Jimmy J. Williams, CPA/PFS, CFP® | Live a Life By Design

Psychology Beats Economics

Posted on June 14, 2023June 14, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

All of us remember the childhood story, and related lessons, of the Tortoise and the Hare. The moral of the story is one that is applicable to people of any age. Start moving and keep a steady pace toward your goal is the virtue of the fable.

It sounds a little too simple, but we apply this approach to all our clients’ needs and goals. One of the most challenging actions to initiate is the first step. You expend the most energy when you create an action from nothing. It is only when you take your body out of movement stasis that it burns more calories, requires more brain input and causes you to become uncomfortable. A favorite saying of mine is, “you can’t grow unless you become uncomfortable.”

Applying this approach to your lifetime savings goals, consider starting with a slower pace as a new marathon runner would do. Save a smaller amount to start the habit of saving each period you choose (i.e., weekly, biweekly, monthly, etc.). As you witness your progress by watching your savings or investment account grow, you will experience a sense of accomplishment that will fuel your next step. Like dominoes lined up close to one another, after you get the first domino to fall the energy and contact on the next domino causes a chain reaction that is entertaining to watch.

To note your progress on this financial marathon, create checkpoints along the journey that trigger you to note your status on the way to your goal. You may want to check your account balance every six months or annually on the anniversary of your start date. This type of approach feeds your energy level to continue the process until you reach retirement or whatever goal you desired. I often tell people that the first million dollars in savings is the hardest to reach. After reaching that landmark goal, the next million is much easier.

Set yourself up for success by lessening the friction within the process of saving. Utilize deferrals from your paycheck to fund your retirement each pay period. If you do not see the funds or must write a check, prepare an envelope and mail the money to an account, you are more probable to stay on track. Also, do the same with your post-tax investment savings. Set up a systematic automated clearing house (ACH) arrangement to move funds from your checking or savings accounts to your investment account at prescribed intervals.

To help illustrate the power of compounding and accomplishing long-term savings goals, I will share the story of a client of ours. She had a limited income and worked in a career that provided a pension after she worked for the agency for 10 years or more. Her lifestyle was maintained within her means, and she created a savings schedule to contribute to her pre-tax retirement account with the agency from her first day of eligibility. At age 66, she retired after 40 years of service and began to receive her pension.

When asked about the difficulties she encountered during her accumulation years, she remarked, “Certainly difficult days did come. However, I simply recalled the reason for my savings, and I did not want more difficult days in my retirement years.” To paraphrase, she never experienced an “emergency” that caused her to halt or discontinue her saving for the future. She exhibited the discipline needed during her career to enjoy a fruitful life in retirement.

Oh, I forgot to mention that our client became a widow at age 54 and raised a granddaughter from age 3 and funded her college education after the child graduated from high school!

We all think life is tougher on us than anyone else we know. To me, you and I have much to be thankful for and are blessed significantly compared to many people in other countries on the globe. Stay positive and stay focused on the goals you set in life. You will be rewarded for your diligence.

To help you establish a plan for saving for your future, consider a complimentary consultation with a Certified Financial Planner™ professional. A system can be designed that allows you to earnestly save for the future while living your life by design today. Look around and enjoy each day. It is truly a paradise if you look with the right frame of mind!

Related Podcasts

How to Accumulate Your Most Precious Asset

Posted on June 2, 2023June 2, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

What is it in life that is most valuable to each of us, yet we cannot touch it or save it? Time. To provide a value for time ask anyone who has suffered an illness and expired before reaching age 70. Time is the most important commodity in life and many of us utilize it in a very inefficient manner.

How can a person accumulate time? By planning each day to focus on your most important people, projects and places. Let us start with people. One of my favorite hobbies is to travel with my family. We have shared vacations in Europe, Hawaii and other exotic locations that are reflected in my memory as the photos are shared during Christmas in a review of our year.

The excitement your children exhibit when you inform them that you are taking them to Atlantis on vacation is evident on their faces – smiles so big all their teeth are shining through, and eyes squinted so tight they cannot see the camera in front of them! During our stay in the luxurious Atlantis resort, we had an opportunity to snorkel with and feed the cow-nose rays in the hotel’s aquarium. Our daughters thought this sounded fantastic! So, being the dad that I am, concierge was contacted, and the activity planned.

When we arrived at the aquarium, everything was peaceful. Our younger daughter decided to express her displeasure in the cuisine to be fed to the rays but otherwise we were in good spirits. It was not until the feeding process started that I witnessed a reaction that stopped time and empower our daughter with the ability to walk on water. There are only two people in my memory that walked on water – Jesus and Peter in the New Testament. Now, add Gabrielle to the list! To stimulate the person feeding them to drop their food in their water, the rays will bump your leg or thigh with their sandpaper-like nose. It is a gentle nudge and nothing to alarm you (this is what the guide told us).

Gabrielle was doing well until she was the subject of a gang of rays coming at her and bumping all at the same time. This was more than she could contemplate, and she dropped her food bucket in the water. To understand the next few events that took place, imagine if you were dropping steaks into a crocodile pit. The water began to thrash, and great commotion commenced with much noise. When I finally gained my eyesight from the water splashing, I watched our daughter walk across the top of the water as she headed to dry land while screaming at the top of her lungs!

How does this story relate to time? It is a memory that continues to prove that time well spent is time invested in family. The rest of the trip was less chaotic for our daughter, but the family had one of the most wonderful times spent focusing on each other.

One of the best projects one can utilize their time is the act of giving to their community. Find a civic group and offer to assist in a project to gain perspective about life. What you will find is that your life is secure compared to those you may be assisting for the project. One inhospitable summer a heatwave stifled the air in our community to a point of 115 degrees heat index. Some of our fellow citizens were suffering from heat strokes and required hospitalization. Our local Lions Club jumped into action! We raised money and installed cooling fans in the homes that did not have air conditioning. The hugs and words of gratitude from these individuals remain in my memory as one of the humblest moments in my life.

In a commencement address to the graduates of Stanford University, Steve Jobs, the founder of Apple, gave sage advice to those in attendance, “Your time is limited, so do not waste it living someone else’s life. Do not be trapped by dogma – which is living with the result of other people’s thinking. Do not let the noise of others’ opinions drown out your own inner voice. A most important, have the courage to follow your heart and intuition. They somehow already know what you genuinely want to become. Everything else is secondary.”

Time is an irreplaceable asset. Use it wisely and spend it with those that truly bring you happiness. If you want to live a life maximizing your opportunities and memories, consider meeting with a Certified Financial Planner™ professional to create your plan for the future. Whether you are ready or not, the future will arrive.

Related Podcasts

The Biggest Obstacle to Retirement Success

Posted on May 26, 2023May 26, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

What is it that causes humans to avoid the unknown and become complacent with the familiar? As children we would explore caves, old homes and lands that piqued our interests. As adults we assume a mindset of comfort and do so at our own peril.

As it relates to retirement planning success, too many of us are submitting to fear instead of boldly seeking our best interests for the future. We gamble with our life savings in entrepreneurial ventures that attract our passions and fail to consider the long-term implications. Often the smaller, consistent investment process over a period of decades yields the greater probability of success for our future.

A client came to our office recently and spoke of his fear of the debt ceiling, foreign wars and economic issues going unresolved by the government. I asked him a simple question, “What can you, personally, change of the three issues you spoke?” He looked at me with a whimsical glance and said, “I guess none of them.” Shaking my head to acknowledge his incorrect answer, I said, “You have more control over your world than you know.” As investors, we should only invest in those types of instruments that we have full knowledge of their function. To blindly cast our lot to the winds of chance is not a solid plan of action.

When we had concluded our discussion, he shook my hand and thanked me for “talking him down from the cliff.” After some thought, I realized that many of us give too much credibility to the fear in our lives when we should be embracing the opportunities. By starting our retirement savings in our 20’s, the compound effect over the next four decades is exponential. It is much easier to save smaller amounts over prolonged periods of time than to find lump sums to invest over a shorter period.

The solution to overcoming fear is to run toward it. David and Goliath are a familiar story in the Bible. Theological scientists have analyzed the narrative to determine that David’s proactive energy of running toward the giant Philistine played a significant role in the success of his conquering the enemy. The combination of forward motion, swinging the sling to create centrifugal force and the placement of the stone on its mark of the foe created a constructive collaboration of force so dramatic that the stone was sunk into the forehead of Goliath. Immediately the giant topples, and David claims his prize of the most feared man of the Philistines’ head to present to his king.

Do not spend too much time stewing over the process of planning. Start doing the things that are necessary to conquer your most feared adversary (i.e., lack of sufficient savings, health issues, psychological adaptation to a new lifestyle, etc.). Run toward these challenges in a manner that empowers you to take the necessary steps to gaining victory over the unknown – your future.

Another of our clients had saved diligently during his lifetime and was working until age 70 to maximize his Social Security Benefits. After retiring and receiving his first SSA benefits payment, he began to feel ill. His spouse convinces him to seek the advice of his doctor. The answers received were not good. He was suffering from an extremely aggressive form of cancer. His life would end within one year. Instead of feeling sorry for himself and resting on his comfort built over the past fifty years, he set new goals that could be accomplished within a year. Setting aside enough assets for his wife to live successfully in retirement, he sought new adventures through travel and philanthropic work. One of our last conversations was that he was happy with how his life had turned out and he would not have changed a thing.

My friend ran toward the unknown difficulties in his life and gained greater perspective. Our planning process helped him achieve happiness in life and fulfillment of his wife’s concerns for a better future for her. We do not know the future, but we can work to make the future what we want it to be.

Financial planning is the process of setting up goals and strategies to make your future what you wish it to be for your family. By meeting with a Certified Financial Planner™ professional, you are running toward the unknown with an expert to help guide you to your ultimate goal accomplishments. Leonard Sweet stated it best, “The future is not something we enter. The future is something we create.” See you on the jogging trail!

Related Podcasts

Timeline to Retiring with Confidence

Posted on May 19, 2023May 19, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

When should I retire? When should I claim Social Security benefits? How will I afford health insurance in retirement? Do I have sufficient assets to support me in retirement?

These questions are the primary concerns of individuals considering retirement. The truth about the answers to these questions lies in the person’s facts and circumstances. Everyone is unique in their net worth, risk tolerance, cash flow needs and other crucial factors that determine retirement planning strategies. One simple answer does not apply to everyone’s questions about this important subject.

Let us tackle these important questions in a prudent manner. First, determining when a person retires is easier than imagined. Assuming you are healthy and have saved sufficient assets to fund your retirement cash flow needs, the date of your retirement is based on the time when you are mentally ready to do so. For many retirees, the qualitative (mental) aspects of retiring are more challenging than the quantitative (assets) ones. Either you have sufficient assets to retire, or you do not. However, the mental aspect of how you will spend your time in retirement is a much more puzzling question.

Ideally, a person should retire when she has hobbies to enjoy, trips to engage her and wealth to fund it all. There is not a certain age that one should retire. Many of our clients will continue working past the age of 65 because they are enthusiastic about their contributions for their employer, clients, or the world at large. This type of individual may sign up for SSA benefits but continue to work beyond their full retirement age as defined by Social Security Administration regulations.

More than 50% of qualified participants file for their SSA benefits prior to their full retirement age. Typically, these individuals believe their longevity in life will not be long enough to receive the return of the benefits they contributed from their payroll checks while working. Incidentally, the individuals may live to age 85 as their parents and grandparents experienced. If this is the case, the urge to collect their benefits early may cost them a substantial amount of money over their retirement years. A better approach may be to wait until the person reaches full retirement age of 65 to 67 before filing for benefits.

Few people take advantage of the 8% bonus earnings for waiting to file for benefits after full retirement age until they reach age 70. These bonus credits may contribute an additional 24% to 32% of monthly benefits! This amount of bonus received over a person’s lifetime beyond age 70 could be helpful for them later in life when medical needs may be higher.

Most people need health insurance to mitigate one of the largest costs of living they will experience. After leaving your job, you may be able to use COBRA for the purchase of your health insurance from your previous employer. However, this means you will be responsible for the full cost of the insurance, and it is a significant burden.

A better approach may require that you wait until age 65 to retire. You would be eligible for Medicare benefits at a much smaller premium amount than COBRA coverage through your previous employer. Of course, we recommend a supplemental policy to help cover the 20% coinsurance you are required to pay.

If this process sounds daunting, it does not have to be. Seek the assistance of a Certified Financial Planner™ professional to determine when the best time is for you to retire and the options you must fund the lifestyle you choose. Maya Angelou said it best, “My mission in life is not merely to survive, but to thrive and do so with passion, some compassion, some humor and some style.”

Related Podcasts

Managing Cash Flow Is Critical

Posted on May 13, 2023May 13, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Cash is king! This is a statement I have heard my entire life. It is critical to a comfortable daily life but elevating currency to royalty status seems a bit hyperbole. There are many aspects to managing your cash flow that are simple to master. First, the old adage of “spend less than you earn” is an axiom of truth. For families that use credit cards to elevate their lifestyle beyond their means, the day of reckoning comes quicker than anticipated. Additional stress and challenges are encountered, and solutions are in short supply.

One of the best tools for managing your cash flow is to monitor your expenditures. Every penny spent should be tracked for a period representative of your lifestyle. For example, consider one of the apps on your phone as a method of recording your spending. Review the record every few days to determine where you are spending your money and compare it to your desired areas of spending.

A budget is necessary in all phases of life. Many people think a budget is needed only while you are younger and working toward your career goals. However, I am a big believer in the art of focusing your efforts in a manner that will provide you with the best outcomes. For example, if you are budgeting to save 10% of each paycheck for support in your future yet you spend first and save what is left, you will not meet your goal. The better method of saving is to emulate the wealthy and save the 10% first and live on the remainder. In this manner you are forced to curtail the spending of funds since you have fewer discretionary dollars to spend.

Only one entity exists in the United States of America that has the luxury of spending first and finding the cash flow to pay for it second – the U.S. Government. The leaders of our country are currently negotiating the increase of our debt limit (i.e., our borrowing capacity). Do not be confused. This is a mortgage on the future generations of our citizens. It is a fact that this balance has ballooned to more than $31,457,000,000,000. To meet our country’s obligation to maintain the debt requires 12% of the federal budget or $384,000,000,000 annually according to the U.S. Treasury Department.

The simple principles explained in this article to help your family manage cash flow can be applied to the federal government. By utilizing a balanced budget requirement through a constitutional amendment, the annual spending will match the annual receipts for a fiscal year. This will be painful, at first, but will yield a leaner government with far less fraud, waste, and abuse than that we currently experience.

To avoid cash flow problems, it is critical that you control your discretionary spending. Minimal use of credit cards should be your goal and the balance paid in full each month. Lastly, large purchases should be acquired only if you can place a substantial portion of the price at the time of the purchase.

Managing debt is a skill that must be learned early in life. Consider indebtedness only for those assets that are utilitarian and/or long-term use. For example, houses and land are suitable for borrowing purposes. However, a new mink coat or Rolex watch are not. Particularly useful is the borrowing of assets that generate cash flow such as rental properties. In this instance, the lessee renting from you will be paying your mortgage, taxes, and insurance on the property on your behalf. Isn’t this a great country?!?!

Cash flow is the most critical concern of retirees. Controlling your indebtedness as you transition to retirement will help you gain confidence in the years of your next phase of life. Do not approach retirement with the same attitude as your working years. Cash flow is possibly lower and comes in different frequencies than when you were working in your career. To help you develop a plan to increase your probabilities for success, it is vital that you seek the advice of a Certified Financial Planner™ professional. Sir Richard Branson, a billionaire and owner of more than 400 companies, said it well when he stated, “Every success story is a tale of constant adaption, revision and change.”

Related Podcasts

Bridging the Gap in Retirement

Posted on May 3, 2023May 3, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Preparing for retirement is part science and part art. The science portion of the planning process is based on factual matters such as resources saved for retirement, predictable fixed and variable costs of living, cash savings for emergencies and use assets that are free of debt. To measure these items when planning for retirement, one simply makes a list from the most recent statement of accounts or values assigned to the property (i.e., when valuing a home or rental property).

However, the more difficult aspects of life to define and quantify are longevity of life, market conditions upon retirement, health expenses during the period after your career and lifestyle needs that may change with age. To fail to consider these aspects in your retirement plan is tantamount to ignoring your blood pressure until you have a heart attack. The most crucial factors in planning for the future are typically pertaining to lifestyle. Why? Because these costs can be significant in impact to your overall plan for cash flows and require immediate attention to squelch the negative outcomes.

One such planning point is the transition from career to retirement while considering multiple income streams. Let’s assume you no longer receive a salary but desire a consistent revenue stream. By investing in the appropriate equity positions that pay dividends consistently, you may experience salary-like cash flows to help you meet your obligations. For example, consider stocks that pay dividends in January, April, July, and October of each year. Also, you may want to consider other stocks that pay dividends in February, May, August, and November of each year. By laddering the receipt of dividends, you will be receiving potential cash flow each month that helps you assimilate the receipt of a salary.

Another approach, using fixed income investments, is to buy certificates of deposit with laddered maturity dates such as 30-day, 60-day, 90-day, and six-month maturities. This will provide cash flow for the periods purchased to help you maintain continuous streams of monies to contribute toward your cost of living. Also, a similar approach may be taken with bonds. These are approaches that a wealth advisor may consider for your cash flow transition from employment to retirement.

Being consistent in saving for your future is a good habit to build. Time is one of the best builders of wealth. There are no guarantees in investing or life. However, if you allow yourself the amount of time necessary to properly save for retirement, while investing in a prudent manner, your probabilities for success are much higher. Another caveat is to only invest in the types of companies and or industries that you understand. While it may seem inspiring to invest in the most recent technology company because of a new app that will change the world, ask yourself about the true purpose of your investment. Are you expecting the investment to grow significantly in a brief period? Or are you looking for cash flow through consistent dividend payments?

Before investing your hard-earned money, I highly recommend you fully evaluate the underlying business operations, product sales history, management capabilities and additional financial information to gain a good understanding of the company. Many of the growth companies that look good on paper, fail to pay dividends because of their nature of operations. Growth companies, unlike value companies, reinvest their profits to facilitate their growth initiatives in market share.

Balance is the key to a portfolio that provides total return. By definition, total return is growth of the capital investment plus the dividends received from the investment. To achieve your cash flow needs, you may be required to sale your growth company stock to receive the capital gains you desire. This will be a taxable event and, therefore, you will receive less cash than planned. Remember, there are no free lunches in life!

Cash flow is the most critical concern of most retirees. Transitioning from full employment to retirement is a challenge. To gain confidence in the process, we highly recommend you seek the advice of a Certified Financial Planner™ professional to analyze and create a cash flow plan that assails your fears. President Eisenhower, while serving in WWII, stated, “In preparing for battle, I have always found that plans are useless, but planning is indispensable.”

Related Podcasts

Failing to Prepare Does Cost More

Posted on April 27, 2023April 27, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

The old adage of “failing to plan is planning to fail” is particularly true when it comes to your future. It is most difficult to hit a goal in life that you do not set. I am a big believer in goals for all aspects of life. When I began my professional career in accounting in 1987, I wrote down my goals and some of them were long-term that took me thirty-five years to accomplish. These are called “marathon goals.”

To illustrate the importance of goals, think about the times in your life that you had thoughtfully planned for an event – buying your first home, birth of your first child, buying your new car, etc. Each of these events required you to define what you desired in the outcome and establish a plan of action to achieve the steps that led to the goal. For example, you wanted a new home while in your 20’s. You realized a down payment of 20% of the cost of the home may be necessary to achieve the level of funding and the interest rate you preferred.

While you were working hard in your early career, you set the goal down on paper and placed it in an area of your apartment where you would see the goal daily. This simple act of visualizing the day you walk into your new home served as a motivator for you to save for the down payment. Finally, the day of closing on your new home has arrived! You are excited and overwhelmed by the process.

After moving your small amount of furniture in your new home, you realize that more furnishings are needed. You identify another goal and set it to paper. Within twelve months you have reached this new goal of purchasing your furniture throughout the new home. This process continues throughout life.

Consequently, many individuals work extremely hard in accumulating their wealth only to fail to carefully plan for the distribution of their net worth when they expire. Over my thirty-five-year career as a CPA and Certified Financial Planner^® professional, I have witnessed more individuals fail to carefully plan for the transition of their estates and cause their heirs significant hardship and avoidable costs.

Two areas of primary challenge during retirement are healthcare and income. To rigorously evaluate each of these areas it is critical that you understand the application of your resources to resolve these challenges. First, healthcare costs continue to rise more than 8% per year. According to www.plansponsor.com, retirees will spend $315,000 on healthcare costs during retirement after age 65. These costs include co-pays, prescriptions, mobility aids, etc. Due to the size of this cost in comparison to your total budget, it is critical that you maintain a healthy lifestyle if you wish for your retirement assets to last you longer.

The second area of challenge is income. Many of us estimate we will spend fewer dollars during retirement than we did during our working years. This assumption is invalid. Our clients spend an equal amount of funds during retirement as they did while working because they have more time to travel and enjoy the activities, they were unable to do while employed. A plan for cash flow is critical to your facing retirement with all the costs that may arise in life. I often tell clients that one of the worst outcomes would be that you lived longer than your assets lasted.

Retiring for the first time is unnerving for many people. It is possible to feel confident about the process and increase your probability for success by collaborating with a Certified Financial Planner™ professional to create a plan. Make informed decisions and do not guess your future.

Related Podcasts

Social Security Program Solvency

Posted on April 21, 2023April 21, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Since its signing into law by President Franklin Roosevelt on August 14, 1935, the Social Security Administration has helped millions maintain a monthly benefit to support their families. Initially established as a program to keep families out of poverty, the benefits from social security have taken a more substantive role in the finances of families.

With fewer corporations providing workers a pension plan for lifetime benefits, social security benefits have taken the role as a primary income item for most families. Failing to save for retirement is a terrible and tragic mistake. Longevity has improved for Americans due to the improvement of medicines, treatments, and advancements of surgeries. If we are going to live longer, shouldn’t we consider it may take more assets to support our lifestyle?

The original law included benefits for individuals aged 65 and older that participated in paying their share of the premiums for the benefits through their employment. Your employer pays half of the obligation. The initial purpose of the law was to address the period after a person finished working (i.e., retirement).

Over the decades, the Social Security Act has been amended for other purposes. It does make sense that the loss of a family member who is responsible for a substantial portion of the financial support would need their income replaced. Of course, life insurance is a simple manner of replacing lost income for the family, but many companies do not provide life insurance to their employees. To solve the problem, and to keep families from facing poverty, the Social Security Administration was authorized to assist families with survivor benefits. To qualify, the surviving spouse must be the caregiver for a disabled child or a child under the age of 16. Some other qualifications are required as well.

The logic behind this process of granting survivor benefits is that the deceased participant would not be receiving the benefits they may have been entitled to now or in the future. Payments do not last forever, and the child will eventually lose the monthly payments due to age unless disabled.

If a person became disabled before reaching their Full Retirement Age (defined as either age 66 or 67 depending on your year of birth), she may qualify for disability benefits from the program. Additional qualifications are expected before granting the benefits.

These amendments and granting of benefits for other reasons than retirement have caused concern that the Social Security Program will become incapable of funding benefits at their current levels by 2032. Today, there are two people paying into the trust fund for benefits for every beneficiary. This is unsustainable.

Congress should review the current funding and obligations of the program to make reasonable changes. For one, the amount contributed could be changed by 1% and would extend the funding for the program for many years. The program could increase the age for full retirement benefits to 68 which would save the plan’s longevity for many years.

Lastly, it would be a start to allow a privatized portion of the social security premium contributed by each worker. Start with a smaller percentage such as 15% and allow the individual to direct the investment strategy to meet their personalized needs.

No matter what the approach to resolve the problem with funding, something should be done soon. There is no concern for current beneficiaries being affected. However, individuals ages 25 – 40 may see a far different benefit program when they are retirement age.

It is important to be proactive when planning for retirement. Think about your goals for the future and seek out a Certified Financial Planner™ professional to create a plan for achieving them. The future is predictable if you work toward the goals you wish to accomplish. Warren Buffett offers us some good advice about saving for the future when he said, “If you spend money on things you don’t need, soon you’ll have to sell the things you do need.”

Related Podcasts

Developing a Tax-Efficient Lifestyle

Posted on April 13, 2023April 13, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Your taxes are filed (or extended). You may feel relieved. Now one of the most important periods of the year begins. No, I am not speaking of baseball in full swing. I am referring to the planning process to reduce your 2023 income tax burden based on your knowledge gained from the past year’s tax implications.

By using a proactive planning strategy, you may find that you are more confident and comfortable with the tax filing season. It is much less stressful when you have an idea of the amount of tax owed. The reason for such trepidation during tax time is that most individuals spend no time in the planning process and simply hope for the best outcome. As we say in our business, hope is not a strategy for success.

Let us put a game plan together that will help you gain confidence that your assets are working for you and not against you. First, one of the largest assets of most families is their residence. What can be done with a home that is tax efficient? Consider the full payment of your property taxes every other year so that you can “bunch” up the deduction to increase your itemized deductions. Of course, one caveat would be the limitation placed on taxes within your Form 1040 Schedule A, but most people may find room for additional deductions in this area.

In the most recent tax law passed by Congress, an individual may make certain energy efficiency improvements to his residence and take a tax credit – not deduction – for the expenditure. Instead of bunching the improvements into one year, the tax credit may benefit you over multiple years by performing some of the improvements each year. This approach will help you manage your cash flow and obtain valuable credits against your current and future years tax liabilities.

The second largest asset of a family may be their investment portfolio. By taking advantage of contributions to an employer plan or, if a plan is not offered to you, by contributing to a self-employed plan or IRA, you may uncover significant tax savings each year. When planning your operating budget for the year, consider a line item that isolates the contributions to tax-deferred plans so that you may capture efficiency with your tax liabilities.

If you have not filed your tax return for 2022, you may have opportunities to reduce your liability after the close of the filing season. Consider a SEP (Self-Employed Pension Plan) for a strategy of tax reduction. This plan will allow a contribution of up to $61,000, or 25% of net earned income, whichever is lesser, and you have until the filing of your return or the extended due date to fund the account. This is a potential windfall for many self-employed individuals!

Another overlooked asset for most families is the investment in a qualified electric vehicle. In 2023, the IRS allows an income tax credit of $7,500 to qualified individuals who purchase a vehicle that meets the criteria for the credit. The credit for electric vehicles is quite an incentive to consider one of these automobiles.

Do not plan your entire life around the impact taxes play in our world. Rather, take opportunities to gain tax benefits in the transactions and assets you are going purchase to meet your family’s needs. It becomes a win-win scenario!

By taking a few minutes each year to set and define goals that help your family lower their tax burden, you will begin to experience greater cash flow and confidence in your abilities to control your future. If you wish to start a plan that helps you gain more net worth and lower your tax burden each year, seek out a Certified Financial Planner™ professional. Take leadership in the tax planning process and reap a tremendous benefit for your family. As Peter Drucker so eloquently stated, “Management is doing things right; leadership is doing the right things.”

Related Podcasts

Are My Bank Deposits Safe?

Posted on March 31, 2023March 31, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

In the past couple of weeks, the news has carried a headline that shocks many of us – bank closings! Granted the subject banks of the stories have been much larger banks than those in our local communities but the concern for safety of deposits has continued to grow at a grassroots level.

To protect depositors’ accounts, most banks participate in the Federal Deposit Insurance Corporation (FDIC) for coverage like you purchasing insurance on your home or automobile. Participating banks pay a premium on a prescribed basis to retain this coverage for its customers. Silicon Valley Bank was no exception. However, in the present instance, the bank’s management bears more of the blame for failure than systemic banking processes. The United States’ banking system is secure and has functioned as it is designed since the 2008 housing loan crises.

One of the more critical questions is how will the FDIC handle the claims from the affected depositors? This is where the confusion for most citizens begins. Generally, the maximum amount of coverage for an FDIC-insured account is $250,000. There are many different methods of protecting your accounts should you wish to maintain a greater amount than $250,000 in your local bank. For example, if your spouse and you maintain a joint account and add your three children as beneficiaries to the account, the FDIC coverage increases to $750,000 for the beneficiaries.

Before depositing your funds in a prospective bank, you should inquire as to the bank’s participation in FDIC coverage. You may do so by performing a quick search of the bank name at https://banks.data.fdic.gov/bankfind-suite/bankfind or call FDIC at 1-877-275-3342. Banks are required to inform you of such coverage availability when opening your new account. Most often you will see a sign on the bank’s logo or front entrance displaying “Member FDIC” reflecting the bank’s participation in the program.

Should you deposit your funds in a brokerage account, you will automatically receive coverage by a similar program called Securities Investor Protection Corporation (SIPC). However, the two programs differ in coverage amounts and types of coverage. For example, the FDIC limit of coverage is $250,000 per account. SIPC coverage limit is $500,000 per account. Many custodians, another word for “bank”, that hold securities and cash for investment purposes for customers will provide additional coverage through reinsurance. For example, the custodian we utilize for our clients’ assets is Pershing, LLC, a wholly owned subsidiary of the Bank of New York. Pershing, LLC

The key to gaining and maintaining confidence in your bank is to speak with the professionals about your accounts and learn what coverage limits apply to your accounts if more than one account is funded. Personally, I bank with local banks because of the relationship of the professionals, knowledge, and faith of management as well as accessibility to funds. In this modern era, internet banking is becoming the norm and will soon supersede the desire for anyone to travel outside their home to perform banking tasks. Until then, I prefer to shake their hands, speak with the people, and understand clearly who holds my money.

If you are concerned about the news you have heard pertaining to banking challenges in the United States, seek out a Certified Financial Planner™ professional to help you gain understanding about the process. You can sleep better at night understanding the coverage limits for your various accounts and the operations of your local bank. Another of my favorite quotes by William Feather is, “Business and life are like a bank account. You can’t take out more than you put in.”