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Financial Resolutions (Not Just for the New Year) Thumbnail

Financial Resolutions (Not Just for the New Year)

5 Financial Tips to Live By

In honor of the New Year…

NOPE! Scratch that. It’s already February. 

No, we didn’t miss it. We didn’t forget. This was the plan all along. Here’s why:

Reason #1: January is simply too busy as is. We have found that many business owners are still metaphorically “hungover” from closing out the year that it’s hard to focus on much else besides day-to-day business operations.

Reason #2: In our humble opinion, new year’s resolutions are overdone—especially in the advisor space. And we aren’t like other advisors. We don’t do things just because they are in vogue. We do what makes the most logical sense.

Reason #3: The advice we’re about to give is timeless. These aren’t just financial tropes to cling to for a few months and let fizzle out over time. These are key principles to live by. These are “one day I’ll share these with my grandchildren” tips. So, bookmark this page, share with a friend, or have t-shirts made because you aren’t going to want to forget these.

Jarret Morris, Co-Founder and CCO of RiversEdge Advisors:

1. “Manage your tax bracket. It’s not always about what you make, it’s about what you keep.”

If financial planning and investment management are like playing good offense for your money, tax management is playing good defense. It doesn’t matter how many points you score during the year if the IRS can still swoop in and rack up a bunch of points against you.

Essentially, tax planning is a form of asset protection. You work hard to succeed in your career and be rewarded with monetary gain; don’t let poor tax planning rob you of your ability to turn that career success into financial security. 

2. “Save first. Spend second.”

This sounds simple. So simple. Even seeing the words typed out, I’m tempted not to give this lesson much weight. But, it’s sometimes the simplest lessons that can be the hardest. Saving first ensures that your financial goals of tomorrow take precedence over the changing or impulsive wants or needs of today. 

One of the best ways to make sure this happens is to automate your savings. If you schedule your retirement contributions or 529 contributions to come out as soon as you receive your monthly income, you will have less chance of spending those contributions on less important expenses throughout the month. Plus, investing feels good and helps keep you on track to continue with other positive financial behaviors throughout the month. 

Brian Carney, Co-founder of RiversEdge Advisors:

3. “Try to remove the emotional aspect out of investment decisions. Create an investment strategy during relatively calm times that you can refer to when the market starts to get volatile. This will help an investor avoid making any rash decisions.”

Would you be surprised to learn that one of the greatest obstacles in the way of investor success is often…. themselves?! That’s right. Investor behavior is responsible for more portfolio loss than we can shake a stick at.

You see, as humans, we are especially sensitive to loss. In fact, loss affects us more than twice as much as gain does! What this means is that we find ourselves in positions of potential loss—the market dips or headlines warn of impending doom—and we panic. Our first inclination is to DO SOMETHING, anything, to prevent from experiencing the agony of investment loss.

But, when we do this, we miss out on the market’s best days—which typically happen within a few days of the lowest lows. Plus, we incur a tax event. Plus, we have to rebuy the same securities at a higher price. Plus, we drive ourselves nuts trying to predict what the market will do next and how it will affect us. When, if we had stayed put all along, we would likely end up on top sooner rather than later (as bear markets tend to last for shorter time periods than bull markets). 

Rather than be that guy on the beach frantically watching the market on his iPad as his vacation time passes away, be the guy on the beach sipping his margarita knowing his financial plan is built to withstand volatility and that his advisor has it all under control. 

Michael Levy, Director of Financial Planning Services:

4. “Have a long-term view and don’t get caught up in the day-to-day.”

The market always goes up, just not always straight up. Even though there may be a dip tomorrow, the rebound in three weeks could far exceed where the market sits today. Keep a long-term view and remember that volatility is normal, natural, and expected. In fact, volatility in prices is how we are able to reap investment benefits in the first place.

5. “Understand the difference between after-tax and pre-tax.” 

In retirement, you will be responsible for paying taxes on the money you invested—and on the earnings distributed from the plan. But, different accounts are taxed in different ways. Investments made into traditional IRAs are made with pre-tax dollars, which means you will pay taxes on that income when it is withdrawn. Investments made into Roth IRAs are made with after-tax dollars, which means the withdrawals will be tax-free. Pre-tax contributions help reduce income taxes in pre-retirement years while after-tax contributions may help reduce your income tax burden during retirement. 

So often, unknowing DIY investors will stash all their cash in tax-deferred accounts in order to reap the benefits of the current tax deduction. But, once they enter into retirement and start taking RMDs from their 401ks, they are hit with a hefty tax bill they weren’t expecting. Of course, this can dramatically decrease the amount of income a retiree will have to live on in retirement. 

For this reason, it’s typically best to have a diversified set of savings vehicles with the goal of reducing your overall lifetime tax burden, not just now and/or not just in the future.  

Write this down!

Whether you’re new to investing or you started attending your family’s annual portfolio reviews before you could walk, these principles can help you keep a clear head and on a sound path when times get tough. Anytime you start doubting yourself, revisit these fundamentals. We believe that educating and supporting our clients go hand-in-hand, so we’ll always be here to explain the “why” behind our decisions. 

With these investment principles in hand and a team of experts by your side, we help entrepreneurs and business professionals create the future they want for themselves, their businesses, and their families. If this sounds like something you need in your life, let’s chat. It’s easy to set up a complimentary call with us right here through our site. Not in Delaware? No problem. We serve clients virtually nationwide. We look forward to meeting you.