- Money, Career & Family: Planning for the Year Ahead Part 1
- Money, Career & Family: Planning for the Year Ahead Part 2
- Money, Career & Family: Planning for the Year Ahead Part 3
Three areas of significant impact – money, career and family – deserve to be thoroughly examined to help you plan for your year ahead. Each of these areas is central to your sense of prosperity as well as a meaningful and fulfilled life. When one area is out of balance, the others often follow with a potentially exponential increase in possible negative outcomes. When all three are in balance and aligned, get ready for a great year!
Let’s start with your money. You’ll want to look at how you spent, saved and invested your money last year. As you do, answer the following questions:
- Did some expenses surprise you? What happened and how did you deal with it? You may have had unexpected major healthcare costs or home repairs. Is this likely to happen again this year?
- Did you have spending and savings plans in place? Was every dollar assigned to a role? Did you adhere to your plans? Did your plans effectively meet your needs or do they need to be revised?
- Do you have a bookkeeper to keep your financial records up to date on a weekly or monthly basis? Staying current will help you prepare and stick to your spending and savings plans. If not, ask your investment advisor or CPA to recommend a bookkeeper. Without one of these professionals you may be stressing out, wasting time or driving blind when it comes to your finances. Remote work has become commonplace for many bookkeepers so they easily can operate on their own time.
Now think about your savings and investments for the year.
- Did you save or invest last year? How much? How does the amount you saved compare to your total income for the year? What percentage of your gross income did you squirrel away for later use? Aim for something in the 10 percent to 30 percent range. Was it the amount you had planned? What was your intent for saving or investing? Did the outcome meet your expectations?
- What will the process look like if you save or invest money this year? Will you use a savings account, an IRA, 403(b), 529 or something else? If you do, how much will you avoid in taxes? A 56-year-old state employee earning $90,000 may be able to allocate up to $24,000 or 27 percent of her 2015 gross income to a 403(b) plan. At a 25 percent marginal tax rate, this strategy defers taxes to the tune of $6,000 or 6.7 percent of her gross income. If this person allocates $2,000 to a health savings account, she would avoid another $500 in taxes. Her combined tax savings of $6,500 equates to 7.2 percent of her gross income in this simple illustration.
- When you add up your savings, what does it look like? If our state employee has saved $500,000 and still has 10 years to save before retirement, does the final amount cover her retirement needs or should she increase her annual savings? If she saves $24,000 per year for a decade at a growth rate of 5 percent, her savings would then total $1,116,316. She could augment her Social Security and other assets by $33,500 annually while paying her investment advisor 1 percent without reducing her total savings. I would need more information to fully address her concern.
There are a bewildering number of choices for saving money and minimizing your taxes. Your current situation, risk preferences, future commitments, retirement plans, earning power and your health and age are all factors in the equation. A registered investment adviser can help you determine the best path for you and your family.
Part 2 in this series offers new approaches to assess your career and work situations.
Part 3 proposes important conversations to assess your family situation. Prosperity is so much more fun when you have people in your life to love and cherish and with whom to enjoy your wealth.