, federal loans have been in forbearance with 0% interest since March 2020, which has provided much-needed relief for many borrowers during the pandemic. The current administration recently extended the repayment deadline to August 31, 2022, but there are talks of it getting pushed once more into the November election season. 

No matter how you look at it, student loans are a big deal. With the average student loan debt climbing upwards of $40,000 (federal and private loans) per person and exceeding $1.747 trillion total, it significantly impacts many new graduates and seasoned professionals since it takes the average borrower 20 years to pay off their student debt. 

Whether you’re in search of permanent employment—it’s undoubtedly an excellent time to be a job-seeker—or have a steady paying job, it may seem like repaying student loans should be the only goal that you focus on. 

But before you redirect all of your resources into your debt, haul out your repayment plan and ask yourself,

• How many student loans do you currently have?
• What are the corresponding interest rates?
• How long will it take you to pay off the loan based on your current savings rates?
• Does it make sense to consolidate or refinance your loans? (Be careful with federal loans, as these actions could make you ineligible for particular repayment plans).
• What are you doing with the money you allocated for your loans while they’re paused?

With the pause in student loans, you may have forgotten how they fit into your plan. Now’s a great time to remind yourself of your outstanding debt and see if there’s a more strategic approach to paying them off. 

Just because you don’t have to pay your loans every month doesn’t mean you shouldn’t plan for when the payments re-start again. Since your payments have been on pause for over two years, you might have redirected some of that money to other goals like retirement, emergency savings, or simply your monthly cash flow. 

But what will that look like once the bills come due? Be sure you have enough money saved and allocated for those payments when you have to start making them again.

The Department of Education has announced so many changes recently, from revamping the public service loan forgiveness program (PSLF) to retroactively helping borrowers who have been hurt by their income-driven repayment plans. It’s worthwhile to evaluate if any of these changes could impact you. 

With all of the updates, the debt repayment plan you made a few years ago likely won’t serve you the same way today. Take time to reevaluate your debt picture. 

• Did you accumulate additional debt during the pandemic (house, car, etc.)?
• Are you prepared to start repaying your student loans when the time comes?
• How can you make the most of the pause in student loans to help fund other goals?

It’s important to be adaptable and adjust your debt repayment plan when needed.

Keep Retirement Top of Mind

Odds are you won’t want to work forever. It’s more and more common for people to strive toward a work-optional lifestyle, where they don’t have to work full time to make ends meet. 

Research from Benefits Pro shows that people are planning to retire earlier. More than a third of respondents say they want to retire by 55 (you can’t even start collecting Social Security until 62)!

With the push for early retirement and a more flexible approach to work, it’s critical to consider saving enough to financially support that vision long-term. A lot of people are concerned about having the resources they need to sustain their ideal lifestyle without a steady paycheck, and many aren’t saving at a rate that will allow them to do so. 

While Social Security may help, it won’t cover all of your expenses, making personal saving an essential part of your financial future. 

Even though retirement may seem like a far-off place now, prioritizing saving for retirement today will give your investments time to compound. 

An excellent place to start is with your workplace retirement plan (401k, 403b, 457, etc.). In 2022, you can save up to $20,500. Even if you can’t max it out, try to increase the percentage you contribute each year. Remember, as your income increases, your savings should, too. 

Does your employer offer a match? If so, ensure you’re contributing enough to qualify for the match, usually 6% of your income, to add even more to your growing nest egg. You can also look at contributing to both a traditional and a Roth 401(k), should your plan allow it. Investing in a mix of pre-and post-tax accounts can help give you more flexibility and options when retirement comes. 

Your workplace isn’t the only way to invest for your golden years. You can also look at individual retirement accounts (traditional and Roth), health savings accounts (HSA), brokerage accounts, etc. The mix of investments that are right for you will depend on your goals and values.

Find Balance Based On Your Financial Goals and Values 

Your financial goals set the tone for your entire plan. They help inform where and how to invest and give you ongoing drive and motivation to put you on the path to success. 

Even though it might be challenging and require some custom planning, you can work toward multiple financial goals simultaneously! It’s all about finding a balance that works for you today and yourself in the future. 

Our team at AVID is passionate about helping people manage their finances to enhance their goals and dreams. Debt repayment and long-term saving goals are often a big part of that conversation. 

Are you lost on how to start saving for retirement or paying off your debt? Give us a call today. We would love to create a custom plan that helps you!

Let’s be honest: buying new things can be exciting (they don’t call it retail therapy for nothing)!

But there’s a huge difference between buying a new book for the weekend and putting a downpayment on a car. While your cash flow plan may not bat an eye at your $25 Barnes and Noble receipt, it might start sweating at the $47,000 (average cost of a new car today) electric crossover you want to park in your driveway.

You’ll likely make some pretty big purchases throughout your life and career—electronics, cars, houses, furniture, collectibles, etc. You and your wallet must be prepared for that expense when you do. 

Today, we will look at the pros and cons of these “big” purchases and how to be as thoughtful and intentional as possible to avoid buyers-remorse. 

Key Takeaways

Before you sign on the dotted line, think about how the “big” purchase aligns with your goals. Ask yourself, how is this item adding real value to my life? What is the purpose of my desire to purchase this item?

There’s a major difference between buying an appreciating or depreciating asset. You don’t have to justify “big” purchases by calling them investments.

Depreciation is relative to the context of your life and values, so make big purchases with your goals at the center.

Let’s go shopping!

Before You Spend, Do A Values-Check

2022 may be the year for big spending. According to a WalletHub survey, 54% of people plan to make more large purchases this year. With more people ready to swipe their credit cards or take out loans, it’s important to remember “why” you want to make this purchase in the first place. 

You want your spending—both big and small—to align with your values. Doing so brings more intention to your money and better connects it to your life. When you spend in ways that are meaningful to you, your money has more purpose and impact.

So, before you spring for the custom-made couch or vacation condo on the beach, ask yourself,

• How does this purchase align with my values?
• What concessions (if any) would I have to make if I bought this item?
• How will this purchase elevate my quality of life?
• Does this purchase still allow me to work toward my other financial goals?
• Have I done my due diligence with comparison shopping and planning?
• Can I truly afford this item? 

For example, you don’t want to simply purchase the latest electric vehicle and wipe out your emergency fund for the downpayment or realize too late that the two-seater can’t accommodate your family of four.

It’s important to think about how these items fit into your everyday life and cash flow plan. So be sure to consider it from a personal and financial perspective. 

Your “Big” Purchase May Lose Its Shine Over Time, But That’s Okay.

Before you make a big purchase, remember that there will always be something newer, shinier, cooler, or more advanced in the future. So before you buy, be sure you walk into the store, dealership, website, etc., with both eyes wide open. 

One way to do that is to realize that your “big” purchase is really a depreciating asset. 

What does that mean? 

A depreciating asset is something that loses its value over time. Unlike stocks in your portfolio or your home (which you hope will grow in value over time), assets like cars, clothes, furniture, and more tend to lose value the longer you own them. 

Think about it; you likely won’t be able to recoup all of the money you spent on your car ten years later. Plus, it won’t run the way it did in the beginning. Your couch will lose color/shape/structure and put you in the market for another. You’ll never get back the $80+ you spent on a new sports coat or blazer for work. 

If an asset depreciates, it continues to lose value the longer you own it. Plus, the item’s quality eventually deteriorates, leaving you unable to use or sell it.  

So what assets fall into this category? 

We’ve mentioned some, such as a car—the value drops as soon as you drive it off the lot. There are many other examples like boats, furniture, and technology. Once you buy them, they start to age, and their resale value becomes less and less over time.

Vacation homes may even fall into this category. You might be thinking, but wait, that’s real estate! 

Yes, real estate isn’t always the best investment, especially vacation properties. They are expensive to maintain, and if you don’t rent them out while you’re not there, you will end up paying a ton of money for upkeep, maintenance, and routine costs (mortgage, property taxes, etc.). You may find that you’re sinking a lot of money into a place you only use 3-4 weeks out of the year.

Consider The Potential Trade-Offs and Prioritize Accordingly

When it comes to your money, you’ve maybe heard the saying, “you can do anything, but you can’t do everything.”

This sentiment rings true when you apply it to significant purchases. Take some time to think about all the big purchases you want to make in the next few years. 

Perhaps your family did well with one vehicle in the pandemic, but with you and your spouse both returning to work, you’d benefit from two. You might also be considering a timeshare at your favorite beach. Or maybe your computer is on its last leg, and you’ll need to get a new one. 

You might not be able to reasonably take on all of those expenses at once, so consider prioritizing the most important. For you, the car might be more practical, and you’d get more use out of it than one vacation spot. 

Once you know what you want to prioritize, think about your timeline for making the purchase and what you need to do financially to feel secure. Can you allocate extra monthly resources to help you save for the item?

Have you considered all the potential trade-offs? For example, a vacation home might mean you can’t travel the world and tie yourself to mostly one travel location.

Big Purchases Can Be Valuable, Even If They’re Not An “Investment”

At this point, you might be in the middle of second-guessing your future purchase, but remember, there’s nothing wrong with making a major purchase, even if it’s not an appreciating asset.

These items can provide you with enjoyment and make your life easier. The questions you have to ask are will this item stand the test of time (at least for as long as it reasonably should)? Is this the most practical use for your money?

The key here is to not fool yourself into thinking a depreciating asset is an investment. Doing so could lead you to make a purchase you may regret. Your purchase doesn’t have to be an asset to add value to your life. 

Just because your car will lose value over time doesn’t mean it’s not worth the convenience and ease it will bring to your life for a decade or more. When you think about depreciation, consider it in context with the rest of your life and make decisions to help you further your goals. 

Be sure to consider not only the purchase price but also the ongoing costs you’ll incur because of the purchase. You don’t want to spend a good chunk of change on a fancy boat and not consider the continuing docking and maintenance fees.

It’s also essential to ensure you aren’t derailing your other financial goals. Would a specific house or car payment mean you’d have to save less in your retirement accounts or additional funds? Remember, every big purchase will come with trade-offs, but you should establish some boundaries and non-negotiables. 

See How A Big Purchase Fits Into Your Life And Cash Flow Plan

Money is a tool to help you live a more intentional, purpose-driven life.

When you’re making big purchases, be sure to think about the financial and personal factors that go into this decision. Yes, you want to be sure you’re in a solid financial spot to make the purchase, but you also want the purchase to be as intentional and meaningful as possible. 

You don’t have to buy a fancy car or vacation hotspot to keep up with the Joneses. Set your own benchmarks for success using your values as a compass. When your values are your north star, you’ll never get lost. 

At AVID, we’re passionate about helping people use their money in value-driven ways. If you’re considering a big purchase, let’s work together to see how it fits into your financial and life plan. Set up a call with us today. 

In general, there are two types of life insurance: term life insurance and “whole” or “permanent” life insurance. The best way to think about these two types of insurance is to imagine renting versus owning your home. 

If you rent your home, you’re paying a premium every month to live in a space. You can use the space for the set period of time your lease is written for, but after that your landlord can take it away or re-rent it to you (sometimes at a higher rate). 

Although that unknown may cause some stress, there are benefits to renting! Pricing might be lower than owning your home, and you don’t have to worry about any ongoing maintenance costs, or other fees that come with having a mortgage. 

If you own your home, you pay a premium upfront and ongoing through your mortgage to live in a space. You’ll own the home until you pass away, assuming you continue to make regular payments, but you often have to pay more to maintain it. 

In the world of insurance, term life insurance is “renting” a policy. You pay a monthly fee (often lower than purchasing permanent life insurance outright) and, in a worst-case scenario, your insurance will pay out to your beneficiaries. 

Term life insurance typically comes in 10-year, 20-year, and 30-year policies. Once the term is up, you can choose to get a new policy or you may decide you have enough of a nest egg that life insurance isn’t necessary. 

Permanent or whole life insurance is more similar to owning your home. You often pay a premium for the policy upfront, and continue to pay into it until you pass away. 

However, because the policy is for your whole life, you’re insuring the inevitable. Your insurance company knows you will pass away eventually, and that the policy will have to pay out. Because of this, the policy premiums are often much more expensive. 

More often than not, people don’t need a whole or permanent life insurance policy. In some cases, it may make strategic sense to pursue one, but those cases are few and far between. Typically, younger people who are still in “asset accumulation” mode can leverage one (or multiple) term life insurance policies to help ensure that their loved ones are financially secure if they pass away early or unexpectedly. 

Then, as they continue to accumulate wealth and build a solid asset base, they may find that they need less life insurance as they age. In some cases, they may not need a policy at all as they near retirement. 

Do you have questions about insurance? Creating a risk management strategy using different types of insurance is part of building a holistic financial plan. We’d love to help you figure out how insurance fits into your bigger picture. Contact us today by clicking here.

Time Stamp:

0:35 Renting v. Owning In Life Insurance

1:50 Assessing Different Scenarios When It Comes to Insurance

2:40 Prepaying an Inevitability

3:30 The Risk of Permanent or Whole Life Insurance

4:13 Building Wealth v. Obtaining Insurance

When headlines are scary, it can be easy to slip into being reactionary with your money. There’s an impulse to *do something* rather than stay the course. This is, partially, because we want to feel like we’re in control when so much of the world feels outside of our control. 

However, reacting to scary headlines is rarely the way to navigate a down market, or a global event that’s impacting your money. Before we dig into what to do when headlines have you feeling nervous, don’t miss our timestamp:

0:40 Be mindful of the source you’re getting your news from.

1:45 Why having an automated plan and system in place is critical.

3:40 Be mindful of the money you’re investing and what purpose it has.

4:00 Refocus your energy.

4:15 You can’t time the market because nobody can predict what’s happening in the world – there will always be something “unprecedented” happening in the global market. 

Now, let’s dive in.

When headlines start skewing negative, and you’re feeling anxious about your portfolio, there are three easy steps to follow:

1. Know your source. There was a joke back in 2008-2009 that specific news outlets were always going to report the negative. It’s as though they were scouring the world for the worst-case scenario stories and reporting them every hour on the hour. If headlines are nerve-wracking for you right now, don’t lean into finding more negative headlines. Instead, look for a more balanced news source and ensure you’re fully educated about what’s going on. 

2. Have a system. When your finances are automated, and you have a plan for your money, you’re less likely to slip into a reactionary mode when it comes to market fluctuation. This highlights the importance of having a financial plan. 

3. Make sure you’re allocating your investments and resources according to your goals and values. If you have short-term goals, you’re likely not funding them with investments. Investing in the stock market is a tool that can be used for long-term goals like retirement, college savings for your kids, and other “big picture” financial aspirations. If you’re allocating your investments according to your goals and values, and plan to stay in the market for the long term, you likely don’t need to over-worry market fluctuation. 

Market Fluctuations Happen

You’ll notice that we’ve intentionally left out information on what “big event” in the global market spurred this video. The truth is that scary headlines happen all the time. While we can be moved to get involved or take a stand on a human level, letting the news run your financial decisions is never the right move. 

Have questions? Having an advisor in your corner can help you stay calm and steady during turbulent times. Contact us today to learn more by clicking here: https://avidplanning.com/contact

If you’ve accidentally deleted or misplaced a financial document, you already understand the importance of backing up your important files. However, saving your financial documents to an external hard drive is only part of the battle. To truly safeguard your documents, try to keep them saved in at least three places. This could include your computer, an external hard drive, or a cloud service of your choice. This way, if your local storage, such as your computer or hard drive, is damaged, you can restore your files using the cloud. Saving your files this way is perfect when your computer or external storage are both damaged by a power surge, malware, or a computer virus.¹

If the “rule of three” appeals to you, there are two other options, in addition to your in-home storage devices, for maintaining backups of your files. These options are cloud backup services and cloud storage services.

Cloud backup is comprehensive, allowing you to completely restore all your files. This is a great option for keeping your important documents and files, financial and otherwise, together.

However, cloud storage allows you to store the files of your choice with a tight grip using encryption keys. This means that while your files may be protected by encryption, the storage service can still decrypt your data on its servers because it holds the encryption keys.

Considering Cloud Backup?

When you’re choosing a cloud backup option, consider any fees or extra costs that you may be charged if you need to restore all your data at once, as well as any limitations there might be on the number of devices you can use. It’s also important to look at the total size of the storage space offered and ensure it’s appropriate for your needs.

Keep in mind that cloud backup companies might not be able to restore your system immediately. Make sure you pick an option that offers a recovery timeframe that works for you.

If you’re looking to store sensitive or private documents, make sure to use a service that allows you to use your encryption key. However, if you misplace your passphrase for that key, you may be unable to access your backup data, and the service won’t be able to help.

Considering Cloud Storage?

If the majority of your documents are already safe, or you’re looking to safeguard just a few important files, this may be a good option for you. Cloud storage also makes it easy to share files with others, such as your tax or legal professionals.

Cloud storage typically works with any device, regardless of the manufacturer or operating system. However, many cloud storage services don’t offer robust customer services because the services they offer are much simpler. If you consider yourself relatively tech-savvy, this may be a good option for you.

Regardless of how you choose to safeguard your documents, it’s essential that you maintain some sort of backup system. Hopefully, you’ll never need your saved files, but you’ll be thankful they’re near at hand if that day ever comes.

1. https://www.consumerreports.org/computer-backup-systems/cloud-backup-and-cloud-storage-guide/

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

When it comes to preparing your taxes, the idea of tax credits and tax deductions can be music to any taxpayer’s ears. That’s because both are used to lower the amount of taxes someone owes to the government. While they’re both worth getting excited over, it’s important to understand the fundamental difference between these two terms.

What Are Tax Credits?

Simply put, tax credits are reductions on the amount of actual tax owed. Tax credits in no way affect your tax bracket or taxable income. Instead, think of these as reductions that come after the fact – i.e. after you’ve determined how much you owe to the government. There are a few common types of tax credits that can be given based on your income level, whether or not you have children, if you’re a college student and more. These common credits include:

• Child Tax Credit
• Child and Dependent Care Credit
• Lifetime Learning Credit
• Adoption Credit
• Earned Income Tax Credit
• Residential Energy Tax Credit

Tax credits are typically either refundable or non-refundable. Depending on which type of credit it is, this will affect how much you’ll receive back on your tax refund.

Refundable Tax Credits

Refundable tax credits are tax credits that allow you to be refunded the remaining, unused portion of a credit. For example, say you owe $900 in taxes, but your eligible child tax credit is worth $2,000. Not only will this cover the $900 you owe in taxes, but you will also be refunded the remaining $1,100.  

Non-Refundable Tax Credits

Alternatively, non-refundable tax credits will only cover the taxes you owe, up to the credit’s limit. If there is more in the credit amount than what you owe, you do not receive the excess amount in the form of a tax refund. For example, if you owe $900 in taxes and your tax credit is worth up to $2,000, the $900 will be covered but you will not receive the additional $1,100. 

What Are Tax Deductions?

Tax deductions are used to reduce the amount of income that’s eligible to be taxed. By reducing this amount, your income may fall into a lesser tax bracket, meaning you’re subject to pay a lesser tax percentage. There are typically two types of tax deductions: itemized deductions and above-the-line deductions.

Itemized Deductions

You can use itemized deductions to help lower your taxable income. Common types of itemized deductions include:

• Charitable donations
• Medical expenses
• Property taxes
• Mortgage interest

While people are welcome to add each deduction up separately on their taxes (i.e. itemize them), most will opt for the standard deduction set by the IRS. For the 2022 income tax year, these are the standard deduction amounts:

• Single or married but filing separately: $12,950
• Married and filing jointly or qualifying widow(er): $25,900
• Head of household: $19,400¹

It is common to use a standard deduction because, in most cases, an itemized amount won’t exceed the IRS’s standard deduction rates.

Above-The-Line Deductions

Above-the-line deductions are used to reduce your adjusted gross income (AGI), which can qualify you for certain itemized deductions and tax credits. Your adjusted gross income is determined by subtracting above-the-line deductions from your gross income. This lower AGI can then allow you to claim important tax credits or deductions that may be dependent on income level. Common above-the-line deductions include:

• Alimony paid
• Educator expenses
• Student loan interest
• Deductible IRA contributions
• Moving expenses of armed forces members

Tax credits and tax deductions can both greatly benefit taxpayers, especially when they work in tandem. Familiarizing yourself with the difference between these two tax terms gives you a great place to start researching and understanding what deductions and credits you and your spouse may be eligible for in the upcoming tax year.

1. hhttps://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Have you ever taken the time to clarify your values?

Most people know loosely what values are important to them, but when asked, they freeze up. It can be tough to define your top five or top ten values (especially if you have to order or prioritize them). However, finding time to define your purpose and your “why” before building a financial plan can help you to align your wealth with your values. 

Before we dive into why this is important (and how to play the card game that can help you with the process!), don’t miss our timestamp:

• 00:50 Understanding Your Values Before You Start Financial Planning
• 2:11 Introducing The Game
• 3:25 Examples of Values and Financial Decisions

Why Define Your Values For Your Financial Plan?

When you’re able to define your values clearly and prioritize them, you’re setting yourself up for future financial success. This is true for a number of reasons:

1. When your wealth is aligned with your values, you’re more likely to stay on track with your financial goals because they’re meaningful to you in a unique way.
2. You often find more fulfillment in your life and your finances when you’re spending in a way that’s lined up with what you value or what’s most important to you.
3. When you have your values prioritized, it makes tough decisions that much easier. 

Let’s look at an example. You value both family and adventure. So, when you have two opportunities come up that fulfill conflicting values, you may feel overwhelmed or anxious. You may have the opportunity to go on an exciting international adventure with a friend, but it would negatively impact the funds you had earmarked for your child’s first family roadtrip to the beach. Both of these opportunities fulfill a value, but only one of them can be accomplished with the travel budget you’ve set for the year. 

If you don’t have your values prioritized, this could be a huge internal struggle with a lot of guilt involved. However, if you’ve already decided that you prioritize family above all else, skipping the international trip with a friend (or pushing it out for another year or two as your kids get older) may be a no-brainer. 

How Does This Card Game Help?

Sitting down to write out your values and prioritize them is a daunting task. This card game is a fun way to learn new values, understand how they’re defined, and figure out which ones resonate with you. We encourage people to play this game individually and then circle back with their spouse or partner to compare results and set some shared goals or values as a family. 

You want to ensure you’re getting an accurate picture of what you truly value and want out of life – uninfluenced by your loved ones – before you come together to make a plan for your money. This helps to facilitate an honest conversation where both parties understand what they’re willing to sacrifice, or where they have shared values. 

Want help? 

You can find the values card game we reference linked here. Sign up to download the deck and print it out!

We also help our clients work through this exercise regularly! We’d love to speak with you about your unique goals and values, and how they can act as a foundation for your financial plan. Contact us today by clicking here!

It’s no surprise that a dollar today isn’t worth the same as a dollar was 20 years ago. This is the result of inflation. Inflation plays a major role in financial planning whether you are conscious of it or not.

The money illusion refers to a cognitive bias that fails to take inflation into account. Let’s dive into what the money illusion is, how it can impact your long-term financial planning, and ways to combat the money illusion.

What is the Money Illusion?

According to Seeking Alpha, money illusion (or price illusion) is the tendency to think of your income in nominal values versus real terms.¹ When you think of something in nominal terms, you fail to consider external factors such as inflation. 

Nominal value is not the same as real value. For example, the real value of two shirts might be the exact same because they cost the same to manufacture, but one might sell at a higher price point due to demand, marketing, reputation, and brand name. These external factors contribute to the real cost of the shirt. 

The same is true for your money. If you get a 5% raise at work, but inflation is 7%, you are at a net loss of 2% in terms of real value.

There are a few reasons why the money illusion continues to play a role in the way we think about financial planning. The first comes down to a simple lack of financial education. Many people don’t know the rate of inflation or don’t understand how it impacts the real value of their income. 

The second is price stickiness. Price stickiness occurs when goods and services remain the same price despite other economic factors.² These rigid prices may color our view of inflation and make it seem like we can buy the same things today as we could in the past for the same amount, even if this isn’t reflective of the overall economy. 

How The Money Illusion May Impact Financial Planning

As you can see, the money illusion is a tricky cognitive bias that, over the course of your long-term financial planning, may put you behind your goals. If you think to yourself that you need $1 million to retire comfortably in today’s real terms, what does that equate to in 10, 20, or 30 years when you are actually ready to retire? You will likely need more than $1 million to retire comfortably as you race inflation.

How to Combat The Money Illusion

Without acknowledging inflation and the real buying power of your income, you may slowly fall behind on your financial goals. But, by building out a solid financial strategy and understanding our current economy, you can combat the money illusion and understand how much money you actually need to pursue your long-term goals. 

One way to do this is to understand how inflation works and the current rate of inflation. This will help you understand how much you have to make to keep up your buying power. 

Another way to do this is to not make risky financial decisions without understanding the market as a whole. As we talked about, price stickiness might be deceiving when you look at what you can afford. Sure, you might be able to afford a new home or car, but with rising rates of inflation that item might be more expensive than it’s advertised. 

Lastly, you can work with a financial advisor to create an investment plan that hedges against inflation. The average rate of return of the S&P 500 index is about 8% per year³ and the annual rate of inflation in the US hit 6.2% in October 2021.⁴ This means that your investments may help you minimize the impact of inflation over the long term. Talk to your financial advisor about specific strategies that can help combat the money illusion and inflation. 

1. https://seekingalpha.com/article/4206486-money-illusion
2. https://www.investopedia.com/terms/p/price_stickiness.asp
3. http://www.moneychimp.com/features/market_cagr.htm
4. https://www.pewresearch.org/fact-tank/2021/11/24/inflation-has-risen-around-the-world-but-the-u-s-has-seen-one-of-the-biggest-increases/

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

In the many years that our team has been practicing financial planning, we’ve worked with a long list of couples to help them set shared financial goals, and create a money management system that allows them both to thrive. Our experience has shown us that, in general, there are three key tips to follow when managing money as a couple. 

Short on time? Here’s the outline of this video so you can jump to the section you’re interested in!

00:07 What are money scripts?

2:10 Tip #1: Money Scripts in Action

05:00 Tip #2: Have Open Communication 

5:40 How to Keep Communication Open When One Person Handles the Finances (Or Acts as a “Point Person”)

08:30 Why Both Members of a Relationship Need to Know What’s Going On With Your Finances

09:35 Tip #3: Have a Plan

10:27 How to Make a Plan Together That Balances What Each Person Wants

Tip #1: Know your money scripts.

Just as everyone has a love language, everyone has a set of money scripts that inform how they feel about money, and how they use it. These often come from when we’re kids, and your money scripts may clash with your partner’s. Understanding your own money scripts, and your partner’s, can help you to see where each other are coming from when making financial decisions, and ultimately reach a compromise. 

Tip #2: Keep communication open. 

It’s pretty natural to have one person in a relationship manage the finances. As people sort who takes one what task, usually one person prefers money management and are happy to take it on. However, that doesn’t mean that the non-financial person gets to remain in the dark! Keeping open communication about what’s going on with your family finances is critical. 

This doesn’t mean you have to have long financial meetings. Instead, aim to check in with one another about goals and cash flow semi-regularly in a more casual way. The “money manager” can talk about what’s going on with various accounts, and the two of you can discuss shared goals – both short and long-term. 

Tip #3: Have a plan for your money. 

Once you understand your money scripts and have an open line of communication, the two of you can partner up to make a financial plan. This might mean working with a team like AVID Planning to help you clarify your goals and build a strategy, or it could mean partnering together to create a system for managing your cash flow, paying down debt, and working toward your other goals until you’re ready to work with a financial planner. 

Referenced:

https://youtu.be/UChV9D7Nzd

The new year is here, and your resolutions are probably well underway. While you may set goals to get more physically fit, it is also important to consider your financial fitness going into the new year. If your finances are not where you want them to be, or maybe they need a little tune-up, the six tips below will help you get your finances in shape.

1. Trim the Fat

One of the first steps toward a healthier financial future is spending less. If you take the time to look hard at your budget, odds are you can find some excess that you can easily trim off without feeling a pinch. Start with your non-essentials, such as cable and phone. Do you really need extra movie channels and data? When was the last time you shopped around to compare prices? Next, delve into spending items such as clothing, groceries, and entertainment, and see if smart shopping or more date nights at home can help free up some extra money each month. Then, look at your utility bills and find ways to reduce them. Finally, discipline yourself to follow good energy-saving tips to reduce the overall cost of your energy bills.

2. Tone Up Your Debt

Odds are, the holidays have increased your credit card bills. Do not let that debt snowball higher than it needs to by accruing interest. Start with your highest interest rate card, and set a larger payment in your budget to begin lessening that total. Once it is paid off, use that same payment to start tackling your next high-interest debt, and so on. A critical part to remember is that when paying only your minimum payment, it will take you 10 years and a significant amount of interest to pay off your card, so always pay more than the minimum if you are looking to pay off debt.

3. Whip Your Credit into Shape

Your credit score can affect many aspects of your financial life. Whether you are looking to buy a house or car or to take out a loan to start a business, your credit score will be used to determine how much interest you will pay and how likely you are to even get those funds. Unfortunately, many people neglect their scores until they need them, and at that point, it can be difficult to improve quickly. Keep your credit card balance far from the limits, be sure to make payments on time, and monitor your score for negative marks.

4. Load Up on Savings

Once you have trimmed the fat off your budget, you will want to put some of that into savings. One goal to start immediately is creating an emergency fund. Surprise repairs, medical bills, and layoffs can damage your financial health if you are not prepared for them. Having this fund available for these times can lessen the blow and help you stay on top of your bills so you do not fall behind.

5. Put Retirement Savings in Your Routine

Saving for retirement is critical to your future. Many people do not save enough for their retirement or wait so long that they stress their budget to meet their goals. Make it a point this year to focus on your retirement goals and find extra funds that you can put into your account so that it has the necessary time to grow as it should. Find out if your company matches contributions, and if so, try to put in as close to the amount they will match as possible.

6. Start a New Investing Routine

Investing is the quickest way to grow your wealth, but many people are afraid to enter the world of investing because they are afraid of losing money. Others are under the misconception that you must invest a lot of money when the truth is that you can begin your investment journey with as little as $100. Start small so you can get the hang of it, and if you have more money to invest, consider meeting with a financial advisor who can help you pick a mix of funds based on your risk tolerance.

Get your finances healthy this year and set attainable goals to help you grow your wealth and get started toward a secure financial future.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.