Tag: budgeting

The Twelve Days of Financial Wisdom: A Holiday Guide

December 13, 2023
Finances, Financial Lessons, Financial Planning, Guidance

The holiday season is in full swing. Throughout the years our family has grown to include new family members from different cultures and traditions. As we navigate a growing family and offer flexibility around busy holiday schedules, we want to embrace the joy and wonder this time of year without succumbing to the humbug feeling that can easily overtake us if we cling too tightly to old rhythms in this new life-phase. This year I find myself smack dab in the middle of a home remodel with no kitchen and zero furniture downstairs. In fact, I even found myself cooking dinner in our Master Bathroom the other night! It would be easy to focus on the inconveniences of a remodel, so we’ve chosen to stay positive and be thankful for all that we have been blessed with. Like the Grinch, I’m having my heart melt by connecting with people this season. An extra smile at the grocery store, a friendly wave and a thank you to the hard-working delivery people. I can see joy and wonder surrounding me this time of year if I just look around. I recognize this season isn’t the easiest or merry for many. It can be full of tough memories and lost loved ones. There is conflict all over the world reminding us that not everyone is safe and happy this year. Elvis knew what he was talking about when he sang about a blue Christmas. There especially seems to be a healthy tension this year for holding space for both hurt and hope. If you find yourself in a season where jolly and laughter elude you, then it is my sincere hope that my feeble attempt at some holiday humor brings a smile and a laugh. There’s a reason that I’m a Wealth Advisor and I’m not a stand-up comic, so let’s just keep that in mind too! Without further I do, I give you, “The Twelve Days of Financial Wisdom.” (P.S. If you can’t help but think of me singing this, let’s just pretend that I’ve got the voice of Mariah Carey belting out these great lines!)

Day 1: Diversify Your Assets Wisely

🎵 “On the first day of Christmas, my Wealth Advisor said to me: Diversify your assets wisely!” 🎵

Just like a well-balanced fruitcake, a diversified investment portfolio is a key ingredient for financial success. While fruitcakes might not be everyone’s favorite, diversification is almost universally adored by savvy investors. Spread your investments across various asset classes – stocks, bonds, real estate – with a goal of reducing risk and increasing potential returns.

Remember, just as a fruitcake brings together different flavors for a delicious outcome, diversification brings together different assets for a well-rounded and resilient investment strategy.

Day 2: Compound Interest, Oh What a Joy!

🎵 “On the second day of Christmas, my Wealth Advisor said to me: Compound interest, oh what a joy!” 🎵

Imagine compound interest as the holiday gift that keeps on giving. Much like a snowball rolling down a hill, your savings can accumulate and grow over time with the magic of compounding. The earlier you start, the larger the snowball – uh, I mean, your savings – becomes.

So, this holiday season, give yourself the gift of an early start on savings and watch your financial snowball grow into a winter wonderland of wealth.

Day 3: Budgeting Bells Are Ringing

🎵 “On the third day of Christmas, my Wealth Advisor said to me: Budgeting bells are ringing!” 🎵

While the holiday bells may be jingling, it’s essential to keep your budget from jangling out of tune. Create a realistic budget that includes your holiday spending, but don’t let it snowball into a financial avalanche. By tracking your expenses, you’ll avoid the post-holiday blues when the credit card bills start singing a less festive tune.

This season, let your budget be your guiding star, ensuring a harmonious and stress-free celebration.

Day 4: Hark! The Herald of Emergency Fund Angels

🎵 “On the fourth day of Christmas, my Wealth Advisor said to me: Hark! The herald of emergency fund angels!” 🎵

Life is full of surprises, and having a robust emergency fund is like having a team of financial angels ready to help when unexpected expenses arrive. Whether it’s a car repair or a sudden medical bill, your emergency fund can be a guardian angel, ensuring your financial stability in times of need.

This holiday season, let your emergency fund be your silent protector, allowing you to enjoy the festivities without worrying about unforeseen financial hiccups.

Day 5: Five Golden Retirement Rings

🎵 “On the fifth day of Christmas, my Wealth Advisor said to me: Five golden retirement rings!” 🎵

Retirement may seem like a distant future, but like the five golden rings in the classic song, it’s a valuable gift that requires careful planning. Help your retirement plans shine brightly by regularly contributing to your retirement accounts. The magic of compounding (Day 2, remember?) can work wonders over the long term, making your golden years truly golden.

This holiday season, make a resolution to invest in your retirement future and enjoy the sparkle of those golden rings in the years to come.

Day 6: Let Tax-Efficient Reindeer Lead the Sleigh

🎵 “On the sixth day of Christmas, my Wealth Advisor said to me: Let tax-efficient reindeer lead the sleigh!” 🎵

Just as Santa relies on his trusty reindeer to navigate the skies, you can rely on tax-efficient strategies to guide your financial sleigh. Take advantage of tax-deferred accounts, tax-free investments, and strategic tax planning to reduce your tax burden. It’s like leaving milk and cookies for the IRS – they get less, and you keep more.

This holiday season, let your financial sleigh be led by tax-efficient reindeer, ensuring a smooth ride toward your financial goals.

Day 7: The Magic of Giving – Charitable Contributions

🎵 “On the seventh day of Christmas, my Wealth Advisor said to me: The magic of giving – charitable contributions!” 🎵

This holiday season, let the spirit of giving extend beyond wrapped presents. Consider incorporating charitable contributions into your financial plan. Just as the warmth of a cozy fire spreads throughout the room, your generosity can create a positive ripple effect in your community and beyond.

Whether it’s supporting a local charity, contributing to a cause close to your heart, or volunteering your time, the act of giving not only makes a difference in the lives of others but also adds a meaningful dimension to your financial journey.

This holiday season, let the magic of giving be a guiding light, illuminating the path to a more compassionate and fulfilling financial future.

Day 8: Making a List, Checking It Twice – Financial Goals, That Is!

🎵 “On the eighth day of Christmas, my Wealth Advisor said to me: Making a list, checking it twice – financial goals, that is!” 🎵

Santa isn’t the only one who needs a list. Outline your financial goals clearly and revisit them regularly. Whether it’s saving for a dream vacation, a home, or your children’s education, having a well-defined list keeps you on track. Checking it twice? That’s reviewing and adjusting your goals as life evolves.

This holiday season, take a cue from Santa and keep your financial list in order – it’s a key to turning your dreams into reality.

Day 9: Wise Men (and Women) Seek Professional Advice

🎵 “On the ninth day of Christmas, my Wealth Advisor said to me: Wise men (and women) seek professional advice!” 🎵

Even the three wise men sought guidance when following the star. Similarly, seeking advice from financial professionals can provide you with the direction needed for a successful financial journey. Whether it’s investment strategies, tax planning, or retirement advice, a wealth advisor can be your guiding star.

This holiday season, be wise and seek the expertise of financial professionals to navigate the complex constellations of the financial world.

Day 10: The Gift of Education Keeps on Giving

🎵 “On the tenth day of Christmas, my Wealth Advisor said to me: The gift of education keeps on giving!” 🎵

Investing in education is a gift that lasts a lifetime. Whether for yourself, your children, or future generations, education is a powerful tool for personal and financial growth. Like the knowledge passed down through generations, the gift of education can open doors and create lasting legacies.

This holiday season, consider the gift of education as an investment in a brighter and more informed future.

Day 11: A Partridge in a Pear Tree – Invest in Your Home Nest

🎵 “On the eleventh day of Christmas, my Wealth Advisor said to me: A partridge in a pear tree – invest in your home nest!” 🎵

Just as the partridge nests in a pear tree for security, your home is your nest egg. Invest in your property wisely, keeping it well-maintained and considering home improvements that can enhance its value. Your home is not only a place of comfort but also a significant part of your financial portfolio.

This holiday season, let your home be a cozy and well-nurtured nest, providing both emotional and financial security.

Day 12: Drumroll, Please – The Beat of Financial Independence!

🎵 “On the twelfth day of Christmas, my Wealth Advisor said to me: Drumroll, please – the beat of financial independence!” 🎵

As we wrap up our Twelve Days of Financial Wisdom, let’s revel in the grand finale – financial independence. Just as the drumroll builds anticipation, the path to financial independence requires steady and disciplined beats. By saving diligently, making thoughtful investments, and planning for the future, you orchestrate the melody of financial success. Picture the day when you can confidently march to the rhythm of financial freedom, knowing your efforts have created a harmonious and secure future.

There you have it – “The Twelve Days of Financial Wisdom!” May the holiday season bring not only cheer and laughter, but also a renewed focus on your financial well-being.

As we close the chapter on this financial carol and wave goodbye to the year that’s making its exit, let’s hold on tight to the everlasting beat of relationship wisdom in our lives. Think of it like the cozy soundtrack of laughter we share with our favorite people, the easy flow of understanding that feels like a familiar tune, and the big, exciting moments we hit together – they’re all part of the warm symphony of our collective journey. Just like a family dinner where everyone’s got a seat at the table (that you hopefully didn’t prepare in your Master Bathroom), our connections make the kind of music that gives life its colorful rhythm. So, here’s to the echoes of good times, the easy chats, and the solid support that keep our shared story sounding just right.

Wishing you and your loved ones a wonderful holiday season filled with warmth, joy, and a financially sound future. Cheers to a prosperous New Year ahead!

To learn more about CapSouth Wealth Management, visit https://capsouthwm.com/what-we-do/

Article by: Jennifer Fensley, CFP®️,CRPS®️

CapSouth Partners, Inc, dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature, and is not intended as specific advice. This article was produced with the assistance of ChatGPT (Version 3.5) in December 2023; Chat GPT is an artificial intelligence model owned by OpenAI. CapSouth is not affiliated with OpenAI.

Reverse Budgeting

March 10, 2022
Uncategorized

How Much Do I Spend in Retirement? Does it Really Matter? What if I could budget without…budgeting?

At CapSouth, it is our mission to help clients define and live their One Best Financial Life™. We challenge clients to consider their values and what is important to them, and then to develop actionable goals that we endeavor to help them achieve. This leads to the need to have a sound financial plan in place that considers a client’s assets and resources, and projects their probability of meeting those stated goals. We want clients to live with confidence in peace of mind, knowing that they are on track to live the life they want to live. Sometimes the focus of planning needs to be encouraging a client to scale back and pace their spending to allow for a more secure retirement. Other times that planning focus should be to urge a client to spend more, to travel, to take the family with them on vacations and make memories…to live their life more fully. In all cases, we are looking for the client’s confidence zone in their plan to serve as guard rails, so that they are not worried about running out of money, and on the other end, they are not leaving significant assets behind that are unplanned for.

More often than not, it seems, we meet with clients who do not have a clear idea of how much they spend. Particularly when a couple nearing retirement comes to us as a new prospect, a common answer is that they have just always lived within their means, or spent less than they made. How much you spend in retirement is very important in planning. Depending on your age at retirement and your assets, a seemingly small change in your annual spending can make a significant difference in the success of your plan. Many people plan for thirty years or more in retirement – a long time for inflation and market fluctuations to catch up with you and to affect your probability of meeting all your goals and objectives. We have invested in sophisticated software to factor in these variables for you, to allow you to simply think of how much you will need for retirement in today’s dollars. That does require us, though, to have an accurate number for that element. Whether we are planning for annual living expenses of $50,000 or $500,000, we need some assurance that this number is reliable.

But who wants to budget? You should see some of the facial expressions we get when we mention that “B word”! And if you are newly in, or approaching, retirement, how do you really know what your retirement lifestyle will be and what it will cost you? Further, trying to look at past or future spending can be even more difficult when you have varying sources of income throughout the year. Fear not, we have a solution. Reverse Budgeting. I believe in giving credit where it is due, so I will tell you this is not my concept; I learned it from CapSouth’s founder, Donald Bolden, years ago, and I have been recommending it to clients in retirement ever since.

Here’s how it works:

As best you can, come up with an idea of what you expect your basic living expenses to be in retirement. This should not include other specified goals in your plan such as travel, new cars, etc., but your basic living expenses of utilities, groceries, fuel, clothing, dining out, and the like. For illustration purposes, let’s say that number comes out to $5,000 per month.
Now, figure up what regular income sources you have such as Social Security, pensions, rental income, etc. For this number, let’s assume $3,000 per month.
Set up an “operating account” for your household and start it with a cushion balance of your comfort level. Let’s use $25,000. (Note: You and your spouse may decide to have two operating accounts; the concept still works.)
We would then work with you to establish a conservative Cash Management Account (CMA) among your accounts at Schwab, from which we would establish a recurring monthly transfer of the $2,000 per month to supplement your income and meet your expected expenses of $5,000 per month. We typically recommend this transfer being set up to occur on the 5^th of each month rather than the 1^st, to help track which deposit was for which month and to not allow weekends or holidays to confuse things.
What about those random sources of income throughout the year? Still employed and have a varying income? Receive additional bonuses? It is so easy to allow yourself to quickly spend that seemingly “extra” income without realizing it, giving yourself (and us) an inaccurate picture of the cost of your lifestyle. Under the Reverse Budgeting model, all variable income is deposited into the cash management account at Schwab, adding to the funds available to provide for your monthly transfers to your operating account.
It is likely no surprise to you that some months will cost more than others. You may have family visiting and spend more on groceries. You might have an anniversary and treat yourself to a nice dinner and some gifts to celebrate. Your refrigerator might need to be repaired or replaced. However, if we look back at this operating account in six months, a year, or more, we can get an idea of what you were really spending.

If that $25,000 cushion is down to $5,000, then we have a problem and need to make adjustments. We would review to see if there were a number of non-recurring, unexpected expenses during that period, or if life just cost more than you thought. We could increase the goal for living expenses in the plan to see if the new amount is still successful or what trade-offs need to be considered. If your regular monthly expenses are $6,000 or $7,000, then maybe you need to consider reducing those big trips each year from three down to two.

If that cushion is up to $50,000, we also have an inaccurate plan and need to make adjustments. We might encourage you to consider what goals you had for retirement spending that you haven’t been doing and challenge you to do what you said that you valued. It could also open the door for more travel, giving to charity or your family, upgrading your vehicle, buying a second home…whatever that looks like for you. If you are doing everything you want to, then we need to acknowledge that you are going to likely leave more behind than you might have thought, and we may need to review your estate plan to make sure it aligns with your wishes.

This is a simplified example, and we recognize that yours may be more complex. Life certainly will happen, and circumstances will change. Planning is never complete, and we continue to monitor, review, and update assumptions over time. Reverse Budgeting is a tool that can help to provide more confidence and reliability to your financial planning process, without having to focus on the “B word” of budgeting. We may not be able to tell where the money is going, but we (and you) can tell how much is needed to maintain your lifestyle.

To discuss this article further or to learn more about CapSouth Wealth Management, visit our website at www.capsouthwm.com or call 800.929.1001 to schedule an appointment to speak with an advisor.

By: Scott McDowall, CFP®

Investment advisory services are offered through CapSouth Partners, Inc, dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting, or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice. Any performance data quoted represents past performance; past performance is no guarantee of future results.

Coping with College Loans

March 27, 2020
Budgeting, Financial Planning, Guidance, Wisdom

Total student loan debt in America is now around $1.6 trillion. Since 2008, it has more than doubled. Federal Reserve data states that 44.7 million Americans are dealing with lingering education loans. The average indebted college graduate leaves campus owing nearly $30,000, and the mean monthly student loan payment is about $400.[i]

Student debt influences home buying and retirement saving decisions. The National Association of Realtors says that 25% of recent homebuyers have outstanding student loans, including 41% of first-time buyers. A 2018 study by the Center for Retirement Research at Boston College concluded that under-30 employees carrying education debt typically have just half as much saved in their workplace retirement plan accounts as other workers their age.[ii]^,[iii]

If you carry a sizable education debt, how can you plan to pay it off? If you are young (or not so young), budgeting is key. Even if you get a second job, a promotion, or an inheritance, you won’t be able to erase any debt if your expenses consistently exceed your income. Smartphone apps and other online budget tools can help you live within your budget day to day or even at the point of purchase for goods and services.

After that first step, you can use a few different strategies to whittle away at college loans.

*The local economy permitting, a couple can live on one salary and use the wages of the other earner to pay off the loan balance(s).

*You could use your tax refund to attack the debt.

*You can hold off on a major purchase or two.

*You can sell something of significant value – a car or truck, a motorbike, jewelry, collectibles – and use the cash for paying down the debt.

Now, in the big picture of your budget, you could try the “snowball method” where you focus on paying off your smallest debt first, then the next smallest, etc., on to the largest. Or, you could try the “debt ladder” tactic, where you attack the debt(s) with the highest interest rate(s) to start. That may permit you to gradually devote more and more money toward the goal of wiping out that existing student loan balance.

Even just paying more than the minimum each month on your loan has the potential to help. Making payments every two weeks rather than every month can also have a positive impact.

If a lender presents you with a choice of repayment plans, weigh the one you currently use against the others; the others might be better. Signing up for automatic payments can help too. You avoid the risk of penalty for late payment, and student loan issuers commonly reward the move by lowering the interest rate on a loan by a quarter point.[iv]

What if you have multiple outstanding college loans? If one of them has a variable interest rate, try addressing that one first. Why? The interest rate on it may rise with time.

Another option is combining multiple federal student loan balances into one. While this requires a consolidation fee, it also leaves you with one payment, perhaps at a lower interest rate than some of the old loans had. If you have multiple private-sector loans, refinancing is an option. Refinancing could lower the interest rate and trim the monthly payment. The downside is that you may end up with variable interest rates.[v]

Maybe your boss could help you pay down the loan. Some companies are doing just that for their workers, simply to be competitive today. According to the Society for Human Resource Management, 8% of employers offer this perk. A 2018 Employee Benefit Research Institute poll of 250 firms revealed that 13% planned to offer such assistance in the future.[vi]

To reduce your student debt, live within your means and use your financial creativity. It may disappear faster than you think.

To speak to a CapSouth advisor about student loan debt, contact our office at 800.929.1001 or visit our website: www.capsouthwm.com

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. This material has been prepared for planning purposes only and is not intended as specific tax or legal advice. Tax and legal laws are often complex and frequently change. Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.fool.com/the-ascent/research/student-loan-debt-statistics/

[ii] https://www.nar.realtor/student-loan-debt

[iii] https://www.washingtonpost.com/business/2019/06/25/heres-what-trillion-student-loan-debt-is-doing-us-economy/

[iv] https://www.nerdwallet.com/article/loans/student-loans/how-to-lower-student-loan-interest-rate

[v] https://www.nerdwallet.com/blog/loans/student-loans/consolidate-student-loans-2/

[vi] https://www.wsj.com/articles/employers-try-a-new-perk-matching-student-loan-payments-with-401-k-contributions-11570708801