Want to be More Financially Confident? Check Out These 9 Tips
By Mark Yatros
The leaves have fallen, the air is colder, and the first snow has fallen. The end of the year is winding down, and we’ll be ushering in 2023 soon. Now is the ideal time to take steps that will make you feel more financially confident in the new year.
Check out our end-of-year financial tips below. You’re sure to find one or two (or more) that will help you improve your bottom line.
1: Make Small Changes
Many little things can add up to big rewards, like when you make one small financial change at a time. Small changes take less effort, are less intimidating, and you see results more quickly. But just because it can be easier, don’t discount the impact little adjustments to your fiscal routine can make on your bottom line.
For example, if you usually stop for coffee on your way to work, commit to only swinging through the drive-through for your morning Joe on Fridays as a reward for making it through the work week. According to Business Insider, the average cost of a cup of coffee in 2022 is $4.90. If you stop for coffee on the way to work every day for a year – even subtracting 15 days of vacation – you’ll spend about $1,200 a year. Just on coffee! But if you cut back to once a week, you’ll spend $230. That’s nearly $1,000 in savings. What should you do with that $1k? See below.
Another example: If you have a list of credit card debts, don’t become overwhelmed. Instead, concentrate on paying off your smallest balance credit card first and then move on to the second lowest. This will give you confidence that you can pay off debts, and the money that would have gone to cards you’ve paid off can now be applied to your other debts. Just make sure you put the cards you pay off away and don’t use them again!
2: Invest in Tax-Free Accounts
Tax-free accounts are an advantageous way to save for retirement because you’re investing after-tax money. This means that when you withdraw the principal and earnings, the funds are federally and state tax-free.
Examples of these types of assets are:
Roth IRA
Cash Value Life Insurance
Municipal bonds
3: Invest in After-Tax Savings Vehicles
After-tax savings vehicles are established with money you receive after taxes are paid. With this type of account, you invest after-tax dollars, and as the investment(s) grow over time, you pay tax on capital gains realized and any interest earned over a tax year.
This means you are paying taxes as you go and potentially limiting the overall taxes paid when an investment is sold.
Examples of these types of assets are:
Mutual Funds
CDs
Stocks
Bonds
4: Pay it Forward
Did you know you can help others while reducing your taxes? If you’re age 70½ or older and have an IRA, you may be able to donate to your favorite nonprofit using a qualified charitable distribution. QCDs lower your adjusted gross income, which could put you in a lower tax bracket, thereby reducing your taxes.
QCDs allow individuals to transfer up to $100,000 annually to charity and married couples up to $200,000. Another bonus is that QCDs count towards your annual IRA required minimum distribution.
5: Sock Away 20%
Our clients often ask how much money they should be saving. We suggest you save 20% of your income and, out of that 20%, set aside 10 to 15% for retirement. The remainder of the 20% becomes your emergency fund. The rule of thumb is to save three to six months of expenses in your emergency fund (it isn’t unreasonable to save up to a year’s worth of expenses for extra security). Once your emergency fund is secure, put the amount you’ve been saving in your emergency fund into your retirement accounts.
6: Consider a Roth IRA for College Savings
Roth IRAs aren’t designed for college savings but can be used to pay college tuition. Roth IRAs are funded with after-tax monies and grow tax-free, and money can be withdrawn penalty-free for educational purposes. However, you will need to pay income taxes on the withdrawn amount.
If you meet the income requirements to contribute to a Roth IRA, in 2022, you can contribute up to $6,000 to a Roth. If you are 50 or older, you can contribute an additional $1,000 yearly as a “catch-up contribution.”
7: How Much $ Will You Need in Retirement?
Regardless of age, it’s a good idea to plan for retirement carefully. General guidelines say your retirement savings should replace about 80% of your pre-retirement income to maintain your current lifestyle in retirement.
However, the 80% recommendation may not be suitable for you. We suggest you consider what percentage of your savings you will need to use each year to cover your expenses. Include housing, health care, and day-to-day living expenses in your plan. You should also consider if you will encounter new or more significant expenses to fulfill your retirement dreams. If you plan to travel more or purchase a second home to escape harsh winter weather, include the costs in your expenses.
8: Create a Comprehensive Financial Plan
A comprehensive financial plan will help you see your overall monetary future. While the term comprehensive financial plan may sound a bit intimidating, with guidance from a qualified advisor, it won’t be.
A comprehensive financial plan will look at:
your goals
net worth
cash flow
insurance
estate planning
taxes
Your comprehensive financial plan will help you define and prioritize your financial goals. It will also show you how your goals are intertwined – for example, how your retirement savings will be impacted by saving for your children’s college education. Your plan will help you figure out how to do the most with your income.
9: Investigate Your Retirement Benefits
Traditionally, many employers provided perks for employees, like health insurance, that continued into retirement. Will this be the case for you? Whether or not you continue to receive employer benefits in retirement, it’s best to know ahead of time how having – or not having – them will impact you financially.
If you’d like guidance on engaging any of the tips above, you can schedule a free consultation with Allegiant Wealth Strategies’ team of experienced financial advisors here.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend that you consult a tax preparer, professional tax advisor, or lawyer.
Allegiant Wealth Strategies offers securities and advisory services through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.