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Successful money management requires ongoing discipline. Each year, you should pull all your records together and take a close look at your entire financial picture. Here are six steps that can help you put your financial affairs in order:
In your budget, does your income equal or exceed the amount you put into savings and fixed or variable expenses? If it exceeds the amount, by how much? The amount of income that exceeds what you saved or spent is called positive cash flow. If your expenses exceed your income, you have negative cash flow. If your cash flow is negative, it may be time to reorganize and minimize any unnecessary expenses in your budget.
For every financial goal you establish, you need to address the projected cost, the amount of time until your goal is to be realized (time horizon), and your funding method (e.g., a scheduled savings plan, liquidating some assets, or taking a loan).
You should plan your goals on three tiers. On the first tier, you have an emergency fund of at least three months of income. On the second tier, you may have a special goal and may, for example, establish a savings plan for your children’s weddings or educational expenses. Finally, on the third tier are more flexible goals such as purchasing an automobile, renovating your house, and planning a vacation.
Are you going to have enough money when you retire?
Pensions and Social Security may not provide enough income to maintain your current lifestyle during your retirement years. Therefore, review your retirement needs and plan a disciplined savings program for your retirement.
Many taxpayers reduce their taxes by taking advantage of tax deductions. Most are familiar with common deductions (e.g., mortgage interest, contributions to retirement plans, and donations to charities). In addition to tax deductions, however, there may be other ways of reducing your income tax bite. For example, under appropriate circumstances, losses or expenses from previous years may be carried over to the next tax year.
Let’s say the inflation rate is currently 2%. In order to maintain your buying power—just to break even—you need a 2% annual wage increase. A decline in your buying power will certainly lower your standard of living and affect your lifestyle. In the end, you’ll have less money if inflation starts to beat you. Consequently, you need to put your money to work to beat inflation.
You are probably well aware that life sometimes throws us unexpected “curve balls”—that is, unforeseen risks. Suddenly and unexpectedly, your potential risk may become a financial loss (e.g., you become disabled without income or an untimely death causes financial hardship for your family). As a result, many have made insurance the cornerstone of their overall finances because it offers protection that can help cover unforeseen potential liabilities and risks.
These six steps can help you focus on the important issues that affect your finances. If you faithfully keep track of your progress in these important areas, you may be able to build a financial foundation that can help you afford your future and finance your dreams.
As December 31 approaches, charitable giving becomes top of mind for many individuals. Whether driven by a desire to maximize tax incentives, honor a loved one, or thoughtfully allocate year-end bonuses, this season is a strategic time for philanthropy. For high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals, giving often requires careful planning and involves more advanced strategies to make a meaningful impact.
Charitable giving involves donating money, time, or possessions without expecting any personal benefit. While anyone can engage in philanthropy, HNW individuals have unique opportunities to maximize the impact of their contributions, from setting up private foundations to contributing appreciated securities.
For HNW clients, charitable giving is not just about generosity – it’s an integral part of a comprehensive wealth strategy. With younger generations, like HNW Gen X and Millennial investors, increasingly prioritizing giving, a well-planned strategy becomes even more crucial.
While definitions vary, HNW individuals typically have over $5 million in liquid assets, while UHNW individuals have over $30 million in investable assets.
Their giving strategies often need to account for complex assets and the desire to create long-term impact while considering family and community legacies.
The pandemic has amplified the significance of charitable giving. Research shows that over 85% of affluent households maintained or increased their giving during economic uncertainty, reflecting a desire to make a difference even amid challenging times. Interestingly, tax incentives are often a secondary motivation; HNW donors prioritize personal satisfaction and connections to meaningful causes. Many also engage family members in philanthropic discussions, creating a multi-generational commitment to giving back.
HNW individuals have several sophisticated giving options that can maximize their contributions while offering potential tax benefits. Here are four popular strategies:
1. Private Foundations. Private foundations are charitable organizations created by individuals or families. Founders maintain control over assets and grant-making, with foundations required to distribute at least 5% of assets annually. These entities offer estate and income tax benefits:
Foundations are ideal for philanthropists who want to create a legacy, set long-term giving goals, and involve family members in charitable decisions.
2. Donor-Advised Funds (DAFs). DAFs are flexible charitable giving accounts managed by sponsoring organizations. Donors can advise on investments and distributions while benefiting from an immediate tax deduction (up to 60% of AGI for cash gifts). The assets in a DAF grow tax-free, and donors can contribute cash or securities. DAFs are especially useful for “bunching” charitable donations into a single tax year while spreading grants over time.
3. Charitable Trusts. Charitable trusts come in two main forms:
Both trust types are irrevocable and offer a way to balance philanthropy with family wealth planning.
4. Donating Appreciated Stocks. HNW donors can save on capital gains taxes and receive an income tax deduction by donating appreciated securities. This strategy allows charities to benefit from the full value of the gift, tax-free. It’s a win-win approach that enhances the impact of the donation.
To maximize philanthropic impact before year-end, consider these strategies:
1. Extended Giving. Bunching multiple years of charitable contributions into one year allows donors to maximize itemized deductions. Using a DAF facilitates this, providing immediate tax benefits and the flexibility to allocate grants over future years.
2. Tax-Loss Harvesting. Given market volatility, selling underperforming stocks to offset gains and up to $3,000 of ordinary income is a smart year-end strategy. Donating proceeds from tax-loss harvesting adds another layer of tax efficiency.
3. Qualified Charitable Distributions (QCDs). For clients aged 70½ or older, QCDs are a way to make up to $100,000 in tax-free donations annually from an IRA to qualifying charities. This approach can reduce taxable income and count toward required minimum distributions (RMDs).
HNW individuals play a significant role in philanthropy, with the top income earners contributing the majority of charitable donations. As the great wealth transfer continues, engaging younger generations is essential to sustaining family legacies of giving. Discussing values and causes with heirs fosters a philanthropic mindset that transcends generations. Strategic charitable planning should be a year-round conversation integrated into overall wealth management.
By thoughtfully managing philanthropy, HNW clients can make a substantial impact while benefiting from tax advantages. However, given the complexities of tax laws and charitable vehicles, consulting a professional is always advisable.
As you begin to anticipate 2024 year-end statements, it will be tempting to focus on how well the markets performed. But especially because of this year’s solid market performance, it would be a safe bet that many investors need to consider rebalancing, because they might now be overweight or underweight certain asset classes – and therefore positioned in a way that is inconsistent with their risk tolerance and goals.
The reality is that the market moves all the time and your investments should evolve with the changes. It is important to rebalance your investments regularly, at least on an annual basis.
In simple terms, rebalancing is the process of reviewing and then possibly changing your current mix of investments in your investment accounts. For example, as you settle into your career and still have decades until your retirement, you might decide that your risk tolerance can increase, thereby allowing you to invest more in stock and less in bonds. Or your investments grow in some categories from your original allocation, and you need to get the mix back to where you started.
Without rebalancing, some components of your investment assets can become too large (or too small) a part of your total portfolio, exposing you to more risk than you can afford. Below are a few steps that can be used to evaluate whether you should rebalance.
Assemble all the information about all of your accounts. Rebalancing – sometimes referred to as reallocating – requires examining your entire portfolio.
This includes gathering statements from all your bank accounts, all retirement plans, all brokerage accounts and other investment related accounts, such as life insurance.
The key is to have a complete picture of your investment health to help ensure your investments are allocated in a way that is consistent with your risk tolerance. If you don’t know your risk tolerance number, consulting with a financial advisor would be a great way to find out.
Next, simply break down your overall positioning into four categories – cash, bonds, stocks and other (a good financial advisor can help you expand on each of these categories).
Consider bond mutual funds and individual bonds in the “bonds” category and put individual stocks and stock mutual funds in the “stocks” category. Real estate or other non-stock and non-bond investments will go into a fourth category.
Add up each category of items separately and divide that amount by the overall total. This will give you a simple look at your current ratio of how your assets are allocated.
Then discussing this ratio with a professional financial advisor, will help you decide what mix is right for you. You should know, however, that this step is a little more difficult than it sounds, because every individual is different. Sure, there are rules of thumb that can be used, but in the end, deciding on an asset allocation is a very personal decision.
The right asset allocation for you depends on factors like your age, the number of years until retirement, your income, your savings, your debt, your health, and your housing status, to name a few. And of course, applying the same factors for your spouse and considering your children, including big-ticket expenses like college education.
The point is that your asset allocation must change as time passes. Young people usually have a higher risk tolerance, while older investors facing retirement should have more conservative investments in their portfolio. So, it’s a good idea to look at your asset allocation every single year (unless you’ve figured out a way to stop aging…).
Then adjust your actual ratio to match your ideal ratio, as outlined in your financial plan. But it won’t be a matter of just trimming a little here and adding a little there – there are a lot of factors to take into account – including tax consequences – before an adjustment is made.
The good news is that a good financial advisor can run lots of different scenarios and hypotheticals with financial planning software before making real rebalancing adjustments.
Sounds painless, right? In theory, it is, but it can be a bit overwhelming the first time. But the process will be much easier next time around, especially drawing from the expertise and resources of a professional financial advisor.
Do you want to more easily change your over-spending behavior? According to research, maybe all you need is to count your life’s blessings. A mindset of gratitude gives people the patience to handle money better.
Before you brush this idea aside as just another feel-good theory, consider a study that suggests practicing gratitude is a powerful way to increase your happiness and decrease temptations. Northeastern University's David DeSteno led the research project, which was published in the Journal of Psychological Science.
Many of us believe we ought to make decisions, especially financial ones, logically rather than emotionally. We assume emotions get in the way of decision-making, so we try to set them aside. We may think the best way to resist temptation, such as wanting to buy something we can't afford, is to use self-control to clamp down our emotions.
Yet research has shown that emotions play a significant role in all our decision-making. Some of that research is also discussed in an article by Ray Williams published in Psychology Today.
Trying to ignore our emotions and make cold and calculating decisions is fear-based behavior. The gratitude research, however, suggests that emotions can be used instead to help us resist temptation. Perhaps being less fearful and more grateful can actually produce better decisions.
DeSteno’s study gave 75 participants a classic test of their financial self-control. They were told they could have either $54 right now or $80 in 30 days. The researchers placed the test subjects into one of three emotional states: grateful, happy or neutral.
Those who were either happy or neutral showed a strong preference for taking the $54 now. The fact that by waiting 30 days they would receive a one-month return of 48%, which is equal to an annualized return of 576%, wasn’t even a consideration. Behavioral economists tell us this is normal.
Our brains are generally wired to kill and eat. Having something now, even though it’s less, is better than having more later, even if it will be much more. That is some strong wiring.
However, the surprise was that the people in the state of gratitude were much more likely to wait 30 days to receive the $80. Results also showed that the more gratitude the participants reported feeling, the more willing they were to wait for the larger gain.
One conclusion of the study is that just cultivating the emotion of happiness isn’t enough to make wise financial decisions. It is specifically the emotion of gratefulness that makes a difference. According to one of the study’s authors, Professor Ye Li, this research opens up tremendous possibilities for reducing a wide range of societal ills from impulse buying and insufficient saving to obesity and smoking.
We don’t know why gratitude has this effect. Psychologist Dr. Jeremy Dean, in a post at PsyBlog about the research, says it may be because it makes us feel more social, co-operative and altruistic. In other words: gratitude may make us feel less selfish, which gives us more patience.
Should we wonder whether another possibility may be that feeling gratitude reminds us of how much we already have, which tends to reduce our desire to get something more?
If you'd like to do some experimenting of your own, consider practicing some gratitude exercises. Dr. Dean describes some at PsyBlog. These may be as simple as making daily lists of things you have to be grateful for. Possibly, fostering gratitude could do more than just promote happiness.
It might even change the way you spend and invest.
DeSteno, D., Li, Y., Dickens, L., & Lerner, J. S. (2014).
Gratitude: A Tool for Reducing Economic Impatience. Psychological Science, 25(6), 1262-1267.
Any endeavor worth undertaking, especially one that may affect others, deserves our careful consideration before we begin.
When contemplating charitable giving, think about the following points:
Through our gifts of time and money, we may create better communities and a better world.
The time spent formulating your charitable giving strategy can help you maximize the effect you have on the causes and organizations that are closest to your heart.
The digital revolution is transforming lives across all age groups, and seniors are no exception. Technology has become an indispensable tool for older adults, providing access to resources that significantly enhance the quality of life. For investors in retirement, focusing on how seniors can effectively use online health resources and telemedicine is not only a compassionate approach but quite possibly a lucrative investment opportunity as well.
From simple gadgets to comprehensive health platforms, seniors now have access to tools that were unimaginable just a decade ago. Smart devices, wearable health monitors, and telemedicine are now within reach, offering an unprecedented level of control and convenience.
Information at Fingertips. One of the most significant advantages of online health resources is the ability to access a wealth of medical information instantly. Websites, applications, and virtual libraries provide seniors with knowledge about their health conditions, treatments, medications, and preventive measures.
Personalized Health Management Tools. Apps and online platforms offer personalized health management solutions that enable seniors to track their vital statistics, manage medications, and even connect with healthcare professionals for consultations.
Remote Consultations. Telemedicine services enable seniors to consult with healthcare professionals from the comfort of their homes. This is particularly beneficial for those who find travel challenging or live in remote areas.
Monitoring and Support. Telemedicine includes remote monitoring services where healthcare providers can track a patient's health conditions and offer support as needed. This continuous oversight often results in early intervention and better outcomes.
Accessibility and Convenience. Telemedicine brings healthcare to the doorstep, reducing the need for frequent hospital visits and waiting times. This ease of access can significantly enhance seniors' adherence to treatment plans and follow-up schedules.
For investors in retirement, the digital health landscape presents substantial opportunities:
Investing in Telemedicine Platforms. There's a growing demand for telemedicine services, and investing in platforms that cater to seniors can be both socially impactful and financially rewarding.
Supporting Digital Literacy Programs. Investing in programs that educate seniors about digital tools and online resources can help bridge the digital divide and foster independence.
Funding Wearable Health Technology. Wearable devices that monitor health can provide real-time insights for both seniors and caregivers. Funding these innovations aligns with the increasing demand for personalized healthcare.
The intersection of technology and senior living represents a promising frontier, empowering seniors with the tools they need to take control of their health, offering convenience, increased autonomy and investment opportunities.
In an aging world, where our senior population continues to grow, the digital age, with its potential to revolutionize senior living, invites us all to be part of this exciting journey.
Whether market turbulence causes your blood pressure to spike or you manage to stay calm, it's important to recognize that almost no one is immune to financial stress all of the time. Stress can arise not just from economic news but also from personal events like job loss, natural disasters, and other unexpected life changes.
Financial stress is a common experience, especially in retirement, when your income is often fixed and your reliance on savings and investments is higher than ever. The sight of your portfolio losing value can trigger anxiety and fear about your long-term financial security. However, it’s essential to approach these situations with a clear head and a strategy in place.
When financial stress strikes, the first step is to take a moment to assess your situation. It's easy to let emotions take over, but understanding the actual impact of market movements on your long-term financial goals is crucial. A 3% drop in the S&P 500, while significant, may not have as devastating an impact on a well-diversified portfolio as it seems at first glance. Remember that markets have a history of recovery, and long-term investments are built to withstand these kinds of fluctuations.
Staying informed is important, but it’s equally important to avoid making hasty decisions based on short-term market movements. Panic selling during a market dip can lock in losses that would otherwise have been temporary. Instead of reacting impulsively, revisit your financial plan to ensure it still aligns with your goals. If your plan is sound and has accounted for potential market downturns, it will provide a roadmap to help you navigate these challenging times.
Consulting your financial advisor can provide reassurance and guidance. An advisor can help you understand how market changes impact your portfolio and whether any adjustments are needed. Often, simply talking through your concerns with a professional can reduce anxiety and provide a clearer perspective on your financial situation.
In times of financial stress, it's also important to consider your liquidity. Having an emergency fund can offer a cushion against unexpected expenses or market downturns, providing peace of mind that you have immediate resources available if needed. Reviewing the accessibility and adequacy of your emergency fund can be a helpful exercise during uncertain times.
Financial stress is not just about numbers; it can take a toll on your emotional and mental well-being. Leaning on your support network – whether that’s family, friends, or a community group – can provide emotional relief. Sometimes, just sharing your concerns can make them feel more manageable.
Managing financial stress in retirement is not about avoiding stress altogether but about knowing where to turn when it arises. By staying informed without overreacting, reviewing your financial plan with a trusted advisor, ensuring you have a solid emergency fund, and seeking support from those around you, you can navigate financial stress with greater confidence.
In doing so, you’ll be better equipped to ensure that your retirement years remain focused on enjoyment and fulfillment, rather than on the inevitable bumps along the financial road.
If advertisements and commercials are beginning to feature scenes of happy families, clad in brightly colored sweaters, gathered by a fire, surrounded by an assortment of presents, then the countdown to the holidays has begun.
Although it may be a joyous time that reunites old friends and distant family members, one dilemma you may face is how can you avoid the pressure to overspend, yet still have the pleasure of buying presents for your family and friends?
The key strategy is to plan ahead. Begin by writing down the names of those you plan to buy for – at least one gift idea for each person on your list – including a general idea of where you might find his or her gift. If you don’t know what type of gift you would like to give, browse through mail order catalogs, TV advertisements, and newspaper flyers for some ideas. This could help you avoid the trap of making your decision while in the store – when impulse buying may cost you more than you wish to spend.
Setting a limit on the number – and cost – of the gifts you plan to buy can help you stay within your budget and allow you to purchase appropriate gifts for the special people in your life. Once you have your list, and estimate the cost of your proposed purchases, you can adjust it so the total expenditures fit into your holiday budget.
To prevent overextending yourself, keep the following principles in mind:
Taking an organized approach to holiday shopping can make the experience enjoyable for many reasons. First, you will be getting the most value for your dollar. Second, you will now have the time to really relax and enjoy the holidays, knowing your preparations are complete.