top of page
  • Writer's pictureNate Baim, MBA, CFP®

Financial Capability Beyond April


Financial capability graphic

April is Financial Capability Month, an initiative that started in 2004 as “Financial Literacy” and has evolved over the last 20 years.

The rebrand reflects a trend of taking a more active approach to finances and focusing on having more control over decision-making as you move through your financial journey.


As you become successful in your career, buy a home, save, and invest, you’re building knowledge and capability. But are you gaining the ability to achieve your own goals?


True financial capability is closely tied to financial independence; however, you define that. For many people, it relates to flexibility and making choices as an individual and for your family.


Retiring early, attaining “work optional,” enjoying your money now and saving, as well as providing advantages to your children, and helping your parents age gracefully are all achievable goals. But to get there on your timeline requires some planning.

It can include an advanced level of budgeting, ensuring you get the most out of your benefits, planning for retirement, investing outside a retirement plan, and being strategic about taxes so you can pay as little as possible over your entire lifetime.


Factor Lifestyle Creep Into Your Budget

Budgeting is a basic pillar of financial capability, but for many people, it starts and ends with paying your bills each month and having an automated contribution to a retirement plan. The problem is, what happens to the rest of your paycheck? If your approach is “whatever is leftover,” even if you are putting it in savings or investing it, you may be leaving yourself underinvested.


For many people, lifestyle creep now is a serious threat to future financial and lifestyle flexibility. As income increases, it’s easier to think you can afford a more indulgent lifestyle.


How to head off lifestyle creep? You can do many sensible things, but the best way is to change your mindset.

  • Set clear long-term goals and put a dollar amount on them. Then track your progress. These are big things like a second home purchase, education savings, etc.

  • Review your emergency fund every year – increase it along with salary increases.

  • Move some spending from short-term rewards to long-term rewards. It’s easier to say no to an extra dinner out if the reward is a big purchase or a big trip.


Are You Maximizing Your Benefits?

Saving the maximum into a pre-tax 401(k) each year is the easiest way to lower your taxes while you are working and take advantage of compounding to build generational wealth. If you can’t save the maximum, you should seriously consider at least saving enough to get the employer match if your company offers it.

What else can you do?

Health Savings Accounts (HSAs) are offered by companies that also offer a high-deductible health insurance plan. HSAs allow you to contribute money before taxes, it grows tax-free, and when you take it out to spend on qualified expenses, no taxes are due. While you can use funds in these triple-tax-advantaged accounts anytime, allowing them to grow while you are working and using them as a source of funds for increased healthcare spending in retirement can make sense.

Flexible Spending Accounts/Transit Accounts – these accounts let you put aside before-tax dollars in an account for specific expenses. It can add up to hundreds or thousands of dollars a year in savings.


Are You Investing Outside Your Retirement Account? What About Company Stock?

Investing through a taxable brokerage account means putting more money to work for extended periods. It can allow you to expand your asset allocation and calibrate your risk profile. It can also help you control your taxable income in retirement. Most of all, if done properly, a taxable brokerage account can provide you with a resilient financial life.

Setting up an account that works with your tax-advantaged retirement assets is key. Think of your asset allocation across your entire portfolio. Do you have company stock? That can increase your risk since your income and your investments are exposed to the same company’s fortunes. It may also mean that you are overexposed to a particular asset class.

Determining a plan for company stock purchases and sales and making sure it is tied to your goals should be a priority.


Do You Have a Strategic Tax Plan?

You have more control over your taxes than you think, and it’s a source of hidden income for many people. Keeping more of what you make is the goal, and thinking a few years in advance makes a difference. If you’re still working:

  • Are you optimizing tax-advantaged retirement savings?

  • Are you taking advantage of tax breaks on education savings?

  • If you or a spouse is self-employed, are you optimizing tax deductions and credits?

  • Are you being thoughtful about the timing of asset sales?

  • If you are out of work for any reason, are you taking advantage of lower income to convert to Roth accounts?

The Bottom Line

Financial capability month is a great time to start by ensuring you are building long-term wealth that will help you achieve your goals. It’s not a coincidence that April is also tax time – you’re already deep in your financial information, so it’s a good time to take your financial capability one giant step forward.


I work with early and mid-career individuals. If you are navigating your finances and trying to understand how your finances can enable you to achieve your goals, feel free to place a complimentary 30-minute meeting on my calendar. In that meeting, we can discuss your objectives and situation.





Have something on your mind?

 

This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original.


Pursuit Planning and Investments, LLC (“PPI”) is a registered investment advisor offering advisory services in the State of Oregon and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Past results do not guarantee future results. Please contact us at 971-803-5948 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, we recommend you compare any account reports from PPI with the account statements from your Custodian. Please notify us if you do not receive statements from your Custodian on at least a quarterly basis. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request, and on our website, www.planyourpursuit.com. This disclosure brochure, or a summary of material changes made, is also provided to our clients on an annual basis.


This communication is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision.


Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal the performance noted in this publication.


The information herein is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Pursuit Planning and Investments, LLC (referred to as “PPI”) disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.


All opinions and estimates constitute PPI’s judgement as of the date of this communication and are subject to change without notice. PPI does not warrant that the information will be free from error. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall PPI be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the information provided herein, even if PPI or a PPI authorized representative has been advised of the possibility of such damages. Information contained herein should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.


Comments


bottom of page