January, 2022 | Live a Life By Design

The Millennial Perspective: Planning Ahead

Posted on January 27, 2022January 27, 2022 by Ashley Stieb

Disruption can arise at any moment and oftentimes there is nothing we can do to avoid it from happening. There has been a lot of disruption in the last two years and it has left countless people jobless, on unemployment, or sent home for a few weeks to recover from COVID-19. With the most recent COVID-19 spike I have heard stories of several people who feel that they cannot miss work because of the money they would lose despite being ill. It now seems that more and more people are finding themselves between a rock and a hard place, money or the safety of others. I am certain that the majority would prefer the latter. However, having a plan in place can make the decision easier.

Looking back at the start of the pandemic, employers were afforded the ability via tax credits to pay for an absence due to COVID-19. This allowed employees to stay home without having to worry about missing out on wages while even those who lost their jobs were able to draw unemployment at a higher rate than usual. With most businesses no longer offering “COVID pay,” employees have felt obligated to make the tough decision between going to work and being extra careful around others. This can easily become a liability for the company because of safety protocols and spiraling COVID quarantines which can force companies to temporarily close their doors because of staffing issues or to ensure the quelling of outbreaks. Thus, leaving all the employees to miss out on wages while forcing the company to miss out on profits.

Many who are sick are not able to know that they have COVID-19 because some may have simply thought it was the common cold or just allergies. Regardless of the cause of their symptoms, no one should be put in the position of having to determine if their symptoms are due to a relatively benign issue such as allergies or a contagious disease without being able to consult a medical professional or have diagnostic testing performed, especially now when the stakes are seemingly high. It is therefore important to have a plan for when life happens. Building a plan to save for a rainy day can be very intimidating for some. Working with a CERTIFIED FINANCIAL PLANNER® (CFP®) can help make the task feel less daunting. A CFP® can often help you build a budget that is customized to your needs and can help you set aside money without stretching your account too thin.

Building these savings will not happen overnight. Some people may have to decrease their debts before they can save. Paying down debt with higher interest rates (avalanche method) or smaller balances (snowball method) is always a good place to start. By lowering the amount you have to pay each month you free up funds that can be set aside to start saving or even pay off more debt. Some people may prefer to pay all of their debts off before saving, but this doesn’t help out much when disruption arises and may indeed decrease their available cash for emergencies

My dad (the smartest man I know) frequently uses the phrase, “Hope for the best, but plan for the worst.” That philosophy has really stuck with me these last two years with all the disruptions we have had in our day to day lives. It doesn’t sound very optimistic to always plan for the worst, but you never know what kind of disruption life will throw at you. It is never a bad idea to be prepared. No one has ever wished they were less prepared for when an emergency arises. No one ever wishes that they had planned and managed their finances without proper considerations. A CFP® has been trained specifically to look at each person as an individual and set them along the right path to plan for these disruptions while still living a lifestyle that is enjoyable.

Related Podcasts

Three Steps to Reduce Risk In Your Portfolio

Posted on January 21, 2022January 21, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

Wouldn’t the world be a better place if you could predictably earn 8% returns on your portfolio every year and only invest in certificates of deposit? Of course! One problem with this thinking is that you wouldn’t live in the United States of America and the dollar would be worthless.

You face some type of risk every day of your life. While driving your car through town, you may experience an automobile accident. This is the risk of driving a vehicle. You think about staying home and raking leaves. A sudden gust of wind causes a tree limb to fall on your roof causing significant damage to your home. This is environmental risk.

We all seek the best outcomes but many of us do not wish to experience the associated risks involved in the process. The universe works within a risk/reward paradigm. When more risk is accepted, we expect a higher reward. By investing in certificates of deposit, you believe you are undertaking a risk-free investment. Alas, you may expose yourself to interest rate risk, inflation risk, default risk (highly improbable, but a risk nonetheless) and liquidity risk. That sounds like a great deal of risk for an FDIC-insured investment.

Diversify Your Portfolio

The best approach to life is to manage risk, not attempt to alleviate it. The first method of mitigating risk is to fully diversify your portfolio. Diversification does not remove the risk factors but may lower them to a more acceptable level by investing in many different types of investments that are noncorrelated. Simply put, don’t put all of your monetary eggs in one basket.

Inexperienced investors make mistakes that may cost them significant money and time.

Two emotions generally guide individuals in their investment approach – fear and greed. One of the best methods of taking advantage of the stock market, an auction market in which one entity is selling the shares and another is buying them, is the focus on the emotions of other investors in the market. The famous investor, Warren Buffett, is cited as originating a quote that is used as the premise to maximizing your opportunities in the stock market – “Be fearful when others are greedy. Be greedy when others are fearful.”

Understand the Investments You Are Buying

The second method of reducing risk in your portfolio is to understand the investments you are buying. Significant hype typically precedes Initial Public Offerings (IPO) as the underwriter is attempting to create a market for a stock. Without a historic picture of the company’s capabilities to generate a profit and pay a dividend, beyond its operations as a private company, the investor is buying based solely on prospective anticipated performance (i.e., hope). Many of the companies going public provide novel products and services not yet proven in the marketplace. For example, many IPOs will list for a price that reflects much higher value than the performance of the company may sustain. After the hype of the issue, realism sets in and the price may fall to a level that is a fraction of the issue price.

When to Rebalance Your Portfolio

Lastly, consider rebalancing your portfolio to its original target allocation when the variance is 5% – 10% above the intended percentage. For example, when your portfolio experiences growth in one asset class, the allocation for the original investments will change. Stocks have performed reasonably well in 2021 and bonds have provided lower yields. After the year has faded, you look at your portfolio and realize your 60/40 portfolio is now 75/25! Good news is that you have a larger portfolio value but inherently gained more risk. By rebalancing the portfolio consistently and timely, you will maintain better control of the risk in the portfolio.

Many investors may receive a benefit from seeking the assistance of a Certified Financial Planner^TM professional to analyze their portfolio. By implementing a few consistent steps in managing your retirement assets, you may increase your probabilities to achieve your ultimate goals.

See you on the jogging trail!

Related Podcasts

How To Secure a Happy Retirement Life

Posted on January 12, 2022January 12, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

One of the most asked questions from our new clients is “How much wealth do I need to last my lifetime?” The obvious answer is “depends.” To help you quantify your needed savings for lifetime income, we will provide you three areas of life that must master to live the life you choose.

First, you must become a saver, not continue as a consumer. The highest savings rate in U.S. history was reached during the pandemic. Not surprising as most people did not feel safe shopping at local stores and malls but rather ordered online. Granted the online experience for shopping has improved exponentially, it is still not the experience most shoppers seek when a day is planned for the exchange of goods and currency (that is the phrase I use when my wife and daughters go shopping).

The savings rate for U.S. citizens in 2021 was a whopping 13.7% (www.statista.com)! This level of savings exceeds the 11% experienced in 1960. Is it enough to meet the demands of rising costs of living for most people? Perhaps if this savings trend were to continue for a period of 40 years representing the work life of most people, their post-career years would be sufficiently funded.

To bring another statistic into this discussion, the total savings of U.S. citizen in 2021 exceeded $2.3 trillion. This is a staggering amount of money considering the U.S. Government has distributed $4 trillion dollars during the pandemic. The average balance maintained in the 401(k) plan of a 65 years of age and older person is $216,720 according to www.personalcapital.com.

If you seek a lifetime of income, in the realm of reasonable support, it is important that you become a saver on a consistent basis to allow the compounding of investments to perform over a significant period of time.

Second, you must determine what happiness is for you in life. One of our clients was an older woman whose husband predeceased her while she was in her career. Her position was mostly clerical, and she enjoyed her work. During her career, she had the opportunity to invest in the company’s stock through a plan where the employer matched her contributions to buy the stock. The highest salary she earned during her career was $51,000, which was two years before her retirement from the company. Granted she worked for a good company and was fortunate to begin her career with the company while it was a fledgling start up organization.

At the age of 66 and 4 months, coincidentally her full retirement age for Social Security Benefits, we assisted her in filing for her benefits and prepared her for retirement. When we opened the most recent envelope containing her statement from the employee stock ownership plan, she could not help but grin at my expression. Her stock value was $1.5 million! She also was prudent and saved money through her employee retirement plan. The sum of this account exceeded $700,000. She looked at me and asked, “Is this enough for me to retire and keep my lifestyle?” Of course, we needed to perform our analysis and testing but offered her some probabilities that she would be simply fine in retirement.

The moral of the story is that time, once again, is the greatest impact on lifetime savings. Start early, be consistent with contributions and treat the account as your next income stream by never borrowing from the account for current lifestyle needs. Happiness for her was continuing to live in her home, travel to worldly destinations and help her grandchildren with college expenses. She, by thoughtfully planning, is still doing all the things that make her most happy in life.

Lastly, you must protect your health as you prepare for an active retirement. My father was one of those people that worked hard all his life and genuinely enjoyed his career. He suffered a heart attack in his early 40’s that opened his eyes to better care for himself so his future would be enjoyable. After finally retiring at 72 years of age, he has lived a wonderful life in retirement. He is reasonably healthy, has enjoyed cruises to Alaska and continues to do whatever he chooses to keep a smile on his face.

His father, my grandfather, died in his early 60’s. I always told dad that he would need to take advantage of the opportunities to maintain his health so that he could break the average mortality for males in our family. He smiled that sheepish grin and said, “I am setting a new bar for the Williams men!”

Exercise regularly, save consistently and find your happiness in life. By preparing prudently today, your tomorrows will be most enjoyable!

Related Podcasts

Retirement Challenges and Successes

Posted on January 7, 2022January 7, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

Another year of life has arrived. What are you doing to grow as a person? Grow your wealth? Grow your influence? It has been proven by scientists that individuals who live sedentary lifestyles after their career lose the cognitive abilities they once possessed. To help you keep up your psychological and emotional edge in life during these challenging times, practice the activities outlined in this article.

Get up and get going

Get up and get going. The simple act of walking each day and experiencing the wonder of nature will keep your mind inspired and active. There are differences of opinion that you should walk 10,000 steps per day or 5,000 steps per day. I say, walk until you feel sufficiently energized. If your heart rate is up to an acceptable level determined by your personal physician, walking for as little as 20 minutes per day can help you keep your mental faculties acute and ready for challenges in life that will most certainly arise.

Live each day with a plan for purpose

Live each day with a plan for purpose. Too many of us simply rise from bed and allow the “winds of the day” to blow our lives in any direction without our consent. This is not you. Set yourself a routine of rising from bed at the same time each morning and preparing a list of activities for the day that will stimulate your mind and work your body. For example, I do not start my day without clear understanding of what I must complete for the day. This type of planning gives your mind something to work on even when you are doing something else.

Perform one random act of kindness a day

Perform one random act of kindness a day. What does being kind have to do with your mindset? Everything! When we selflessly give to others in need, no matter the size or scope of the deed, your brain floods your body with dopamine. This chemical in the body brings happiness, euphoria, and other positive feelings. By helping others, you will also feel a sense of accomplishment that gives you energy to continue serving and care for yourself in a better manner. Another benefit to performing a random act of kindness is that the recipient can “pay it forward” to others in need and we can build a better community and planet based on mutual respect.

Build your confidence in your future

Build your confidence in your future. Review your financial picture and see if you have allowed parts of your budget to creep into areas that are not being utilized efficiently for your lifestyle. We often start subscriptions for products or services that automatically renew and fail to remember that we did not cancel them. Another area to focus is our savings pattern. For example, you may have saved 5% of your earnings monthly last year but your income has risen this year. If you do not utilize the additional cash flow and it is deposited in a non-interest bearing checking account, you will lose the benefit of earning interest on the funds.

Read

Lastly, read something stimulating to you each day. A good novel, a biography or anything that challenges your mind to create the background of the story or place yourself in the plot as a character that impacts the potential outcome of the storyline. The mind and body of humans are tremendously powerful devices that require our continual input of challenges, fuel, and rest.

This is a new year! Don’t become so relaxed in life that you fail to live it abundantly on a daily basis. Make 2022 a different outcome for you by facing the challenges of life confidently through strength gained by implementing one or all of the above strategies. You can truly become what you desire in life and build a better community in the process. See you on the walking trail!