Financial Goal Setting: 5 Simple Steps for Success

/ Fiduciary Financial Advisors/

I want to make my case for why goal setting matters for your financial picture. A study by Gail Matthews at Dominican University showed the benefits of goal setting, specifically the advantages of having written goals with accountability. Feel free to check out the study yourself, but she found that having written goals gave people a 33% higher chance of success compared to those with unwritten goals. Here are 5 steps to help guide you through your financial goal-setting and give you more confidence in your financial plan.

Step 1: Define Specific Goals

I got my bachelor’s degree in exercise science, and in my program, every class emphasized goal setting. Whether discussing exercise and nutrition or personal finance, achieving a goal must be done with strategy in mind. The strategy I find the most effective in goal setting is called SMART goals. SMART stands for specific, measurable, attainable, relevant, and time-bound. By being specific, you can track progress and know when you’ve achieved your goals. For example, “I am going to invest 5% of my monthly income into a Roth IRA for the next year”.

  • Specific: Investing into a Roth IRA

  • Measurable: 5% of monthly income

  • Attainable: 5% is a manageable contribution

  • Relevant: Relevant for someone starting to invest

  • Time-bound: The next year

Step 2: Prioritize Your Goals

The reality is we can’t focus on a bunch of goals at one time. When we try to accomplish too many goals at once, they all suffer, hurting our chance of accomplishing the most important ones. I recommend prioritizing your list of SMART goals down to your top 3. This could be due to urgency or importance. Examples include creating a budget or maxing out your IRA contribution for the year. Jot down all the goals, but don’t set the expectation that you can do them all at once.

If your goal seems too big, break it down into a few smaller goals that will help you see the progress quicker. For example, break down a goal to pay off all debt into paying off credit card debt first, then student loans, and then car loans. This way, you break down a goal that would take 3 years, allowing you to check off one goal each year, making it more manageable.

Step 3: Create A Plan and Track Progress

Now that you’ve established your SMART goals and broken them down by priority, the rubber can hit the road. There are multiple ways in which this can be done well, so find what works for you and stick with it. Research shows that written goals with accountability give you the highest chance for success. Whether you write your goals in a journal, your phone notes, or an app, the important part is that you do it.

Step 4: Use Goals to Cultivate Consistency

This point could be summed up if you read the book “Atomic Habits” by James Clear. If you’re interested, I can’t recommend that book enough. Clear makes the point that small habits that are successfully implemented over time lead to major changes. Essentially, it is easier to make three small changes than to make one major change. This is where accountability comes into play. 

If you’re married, you have a built-in accountability partner. One that will likely share the same goals as you. If you’re single, find a trusted friend or family member who can help keep you on track with your goals over time. The beauty of financial goals is that these individual goals often turn into habits that can be automated. In my earlier example of putting 5% of your monthly income into a Roth IRA, by doing this, you build a habit that can be repeated year on year with minimal effort.

Step 5: Learn from Setbacks and Adjust

News Flash: Setbacks will happen for everyone. Nobody is perfectly consistent, and a lack of consistency will lead to setbacks. I don’t say this to discourage you, but hopefully to encourage you. A setback does not equal failure when it comes to goal setting. By readjusting instead of giving up, you give yourself a chance to still be successful. Your financial life is a constantly changing picture, and your goals should be no different. Having goals in place, even after adjusting for unforeseen circumstances, will still put you in a better position than if you had never set the goals to begin with.

Goal setting is an incredibly important way to implement changes to your financial picture. It is how you intentionally go from getting out of debt to saving for retirement and having a bulletproof retirement plan. The beauty of goal setting is that it benefits everyone from the 18-year-old college student to the 72-year-old retiree and everyone in between. Use these steps to sit down and see the benefits for yourself.

References

https://www.dominican.edu/sites/default/files/2020-02/gailmatthews-harvard-goals-researchsummary.pdf

https://success.oregonstate.edu/learning/smart-goals#:~:text=In%20general%2C%20SMART%20goals%20are,able%20to%20celebrate%20your%20accomplishment.

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

Net Worth Tracking: The Underutilized Financial Tool

/ Fiduciary Financial Advisors/

When it comes to tracking finances, budgeting is likely what you think of, and rightly so. Budgeting continues to be the best method for establishing your monthly income and expenses to ensure you are on track. What I am suggesting is not a replacement for budgeting but a complement to it. Tracking your net worth allows you to see progress across your financial picture over the long term. Let’s dive into this underutilized tracking method that can significantly impact your financial outlook.

How to Figure Out Your Net Worth

The first step in calculating your net worth is understanding the necessary information. You can think of net worth as a mathematical equation. The equation goes: Assets - Liabilities = Net Worth. To break it down even further, I will often explain net worth as the difference between what you own and what you owe. What you own (assets) would consist of your home, vehicles, investments, money in the bank, and other tangible goods. What you owe (liabilities) would be any home loan, auto loan, student loan, or other consumer debt.

There is no shortage of methods for tracking net worth, so the best method will ultimately be what works for you. There are plenty of Net Worth Calculators on the internet, but I like to use the Schwab Net Worth Calculator. Others may prefer to create their own spreadsheet. Both methods are great ways to calculate and track your net worth.

How Often to Track

Once you know what comprises the net worth statement, you need to figure out how often you will track it. This is a preferential component, but the most effective frequency is calculating and recording your net worth every year. Because of fluctuations in cash flow and investment performance, tracking on a monthly or quarterly basis would not have much benefit. Doing this yearly makes the most sense because enough time has passed to see legitimate progress. Many people do an end-of-year financial review, and adding this into that process can be simple.

The other reason I like the year mark for calculation is that net worth is intended to complement your budget. Your monthly budget ultimately leads to the progress you see in your net worth statement. It takes the monthly victory of following your budget and shows you a more substantial victory by compounding those smaller wins over the course of a year.

The Benefits of Tracking

All this information is excellent, but why do it? Where does the benefit actually come into play with tracking net worth? The main advantage lies in the bird' s-eye view of your financial well-being. It provides you with context on financial components that your monthly budget doesn’t take into account. Seeing overall liabilities go down and, in turn, watching your asset total rise over the years can be an excellent encouragement to stay the course. 

The final benefit of net worth tracking is its opportunity to measure success based on your progress instead of basing it on others. No two people have the same financial picture, so why compare to someone in an entirely different circumstance? Often, we can't help ourselves from it. But by tracking your net worth year after year, success is measured by your improvement from the last year and not by how your number stacks up to those around you.

The “Secret” to Growing Your Net Worth

The final question that often accompanies conversations about net worth is how to improve your number. Honestly, it’s pretty simple, and the answer isn’t anything groundbreaking—consistent effort. By being consistent over time, you allow compounding growth to occur. Not just when it comes to your money compounding but also the good habits associated with money management. Much of this comes back to the foundational principles I discuss in my article, “Mastering Your Money: Budgeting Essentials and When You Need Them.” The “secret” to improving your net worth is consistent effort over a long enough period.

Final Thoughts

Net Worth tracking doesn’t have to be very time-consuming, especially if it is done only once a year. Taking an extra 30 minutes at the end of each year to calculate your net worth may quickly become your favorite way of tracking financial progress. Remember, this is not intended to replace your monthly budget. If done properly, your net worth statement will be an amplified version of your monthly efforts and diligence.

References

https://www.schwabmoneywise.com/net-worth-calculator

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

The Power of Backdoor Roth for Sales Professionals

/ Fiduciary Financial Advisors/

Sales Professionals are constantly trying to figure out how to gain an extra edge over their competitors and better position themselves for customers. This should extend to navigating their financial picture and creating a solid retirement plan. Here’s where the backdoor Roth IRA enters the picture. While this financial planning strategy is open to many high-income professionals, it is uniquely advantageous for professionals with a variable income. While this approach doesn’t make sense for all high-income earners, it is worth keeping in your back pocket for when the time is right. In this post, we dive into this strategy, how it is utilized, and who should and shouldn't consider using it.

What is a backdoor Roth?

You may have heard of this strategy, but what exactly is it? A backdoor Roth IRA is not a type of account but rather a method to contribute to a Roth IRA even if your income exceeds the IRS income phase-out limits. You contribute to a traditional IRA with a contribution that is not tax deductible and then transfer those funds to a Roth IRA. Once completed, you can invest those funds within your Roth IRA, giving you access to the long-term tax advantage of a Roth IRA.

Why is it useful?

To understand why this is a beneficial strategy, we must first differentiate between a Roth IRA and a traditional IRA. Both are Individual Retirement Accounts (IRAs) used to invest money for retirement purposes. A traditional IRA has contributions that are tax-deductible in the year you contribute. When that money is pulled out in retirement, it is taxed at your regular income rate. Conversely, Roth IRA contributions aren’t tax deductible but grow tax-free. Withdrawals in retirement aren’t taxed, assuming you are 59 ½ or older and the account has been open for five years. The other perk of having Roth assets is the lack of required minimum distributions (RMDs), unlike traditional assets, which necessitate distributions starting at age 72, whether you desire them or not.

This strategy is useful for two groups of people. This isn’t a blanket recommendation for these groups, but if you fall into one of these groups, it may be worth considering. If you are a relatively young, high-income individual or household, a backdoor Roth might make sense since you have plenty of time for your investments to grow tax-free. The other category of people that should investigate this strategy would be someone who exceeds the income limits to contribute to a Roth and is anticipating their retirement income and tax bracket to be higher than their current income and tax bracket. However, it’s crucial to consult with an advisor for personalized analysis.

Should you utilize it?

The first criterion for this strategy is an income that exceeds the IRS phase-out limit to contribute to a Roth IRA directly. In 2024, the phase-out is from $146,000 to $161,000 for singles and heads of households. The phase-out for married couples filing jointly is between $230,000 to $240,000. These limits can change annually, making it important to check the IRS website for the current year's standards. If your income exceeds these limits, working with a financial advisor to ensure it is the most prudent strategy in that given year is critical. It is essential to proceed correctly; you should work with an advisor and CPA as you make this decision.

Who Shouldn’t Do This?

While there are numerous advantages to doing a backdoor Roth conversion, it is important to weigh the downsides. There can often be tax implications that come alongside a backdoor Roth that could ultimately make the strategy less attractive, especially if you cannot afford the taxes. The other consideration is your investment timeline. The shorter the investment horizon, the less likely a backdoor Roth is a wise strategy. This often comes into play for those late in their careers. While other circumstances make a backdoor Roth a less attractive option, these are the two primary considerations that a financial advisor and CPA should be able to help you work through.

Final Thoughts

It's important to remember that the decision to use this strategy is not a one-time event. It's a discussion you should have with your financial advisor and CPA to ensure it's still the best approach for you. This strategy is not a one-size-fits-all solution and should be carefully analyzed before considering it. When used correctly, it can be one of the most powerful tools in your financial planning arsenal. Feel free to reach out if you need clarification on whether this approach is right for you.

References

https://www.fidelity.com/learning-center/personal-finance/backdoor-roth-ira#:~:text=A%20backdoor%20Roth%20IRA%20strategy,to%20income%20limits%20on%20contributing.

https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000

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

Sales Gravy Podcast Feature: Personal Finance Strategies for Sales Professionals

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Ben Lex had the privilege to be featured on the Sales Gravy Podcast.

Ben discusses the importance of personal financial well-being for sales professionals and how to improve their current circumstances with their variable income.

Click Below to Watch or Listen to the Full Episode:

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

Recent Articles Written by Ben

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MarketWatch Feature: Before your teen starts a summer job, have ‘the talk’ about taxes

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Ben Lex was recently featured in a MarketWatch article titled “Before your teen starts a summer job, have ‘the talk’ about taxes”.

In it, he dives into ways to teach your kids about personal finance. Check out Ben’s insights - they’re golden nuggets for teaching your kids the foundations of personal finance.

How Much Should You Invest for Retirement?

/ Fiduciary Financial Advisors/

When it comes to investing, we all have to start somewhere. It can be easy to look for a set number or percentage of income to invest and stick with it. While that may be the simple approach, I believe more needs to be considered when choosing an amount to invest continually. With that being said, this should not be so complicated; it takes forever to figure out. While investing will look different for everyone, there are some helpful guidelines to establish what investing should look like for you.

The Importance of Investing

We must first establish why you should invest in the first place before diving into how to invest. Investing gives you the advantage of putting your money into a vehicle designed to grow wealth. This is the classic case of risk vs reward. You could leave your money in a savings account but will get minimal growth, if any. The alternative is investing some of that money into the stock market strategically to take advantage of a multiple percentage return.

When investing, it is crucial to know your goals with that money. This could be anything from saving for vacation to retirement planning and anything in between. Knowing what you are investing for is one piece of the puzzle. The second piece to consider is the timeline of your investment. If you are investing money that you plan to use for a vacation six months from now, your strategy will look significantly different than the money you invest towards your retirement, which is 20 years away. The final consideration is the risk you are comfortable taking with your investment. The timeline plays a role in this, but a personal component needs to be considered and talked through with a financial advisor.

How Much To Invest

When it comes to establishing the amount you are investing, it again depends on multiple factors. You must take into consideration the end goal as well as your own capacity to invest. The overarching recommendation is to invest 15%-25% of your income toward retirement. While this can be a helpful target to shoot for, this amount could be too little with the end goal. Instead of picking an arbitrary amount, I suggest doing a retirement expense inventory. Doing this will allow you to get a goal that is tailored to your cost of living and retirement expectations. This takes into account life expectancy, healthcare costs, and expected retirement lifestyle. From here, you can reverse solve to find a proper investment target using a compound interest calculator. Keep in mind that this target is going to move on you throughout your life. What makes sense at 30 years old will be different at 40 years old because you’ve gained more clarity on the components used to establish your target.

As great as it would be for everyone to understand their retirement expenses, it can often be challenging to project. What about someone with significant student loans who can't swing 15% of their income to retirement? This is where capacity comes into play. The above scenario is the goal, but it may not be feasible for your current financial situation. If that describes you, then the mentality you should have is to start small but start now. You will be better off by investing a little bit each month and building the habit of investing, as opposed to waiting until your circumstances are perfect to start. I recommend you find an amount that works with your budget and commit to investing that amount for a year. By doing this, you have built the habit of investing and allowed your money to start working through compounding interest.

Where to Invest

Now that you have established your goals and an amount of money to invest, you can consider what investment vehicle you want to use. If this is new territory for you, read my article “The Order of Operations for Retirement Savings.” This can give you a baseline of where to begin with investing.

All the pieces we have discussed up to this point will influence the strategy you choose for investing. At the end of the day, diversification is one of the most essential components of retirement investing. You’ve heard the phrase, “Don’t put all your eggs in one basket,” which holds true when investing. The stock market is volatile and should be approached with a well-thought-out strategy. Diversify your investment across multiple asset classes such as stocks, bonds, real estate, etc. This will help you have a robust strategy when the market is up and protect you from downsides when the market is down.

Adjust and Review

I’ve mentioned it once, but it deserves to be revisited. The amount you contribute to retirement savings will be a moving target. It will change as you get closer to retirement, have income fluctuations, and gain clarity on your financial goals. This change is not something to shy away from. It creates the opportunity to revisit this topic regularly. If you work with a financial advisor, this conversation should be part of a standard cadence between you and them. Having a plan is important, but understanding how that plan should flex over time is equally important.

Keep in mind that these are general guidelines around investing toward retirement. As I mentioned, everybody has a different situation and should consult a financial advisor to help consider all factors of your financial picture. If I can leave you with any piece of advice, it is that the best time to start investing was yesterday. The second best time is today.

References

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

https://smartasset.com/investing/how-much-money-to-invest-in-stocks-per-paycheck

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

The Order of Operations for Retirement Savings

/ Fiduciary Financial Advisors/

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

Step 1: Work-Based Retirement Plan

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

Minimal Barrier to Entry

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

Matching Incentive

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

Automatic Deduction

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

Step 2: Emergency Fund

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

Step 3: Individual Retirement Accounts

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

Traditional IRA

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

Roth IRA

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

Which One?

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

Step 4: Health Savings Account

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

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

Step 5: Taxable Account

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

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

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

References

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

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

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

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

Protect Your Financial Life

/ Fiduciary Financial Advisors/

Protection can have various meanings in the financial industry, and there are several ways to safeguard your income, family, and financial future. While this isn’t an exhaustive list of strategies, it outlines some crucial topics to help you establish proper protection across all facets of your life.

Protect Your Income

Money Management

Knowing your monthly cash flow is one of the most important aspects of protecting your income. This knowledge allows you to be intentional with your spending. Additionally, having an emergency fund will enable you to be proactive when unexpected expenses arise, keeping you on track instead of starting over.

Life Insurance

I typically recommend that most people have a term life insurance policy. Those who are married and, even more importantly, have kids can leverage an inexpensive term life policy as protection against unforeseen events. These policies range from 10 to 30 years and help bridge the gap while dependents are in the house, giving you added peace of mind.

Disability Insurance

Disability insurance isn't for everyone, but it is worth considering. Many employers offer it for free or at a low cost. This can be a great way to protect your income in case of bodily injury. You will first need to assess your ability to find work in the event of disability. From there, you need to weigh the cost of disability insurance against your confidence in finding other work.

Protect Your Family

Health Insurance

Health insurance is essential, but choosing the proper plan is where the cost savings come into play. It is crucial to analyze all plans that you qualify for and understand which plan will offer the most significant value based on your family's needs. When open enrollment or a qualifying life event comes around, analyze your coverage and select the right plan for the following year.

Estate Planning

Estate planning primarily refers to having a will or trust in place. This helps to protect your accumulated assets for your family. While estate planning can be complicated for some, working with a good estate planning attorney can help you figure out the best path forward. For those with children, the estate plan becomes increasingly more critical.

Lifestyle Creep

Establishing family priorities can be an essential way to protect from income loss due to lifestyle creep. Lifestyle creep means that your lifestyle costs increase along with your income. Once established, this is more challenging to reverse. It often presents as a higher mortgage or a more expensive car payment. Establishing family priorities can be the key to preventing lost income due to lifestyle creep.

Protect Your Future

Calculated Risk

Protecting your financial picture involves not only your current financial situation but also your future. Investing is a crucial piece of your financial puzzle, but it must be calculated and intentional. I elaborate on this topic in my article, “A Beginner’s Guide to Investing.” If you are unsure how to be intentional about your investing, reach out to a fiduciary financial advisor, like myself, for assistance.

Don’t Leave Money On the Table

This can present in two primary ways. The first was already discussed and is your company's free or extremely low-cost insurance options. These are great programs, so take advantage of them when you can. The other way I see this often happening is by not getting the employer match on a retirement plan. Most employers will offer a match of 3% or more, which is essentially free money. Don’t miss out on these great employee benefits.

Tax Planning

Tax planning should be encompassed in multiple areas of your financial plan. You should optimize your tax efficiency through your withholdings, deductions, and investments. To do this, connect with your financial advisor and CPA to achieve the best outcome in all aspects of tax planning.

References

https://www.guardianlife.com/insurance/income-protection-strategies

https://www.investopedia.com/articles/younginvestors/08/generation-y.asp

https://www.usbank.com/wealth-management/financial-perspectives/financial-planning/wealth-preservation.html

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

How Much House Can I Afford with on a Sales Income?

/ Fiduciary Financial Advisors/

Buying a home can be a challenging process, even if everything goes smoothly. Throw a few complicating factors into the mix, and it doesn't get any easier. Being a sales professional can be one of those complicating factors when it comes to acquiring a home loan. I’ve experienced this both personally and professionally. Let me shed some light on the process of getting approved for a home loan and then give some guidelines on how much you can afford.

Be Prepared

After getting your finances in order and deciding that the time is right to buy a house, you will need to connect with a mortgage lender to walk through the pre-approval process. A mortgage lender can help determine the best type of home loan based on your circumstances. At this stage, there is no harm in talking with multiple lenders to figure out which company can give you the best rate and provide the best client experience.

Mortgage lenders prefer to see 2 years' worth of tax returns from individuals with a steady income, but often give more flexibility due to the consistency of their income. For those with a variable income, it will most likely be a requirement to provide 2 years' worth of tax returns to even be considered for a loan. Having these forms ready ahead of time, can help you expedite the process.

Don’t Get Caught Up in the Potential

When going through the pre-approval process, lenders will give you a conditional letter of approval for the highest amount that you’re able to borrow. In many cases, that amount will put you into a house that you cannot truly afford. You should have an idea of the monthly payment you are hoping to lock in, before beginning this process. If you haven’t done so yet, now is the time to run the numbers and settle on a payment that mathematically makes sense based on your income. A good mortgage professional can and should assist you in this process.

How Much Can You Actually Afford?

How much house can you actually afford, then? There are different schools of thought on this topic, but I believe that your mortgage payment should be less than 25% of your gross monthly income. Keep in mind that this is a top-end number, and the lower your monthly payment, the more flexibility you give yourself down the road.

Now, with a variable income, 25% becomes a harder number to pinpoint. As mentioned in my post “How to Budget on a Sales Income”, if you have a salary component of your income, I would recommend using 25% of that number assuming you have a decent base pay. This will give you confidence that you can make your payment regardless of job performance. It can be easy to incorporate your commission into this amount, but I recommend against doing this as it exposes you to unnecessary risk.

For those working solely on commission, I recommend finding your number by averaging your income over the span of 3 years, or longer if possible. Using your commission structure can be a good element to incorporate as well. Not every year will be a down year, but my goal is to protect you if it is. Calculate your income if you were to hit 75% of your sales target and assume that to be your yearly income. Incorporate this into your 3-year average and take your 25% from that number. This creates a small buffer in your predictions for protection.

Have Confidence

There will always be a small level of uncertainty when working in sales. Often, that works in your favor, allowing for more income flexibility, but it's also important to protect the downside. Once you’ve been pre-approved and decided on a monthly mortgage that you can afford and are comfortable with, move forward in the home-buying process with confidence.

References

https://selling-guide.fanniemae.com/Underwriting-Borrowers/Income-Assessment/General-Income/Variable-Income-Stability-Continuity/1048717451/What-is-required-for-variable-income.htm

https://www.greatestlender.com/blog/18765/purchasing-a-home/how-to-qualify-for-a-mortgage-when-your-income-isnt-steady#:~:text=A%20longer%20employment%20history%20is,period%20and%20average%20it%20out.

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

The 5 Most Influential Books for Sales Professionals

/ Fiduciary Financial Advisors/

As an avid reader and former sales professional, I’ve read my fair share of sales-related books. Along the way, I have read some truly transformational books. In this post, I wanted to highlight 5 books that cover everything from people skills to handling objections in sales interactions. Diving into these books will undoubtedly level up your sales skills and, in turn, enhance your career.

How to Win Friends and Influence People by Dale Carnegie

While not directly related to sales, this is one of my favorite books that I revisit every so often. Dale Carnegie’s book is an easy read that details strategies you can implement into your daily life to improve existing and new relationships. Dale outlines necessary people skills that will directly impact your relationship with customers and, in turn, benefit long-term business relationships. On top of this, his principles, if incorporated outside of work, can improve your personal relationships as well.

Favorite Quote

“To be interesting, be interested.”

Objections by Jeb Blount

I am a fan of every Jeb Blount book I’ve read, but for the sake of variety, I picked my favorite for this list. Jeb specializes in sales writing as he is a successful sales professional himself. The fact that he has lived and worked in the industry validates his writing even more. “Objections” outlines the concept of resistance in sales interactions. He then takes a psychological approach to explaining the best approaches to address and properly sidestep those objections. Given that every sales professional deals with objections daily, this is a must-read.

If you are looking for a deep dive into specific sales material, start by reading all of Jeb’s books.

Favorite Quote

“In every sales conversation, the person who exerts the greatest amount of emotional control has the highest probability of getting the outcome they desire.”

Atomic Habits by James Clear

While all of these books are compelling, “Atomic Habits” just might be the hardest to put down. I am convinced that most people would read the entire book in a day if given the chance. James offers a simple path to improving efficiency by creating good habits and breaking your unwanted ones. While building good habits is essential, we most often benefit from breaking our unproductive cycles. “Atomic Habits” has continued to allow me to assess how I spend my time and focus on the activities that are truly productive.

Favorite Quote

“You should be far more concerned with your current trajectory than with your current results.”

How I Raised Myself from Failure to Success in Selling by Frank Bettger

After a brief stint in professional baseball with the St. Louis Cardinals, Frank went on to a successful career in sales, as well as writing. Similar to Jeb Blount, what I appreciate most about Frank’s writing is the fact that he had lived everything I was experiencing. Despite the significant gap in time from the writing of his book until now, I find the principles in this book to be timeless. Even though time has passed, people still think the same. Frank’s writing discusses the benefits one can gain from self-motivation and a bit of enthusiasm in the workplace.

Favorite Quote

“The most important secret of salesmanship is to find out what the other fellow wants, then help him find the best way to get it.”

Gap Selling by Keenan

“Gap Selling” is one of those books I wish I would have read sooner. Keenan’s main point in the book revolves around finding the gap in your customer's current plan and positioning your product as the best way to resolve that gap. I think that the ability to point out customer inefficiencies while also holding the solution is a powerful tool. Pair this with some of the people skills discussed in “How to Win Friends and Influence People”, and you have a solid foundation for each sales conversation you have.

Favorite Quote

“You don’t close the gap by selling; you close the gap by diagnosing the problem.”

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

Financial Planning Feature: Americans' top 5 financial regrets - and how to avoid them

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Ben Lex was recently featured in a Financial Planning article titled “Americans' top 5 financial regrets — and how to avoid them”.

In it, he dives into retirement savings and the high interest rates of 2023. Check out Ben’s insights - they’re golden nuggets for leveling up financially.

Making the Most of Your Sales Income

/ Fiduciary Financial Advisors/

When it comes to managing variable income, there are several strategies to turn uncertainty into opportunity. If you’ve had a chance to read my previous post “How to Budget on a Sales Income”, then you are in the right place. Whether you’re new to the industry or a seasoned vet, my goal is to share ways you can maximize your sales income beyond your monthly budget.

Give Yourself a Raise

One of the best parts about being a commissioned sales professional is the ability to create your own raise. Regardless of your commission structure, the more you sell, the higher your income. In a sense, you have a greater influence on your income based on the effort you put forth. While there is no guarantee that increased effort will lead to increased sales, more often than not, it does. This serves as a significant motivator for sales professionals to put in efforts that will ultimately drive sales and boost their income. This increased income will open the door to exploring further avenues for maximization.

Supercharge Your Retirement

Most people have retirement goals, and it seems that retiring early is becoming a more popular goal. Whether you aim to retire at 55 or intend to continue working until 67 because you love what you do, having options is crucial. A great use for excess income would be to contribute to a separate retirement account in addition to your employer's 401k plan. Consider accounts like a Roth IRA or Traditional IRA. A Roth IRA allows you to contribute after-tax dollars, that will grow tax-free. The beauty of this account lies in the tax-free growth it offers, along with the fact that there are no required minimum distributions(RMD). On the other hand, a traditional IRA provides a tax deduction in the year it is funded and is a key attraction of these accounts. Collaborating with a certified investment advisor like myself can help determine which account makes more sense based on your income in the given year, projected retirement income, and goals for retirement. At the end of the day, funding these accounts is a simple way to invest more dollars toward your retirement, and provide yourself with options down the road.

Fluctuation Creates Stability

Sales professionals experience varying degrees of income fluctuations. Some have a base salary they can count on, while others rely solely on commissions. Regardless, one of the greatest ways to maximize on the variability is to use high-earning years to create stability for your lower-earning years. As an example, let’s say you significantly exceed your sales target this year and make twice your budgeted income. You should have a standard protocol to enlighten where that money should go. One of the first things I would do is to put a good chunk of that excess aside for potential future use. That way, if your next year is not as profitable as the current one, you can still take advantage of supercharging your retirement or building up your safety net, while still covering your budgeted expenses. By doing this, you create a level of stability, even though your income is not.

Tax Advantages

When it comes to tax planning for sales professionals, I cannot emphasize enough the importance of working with a CPA experienced in handling variable incomes. Tax planning for a variable income can feel like trying to hit a moving target, and that is where the experience becomes invaluable. To top it off, forming a financial team with your financial advisor and CPA working together can uncover potential tax advantages in a given year. Having this team will allow for tax-efficient investing and creative tax planning. Given the income variability associated with commission-based roles, working with your financial team each year ensures that you’re making the right choices for your income in that specific year.

Final Thoughts

Managing a variable income will require deliberate financial decision-making, but it can also create opportunities that not everyone has. Being intentional with where your excess money goes will allow you to not only hope but have confidence that your financial plan will succeed.

References

https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2023

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

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

How to Manage Large Commission Checks

/ Fiduciary Financial Advisors/

There is no shortage of demands that pull at our wallets. Following a budget can help guide your income, and should be a priority. But what do you do when excess money comes in that is not factored into the budget? One advantage of working in sales is the potential to earn more than your budgeted income which I outline in my article “How to Budget on a Sales Income”. Whether you make a full commission or a base salary plus commission, there are several strategies you can employ to manage your additional commission income wisely. Here, I discuss one approach I don’t recommend and two that I endorse.

Approach 1 - Spend It

The approach I have seen many colleagues take over the years is to immediately spend the extra money on whatever it is they have been eyeing for a while. This approach rarely makes sense, as the money is gone just as soon as it hits your bank account. While I understand that you worked hard for that money and on some level it should be enjoyed; I do not see this as a prudent approach to managing a large influx of money. Now that we’ve addressed a strategy that I wouldn't suggest, let’s dive into two approaches I do recommend.

Approach 2 - Save and Invest

The “save and invest” approach is going to be the primary approach for someone who considers themselves to be a saver. There is nothing wrong with this approach; in fact, it is arguably the best approach for securing your financial future. Saving provides stability and peace of mind, especially in a role that has income fluctuations. Investing allows you to get your money working for your future self. Consider using this income influx to max out your 401k or IRA for the year. Depending on your income level, it might be worthwhile to consult with a financial advisor and explore the option of a backdoor Roth IRA. You can refer to the IRS website for those phase-out limits, and see if this is an option for you due to high income.

This approach will also appeal to someone who needs to pad their savings and increase their safety net. Early on in my sales career, I used this strategy to ensure I always had enough money in the bank on the rare chance that I lost my job. It is by no means the most attractive approach but can provide the most peace of mind.

Approach 3 - Bucket Strategy

The third approach, which happens to be my personal favorite is the “bucket strategy”. You can imagine this strategy as having a budget for your excess money. You create different-sized “buckets” that you can divide the money into. For instance, you could allocate 20% to investments, 20% to savings, 10% to spending, 20% to vacations, 20% to charitable giving, and 10% to taxes. You can customize the number and size of buckets based on your needs. I prefer this strategy because it allows you to combine the 2 other approaches, and creates a sustainable balance. There is room for you to enjoy some of your hard-earned money on what you want while saving for your future at the same time.

One Final Tip

If the commission is unusually large, it would be wise to set some of that commission payout aside in case of a high tax bill the following year. I have experienced this myself, as have many colleagues. Thanks to using the third approach, I have been able to handle larger tax bills with no issues. If there ends up being no tax implications, you can use that money elsewhere. It’s better safe than sorry.

Final Thoughts

Your financial life could be very simple, or more complicated, and as with most matters, there’s no one-size-fits-all solution. Determine what works for you and choose an approach that you can confidently implement.

References

https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2023

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

Invest Like a Sales Professional

/ Fiduciary Financial Advisors/

Investing is confusing for many people. You are stuck trying to find the best strategies and performance, while still minimizing risk. On top of finding a strategy that is in line with your situation and goals, you have to be willing to ride the rollercoaster that is the stock market. If you work in sales, you have the added complexity of managing your variable income. Everyone has their opinions, but I firmly believe that there’s more than one way to achieve your financial goals. In this article, I aim to offer some principles that can simplify investing for sales professionals.

Employer Match

Many employers offer a contribution matching program, and taking advantage of it can feel like getting free money. For this reason, it is likely to be the first step in maximizing your investments. Nowadays, many plans even provide a Roth option, which can be a great perk to take advantage of. The employer contribution will be pre-tax, so putting your contribution into the Roth bucket allows for tax-free growth of your retirement assets. If you find yourself in a high-income position, make sure to keep your contribution below the annual limit, so that you can invest any additional money outside of your employer plan. The current employee contribution 401k limit for 2024 is $23,000 with a catch-up contribution of $1,000 if you are 50 or older, although the limit can change annually.

Tiered Approach

Once you’ve maximized the employer match, you should have a strategy for your next investment contributions. Your next step is likely to maximize your Roth or traditional IRA contributions. If you still have funds you want to invest, then this is where your options expand, depending on your financial goals and risk tolerance. Whether you plan to fund a taxable account or invest in real estate, this is the time to do it. There is no one-size-fits-all approach, so I highly recommend consulting a professional to walk you through the pros and cons of each option and help you find an approach that is aligned with your goal. One way to keep track of your tiered approach would be to follow the method I outlined in “End-of-Year Financial Checklist: 7 Steps for a solid Financial Plan”. This allows you to automate your plan and ensure everything is in order towards year-end.

Dollar Cost Averaging or Lump Sum

Most individuals enjoy the consistency that accompanies dollar cost averaging (DCA). This is an excellent approach for someone with a consistent income. During my time in sales, my income was never truly “consistent”, and I find that to be the case across the board for most sales professionals. Let me also be clear that the approach you should take is the one you will stick to. Research has shown that lump sum investing can be superior to DCA due to the time in the market, but DCA is still very effective and useful for risk-averse investors. Working in a heavily commissioned role will often result in using a lump-sum approach, and it is important to not shy away from it. Nobody has a crystal ball when it comes to the stock market and can know the best day to invest. With that being said, you are typically better off letting your money start working for you as soon as possible.

Tax Considerations

Tax-efficient strategies should be a key element of every sales professional's investment strategy. This could involve using a Roth IRA, doing backdoor Roth conversations, or tax loss harvesting. While being tax-conscious, you will still want to maximize investment performance. This is truly a balance and should be considered when deciding on an investment strategy. I recommend working closely with a certified public account (CPA) who works in tax preparation and can give advice on your tax efficiency.

While many investing principles are synonymous with most individuals, these are a few strategies to keep in mind for sales professionals who often have high, fluctuating incomes. These guidelines are intended to provide clarity to investing. If you want specific advice on investment strategies, consult a financial advisor that is willing to take your entire financial picture into account, and help you find an approach that is in your best interest.

References

https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500

https://investor.vanguard.com/investor-resources-education/news/lump-sum-investing-versus-cost-averaging-which-is-better

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

How to Budget on a Sales Income

/ Fiduciary Financial Advisors/

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

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

Step 1: Estimate Minimum Expenses

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

Step 2: Establish Safety Net

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

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

Step 3: How to Budget

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

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

Step 4: How to Manage When You Get Off Track

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

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

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

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

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

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

A Beginner’s Guide to Investing

/ Fiduciary Financial Advisors/

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

Investor Types

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

Establish an Emergency Fund

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

Goals and Risk

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

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

Investment Capacity

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

Pick a Strategy

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

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

Stay the Course

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

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

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

Mastering Your Money: Budgeting Essentials and When You Need Them

/ Fiduciary Financial Advisors/

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

Why Budget?

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

How to Budget?

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

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

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

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

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

Do I Need to Budget?

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

Final Thoughts

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

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

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

/ Fiduciary Financial Advisors/

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

1. Review Your Budget and Spending

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

  • Is my income going to remain the same?

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

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

  • Am I saving and investing enough of my income?

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

2. Prepare for Tax Time

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

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

3. Max out your Contributions

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

4. Review Investments

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

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

5. Consider a Roth Conversion

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

6. Open Enrollment

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

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

7. Confirm Beneficiaries

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

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

  • Investment Accounts

  • Bank Accounts

  • Life Insurance Policies

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

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

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