The song “Auld Lang Syne” is derived from a famous Scot’s poem which is played with the start of every New Year. The title may be translated into English literally as “for the sake of old times.” While old times and good friends should not be forgotten, neither should your own financial resolutions.
When hearing this song at the stroke of midnight, many of us may reflect on where we stand with our job, life, health, money, retirement, family, and relationships. Maybe there is something to be said about the urgency of the clock counting down and the calendar turning over to the next year. The lingering pandemic repercussions leading to this years bear market may have further accelerated our decision-making process to make more specific changes that we may have been putting off for years.
Items topping many New Year’s resolution lists are typically led by eliminating bad habits to possibly starting new endeavors. We all know the usual suspects: stop smoking, drink less, lose weight, watch less TV, be less stressed, stop overspending, reduce clutter, get a better job, join a gym, read more books, start a new hobby and booking a vacation appear on many lists, while adapting to the new post-pandemic world.
It should come as no great surprise that many resolution checklists have very limited financial “to-dos.” A past study by Allianz Life found that 84% of adults left financial and retirement planning off their list entirely. Getting your financial life organized and up to date takes time, patience, and work.
Jon here. After enduring an exceptional quarantine and pandemic driven 2020- 2021 world where many factors have been permanently altered, rethinking our lives, money and retirement has never been so important. Human /tech amalgamation powered by data and deep learning is permanently changing our daily routines and behavior as the world continues to reopen with many continuing to work from home, to “zooming” into college classes, doctor appointments and sales meetings, to even attending virtual cocktail parties.
As our world becomes more interconnected from the “sharing” to the “gig”-economy, staying ahead of the curve may involve a different way of thinking no matter what your age. A 2021 study noted that nearly 60 million Americans -about 36% of our workforce – performed some form of freelance work, such as independent contracting, in the past year across many industries. Working for yourself involves new skillsets including branding and digital marketing to tax, bookkeeping and retirement planning strategies.
As you write down your top resolutions for 2023, make sure your goals are SMART: Specific, Measurable, Achievable, Relevant and Time-based (otherwise known as SMART goal planning). Defining these parameters as they pertain to each of your personal goals helps ensure that your objectives are attainable within a certain time frame. Enjoy our top financial hacks for 2023.
Top Financial Hacks 2023
1 Financial apps: Track your household cash flow, net worth, and investments autonomously with a financial app while hotlinking your asset and liability accounts. We provide our clients with their own E Money client website to help organize and track their financial life in one place with daily feeds.
2 50/30/20 Budgeting Rule: The basic rule of thumb is to divide your monthly “after-tax” income into three buckets: 50% for needs (essentials), 30% for wants (discretionary) and 20% for savings (retirement). This helps to simplify your cash flow with each paycheck and helps get your brain in the game for retirement savings.
3 Budget in Hours: When making larger purchases, consider budgeting each purchase in hours not dollars. This unique perspective will help put your purchases and impulse spending in a new light when you see it may take 160 hours to pay for your new snazzy Rolex if you earn $50/hour.
4 Eliminate debt: Minimize debt and reduce accruing interest by making extra mortgage and car loan payments to save big money over time while paying off any high interest credit cards or loans.
5 Minimize expenses: Go through all your recurring household bill payments and seek ways to cut back hundreds if not thousands of dollars next year in extraneous expenses from subscription services you are not utilizing like unneeded premium cable channels as you are probably not watching re-runs of Mamma Mia on Showtime.
6 Cash Reserves: Maintain 12-24 months of cash reserves in your “short term bucket” for emergencies. Avoid tapping your 401(K) loan options or credit cards to get by with emergencies.
7 Credit score: Check your credit report three times per year for free. (Equifax, Experian and TransUnion) and learn ways to help maintain and improve your score over time.
8 Freeze your credit: Contact all three major reporting agencies to implement a credit freeze to help mitigate identity theft.
9 Decrease pay-stub exemptions: If your tax-refund is over $2K, there is better utility of money than waiting months for the IRS to issue you an interest free check. It’s not good practice to loan Uncle Sam Money for months on time.
10 Benchmark your net worth: The Millionaire Next Door formula notes to multiply your age times your pretax annual income (age x income) divided by 10 – to calculate your expected net worth.
11 Retirement Number: Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 13x by 67. This rudimentary rule was created by Fidelity and a good starting point to consider.
12 Calculate your retirement “Gap”: “Divide by .04” – or “multiply by 25” – the expected annual income shortfall you may need to develop from your portfolio to better meet your future retirement income goals net of Social Security, pensions or other recurring revenue. For example, you may need two million dollars in savings to generate an additional $80K/year in gross portfolio income ($80K x 25 = $2M).
13 4% Income Rule: Limit your retirement income portfolio distributions to 4% or less of your balanced investment portfolio. How the 4% rule works: In the first year of retirement, you can withdraw up to 4% of your portfolio’s value. If you have $1 million saved for retirement, by example, you could spend $40K in the first year of retirement. Then increase your payments each year to keep up with inflation.
14 Put your home on automatic: With today’s new tech tools that can be accessed right from a mobile phone, you can save energy and money. (Wi-Fi-thermostats, sprinklers, pool devices and other “smart home” tech.)
15 Consider energy-efficient home upgrades: Some improvements could entitle you to tax credits such as installing solar or wind power, geothermal heat pumps, or for making certain other upgrades to make your home more energy-efficient such as impact windows.
16 Rule of 100 for Risk Tolerance: Subtract (100- your age) & invest the difference in stocks- as benchmark for your asset allocation and risk tolerance target benchmark. Another way to describe this rule is “to invest your age in bonds.”
17 Audit your Portfolio: Implement an investment portfolio audit at least quarterly for a strategy, expenses and performance review and make any changes where warranted.
18 Research wisely: Don’t chase performance, star-ratings or published “best-of” lists when selecting securities.
19 Stop chasing shiny objects: Don’t invest in anything you don’t fully understand down to the paper clips whether you are buying based on fear or greed. There is no such thing as a free lunch (TINSTAFL).
20 Don’t chase high income, high return or highly illiquid investments or products. (see #19)
21 Don’t’ get emotional: Don’t let fear and greed dictate your investment decisions. Studies show many investors greatly underperform their own goals (and the markets) simply based on emotions, not logic.
22 Windfalls: Earmark and utilize inheritances, employer bonuses, vested stock, and tax refunds wisely – such as paying down debt, increasing retirement savings and or cash reserves. Don’t get caught up in retail therapy with a windfall.
23 10% Rule: Don’t invest more than 10% of your liquid investments in any one individual asset, stock or crypto that you cannot afford to lose 100%.
24 Social Benefits: Don’t enroll in Social Security early at age 62 unless necessary, or part of your financial planning strategy. If you are married, divorced or widowed, you may have other unique options to consider for enrollment.
25 “Pay yourself first”: By putting your savings goals on “automatic”-save at least 15% to 20% of each paycheck for your retirement by utilizing your employer “pre-tax” retirement plan (if applicable) as well as saving in “after -tax” savings vehicles. If self-employed, review what pre-tax vehicles are available and applicable to you and your business.
26 Protection planning: Utilize a life insurance policy that’s at least 10X your gross income, with a term length that lasts for at least the number of years until your children are out of college or your mortgage is paid off.
27 Estate planning: Update your Estate plan periodically or when you have a life event: remember that a Will does not help to avoid probate. Probate is the first step in the process of administering your estate under your will while providing public notice, resolving all claims and distributing your property. Advanced trust and estate planning may be applicable when dealing with minors, spendthrift adults, special needs planning, charitable giving, business succession planning or planning to help minimize estate taxation as some examples.
28 Beneficiary review: Make sure to run a beneficiary review of all your assets and accounts. The beneficiary designations on investment and insurance accounts can set precedence over your will and court of law. How your assets, investment, and insurance accounts are titled and held can set precedence over your will and a court of law.
29 Small Business Planning: For small business owners that qualify, take advantage of the Qualified Business Income Deduction (QBID). The 2017 tax Cuts and Jobs Act introduced a deduction for up to 20% of business income for qualifying businesses. If you have business earnings and your total taxable income is less than $170,050 (or $340,100 for joint filers) in 2022, you may be eligible for the full QBID. You can claim a partial QBID for income up to $220,050 (or $440,100 for joint filers).
30 Medical: Keep track of medical expenses to see if you can qualify for a deduction. If you itemize, you may be able to claim a deduction for medical expenses that exceed a certain percentage of your income. For 2023 you can deduct expenses that exceed 7.5% of your adjusted gross income.
The bottom line: With the ability to shop right from our phones, some of us can get a bit carried away with online shopping as a bit of “retail therapy” while overindulging on social media and spending too much time online. Instead, we recommend unplugging from your smart phone or tablet, and start writing down your 2023 New Year’s health and financial resolutions on paper. Remember the more you practice or employ a hobby a resolution, the more it becomes a positive habit and routine, like brushing your teeth.
Most important, consider to partner with an accredited financial pro such as a CERTIFIED FINANCAIL PLANNER™ professional to help get your financial plan and personal finances organized. There is no better time than today to Plan Your Best Life® with our Financial Hacks -2023.
For more information on our firm or to request a complementary investment and retirement check-up with Jon W. Ulin, CFP®, please call us at (561) 210-7887 or email [email protected]. Get Started Today: Contact Us.
Note: Diversification does not ensure a profit or guarantee against loss. You cannot invest directly in an index.
Information provided on tax and estate planning is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. All examples and charts shown are hypothetical used for illustrative purposes only and do not represent any actual investment. The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), and it advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.