Just Do Ten Things Right

Recently, I was hired by the Marion County (FL) Medical Society to do a keynote presentation at their meeting. A pre-program survey of their members indicated they wanted to learn about a variety of financial topics in 45 minutes. What to Do? I remembered the book, The Index Card, where ten tips related to many aspects of personal finance were shared on an index card. 

I titled my presentation “Just Do Then Things Right.” Below are the ten recommended action steps that I discussed with my audience that I consider essential for financial well-being:

Spend Less Than You Earn- Live below your means with positive cash flow; i.e., where income is greater than expenses. You can’t save, invest, or build wealth for retirement if you don’t get this foundational action step right. Spending plan (budget) worksheets are a useful resource.

Strive to Pay Credit Card Balances in Full- Try to pay credit card balances in full every month as a convenience user so no interest is charged. If this is not possible, pay more than the minimum payment to reduce the cost of interest and shorten debt repayment time.

Try to Save At Least 15% of Your Income- Save as much as you possibly can and gradually work up to a 15% savings rate if you cannot save that much now. Studies have shown saving 15%+ of income can result in a significant nest egg- sometimes as much as $1 million- in later life.

Invest for the Long Term- Consider investing in equities (e.g., stock, growth mutual funds, stock exchange-traded funds) for financial goals that are five or more years away. Buy inexpensive securities with low expense ratios and beware of pitches for fraudulent investments.

“Max Out” Tax-Advantaged Retirement Savings Accounts- Contribute as much as you can afford, up to annual IRS maximum limits, to retirement savings accounts including traditional (pre-tax) and Roth (after-tax) IRAs and qualified employer plans (e.g., 401(k), 403(b), TSP).

Diversify x 3 (D3)- Diversify investments three ways: 1. Investment diversification (different asset classes; e.g., stocks, bonds, and cash), 2. Time diversification (hold investments over time to reduce their volatility), and 3. Tax diversification (mixture of tax-deferred, taxable, and tax-free securities).

Protect Yourself With Adequate Insurance- Insure against large financial risks including disability (to protect your earning ability), liability, and property damage. Consider adding an umbrella insurance policy if your assets (not exempt by state law against judgments) total $1 million+.

Practice Tax Avoidance- Take advantage of legal strategies in the tax code to reduce your tax liability. Specific strategies include retirement savings plan contributions, Roth IRA conversions, tax deductions and credits, tax loss harvesting, tax-free investments, and gifting to qualified charities.

Get Your Estate in Order- Prepare legal documents (e.g., will, living will, power of attorney) and update them as needed, discuss end-of- life wishes with personal representatives, review beneficiary designations on insurance policies and retirement plans, and prepare a digital assets inventory.

Keep Learning About Personal Finance- Learn one new thing every day about a personal finance. Ways to do this include books, newspapers and magazines, blogs, podcasts, seminars, social media platforms, and traditional media outlets (e.g., radio and television). 

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Financial and Lifestyle Insights- Part 3

 

In this post, I continue my discussion of tips from webinars, podcasts, and virtual conferences that I heard during the last quarter of 2021. Below are 11 of my key take-aways:

Create Your Own TDF Glide Path- Consider personal factors when choosing a target date fund (TDF) glide path (i.e., the investment mix of TDF assets at various ages). It may be beneficial to have a different glide path than the one designated for your anticipated retirement age. For example, workers with a guaranteed pension and/or a high investment risk tolerance might want to have more stock exposure in a TDF and would chose a target date farther off in the future.

Make Tax-Advantaged Gifts- Consider “bunching” charitable donations with other tax deductions (e.g., state income tax and local property tax) every so often (e.g., high income years) to exceed the standard deduction and benefit from itemizing. Another tax-advantaged way to benefit from charitable gifts is to open a donor advised fund (DAF) with a major brokerage firm. One DAF contribution can support donations (called grants) to multiple charities over time.

Decumulate Carefully- Consider a webinar speaker’s observation that spending down accumulated savings in retirement is more complex and has higher stakes than saving during working years. Many “super savers” hoard their money in retirement because spending and seeing their balances decrease feels like a “loss.” The speaker also noted that savings can be used as a “bridge” to Social Security so that higher future benefits can accrue by claiming them at an older age.

Estimate Future Retirement Income- Consult an online calculator to understand how a sum of money (savings) can turn into a stream of income. Research studies have found that having guaranteed retirement income (e.g., from a pension or annuity) is associated with increased financial satisfaction vs. simply having a lump sum to manage. Many people do not understand how a sum of money turns into a stream of income. It is a common financial blind spot.

Leverage Compound Interest- A webinar speaker offered the following advice to first gen investors who are just starting out: “Put money in the stock market and don’t try to time it. You’ll do well over time. When there is a market downturn, stocks are on sale.” Compound interest is powerful over time and is an investor’s best friend.

Reflect on Your Successes- Think back on 2021 and write down a few things that went well for you, despite all the challenges associated with COVID-19. Feel proud about these accomplishments. As for resolutions to make changes in your life, inch into new habits and do not try to change a lot of things all at once. In addition, make a running list of lingering projects (e.g., repairs, maintenance) left over from 2021 and new projects for 2022 and keep it in one place.

Expect a Different Tax Bill- Think about all the “moving parts” that took place in your financial life in 2021. A new job, or unemployment, perhaps, or advance child tax credits. All of these will impact 2021 taxes that are due in April. Some people will likely get “caught short” and end up owing tax or getting a smaller refund than they are accustomed to. If someone cannot pay their taxes all at once, the IRS has a program to make payments in installments.

Identify Your Financial Stressors- Think about things that stress you out financially. Then you can make plans to address them and will likely find that you are not alone. Some financial stressors vary by age. A webinar speaker noted that older adults are worried about long-term care costs and outliving their money. Gen Zers are concerned by impacts of climate change on their future. People at all ages are concerned about health care costs, housing decisions, and inflation.

Practice “If/When-Then” Planning- Use this technique to anticipate and rehearse responses to financial (and life) decisions. Simply fill in the blanks: “If/When [X] happens, then I will do [Y].”  Life events to consider for “X” can include a job offer, a promotion, unemployment, divorce, widowhood, retirement, an inheritance, and more.

Document Your Impact- Save thank-you notes from people who you help, congratulatory e-mails or texts, online testimonials, and other evidence that the things that you do are making a difference to others. When you feel “imposter syndrome” at work or that nobody cares about your paid or volunteer efforts, pull these items out and read them.

Check Your FSA- Learn the rules for your flexible spending account (FSA). These plans allow workers to contribute pre-tax income annually for out-of-pocket medical expenses and child/elder care. Many people had elective medical procedures canceled in 2021 or their child care needs changed. Find out how unused funds can be carried over from 2021, and for how long, and adjust 2022 FSA contributions as needed.

This post provides general personal finance information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.