Making sure your summer is worry-free makes all the difference when planning dream vacations. Read how you can start the process today and enjoy your summer!
It seems like when summertime hits, time slows down. The hustle and bustle of the holiday season is over, the taxes are complete, and the vacation days are scheduled. If you find yourself with a bit of extra time on your hands in the upcoming months, you may want to use this opportunity to check in on your family’s finances. While doing a thorough analysis of your wealth may sound intimidating, we’ve broken it down into eight simple steps to keep you focused and on track.
Step 1: Analyze Your Budget
In early 2022, the Bureau of Economic Analysis reported that the personal savings rate is at only 6 percent.1 An effective way to avoid spending more than you’re earning is to step back and take stock of your monthly and annual budget. And if you don’t have a budget at all, use this time to make one.
Many credit cards or banks will offer categorical breakdowns of your spending, which can be a great way to find out what you’re spending the most money on and if there’s room to cut back. To get the best look at your spending habits, you may want to evaluate your savings and spending record over the past six to 12 months.
Step 2: Seek Out Tax Savings
Do you scramble to pull your paperwork together every March and April? Are taxes for California seeming higher and higher every year? This year, try taking a different approach to tax season by evaluating your tax-saving strategies early. Working with one of our financial advisors located here in California, the goal from our end is to proactively plan to minimize taxable events before they occur and position your money to be as tax-advantaged as possible based on your unique situation. These unique situations can turn into withholding options and tax-saving opportunities such as 401(k) or 403(b) options, IRAs and HSA contributions that you may not have known about beforehand.
Focus on filing any time-sensitive deductions and brush up on changes in tax laws. By reaching out to California Retirement Advisors now, you have more time to prepare and strategize together for next year’s returns.
Step 3: Tackle Your Debt
An alarming 38% of adults carry credit card debt from month to month.2 If you’re guilty of putting off managing your amounting expenses, now’s the time to start planning to pay them off. While most consumers have some amount of good debt on their plate (mortgages, car payments, etc.), it’s the bad debt (credit card debt, student loans, etc.) that you’ll likely want to focus on managing and eliminating.
While you could be tempted to simply pay off what shows up on the bills each month, you may want to create a debt summary to get a better idea of your total debt’s big picture. By creating an annual debt summary, our financial advisors can better understand whether you’re gradually working down the amount or falling farther into the hole. We will also take into consideration alternate income factors aside from paychecks, allowing you to take a step back and see your finances as a whole, giving you greater freedom to make the appropriate adjustments to your spending habits.
Step 4: Revisit Short and Long-Term Goals
The biggest long-term goal on everyone's mind is retirement. Some are closer to retirement, making it a shorter-term goal, while others are decades off, making it a long-term goal. But there are goals even for those who are already retired, such as finding ways to minimize their taxes and establishing a comprehensive estate plan. At CRA, our advisors are equipped to help you at any stage in your career or retirement and will ensure that you feel protected and confident about your financial well-being. Additionally, a lot can change in a year - marriage, death, divorce, growing your family and experiencing a major career change. Even seemingly small adjustments, like a job promotion or sending a kid off to college, can have a significant impact on your financial status. Our holistic approach to advisement ensures that we consider all facets of your life to give you the confidence to make changes that will benefit you in the long run. That’s why it’s important to regularly review your long-term goals and progress towards them while revisiting and evaluating your shorter-term goals as well.
Step 5: Evaluate Coverage and Providers
As you’re reviewing your budget and expenses, take the extra time to thoroughly evaluate your current providers and coverage options. This includes your internet, cable and wireless service providers in addition to your insurance coverage options. If you tend to set up auto payments and forget about your monthly bills, this could be an opportune time to revisit what it is you’re actually paying for.
Step 6: Reassess and Rebalance Your Portfolio
It’s important to visit your portfolio and risk tolerance regularly to help keep it in line with your tolerance, goals and market conditions. While most managed portfolios will be rebalanced automatically, it’s important to take stock of your investments’ big picture. Doing so can help you determine if you need to diversify differently or reassess your risk tolerance. Our approach to building a portfolio comes from the Bucket Plan, which is a three-step method with three different buckets: The Now bucket, which includes safe and liquid money for emergency situations and large expenses for the first few years of retirement. The Soon bucket includes conservative investments for things like inflation, and the Later bucket is for long-term investments that endure some more volatility but will be used at a later date. By using this approach, you will be able to build your portfolio to what fits your needs.
For more in-depth information regarding the Bucket Plan, watch this video by Prosperity Capital Advisors.
Step 7: Review Your Retirement Savings
Whether retirement is decades down the line or within the upcoming year, reviewing your retirement savings on an annual basis is a great habit to start. Take the time to assess whether or not you’re maxing out your retirement contribution options and how the savings you’re making today will translate into retirement income later down the line. Our advisors ensure that the money you make now will serve you during your retirement by allocating different assets to diverse investments to allow your finances to grow.
Step 8: Assess Your Estate Plan
It’s not fun to plan for the worst-case scenario, but leaving your family with an outdated will, trust or estate plan can lead to some major issues down the line. As you assess your legacy plan annually, make sure you’re accounting for any newly acquired assets (houses, cars, pets, etc.) while checking that your designated beneficiaries are still willing and able to assist in the event of your passing.
While you’re likely daydreaming of book reading, beach-going and backyard barbecuing this summer, don’t forget to do yourself a favor and squeeze in some financial assessment as well. This financial checklist can seem like a lot, but working on these goals with our licensed advisors will prove to be simple and will benefit you in the long run.
By Christian Cordoba
CERTIFIED FINANCIAL PLANNER™
Founder, California Retirement Advisors
Want more summertime tips? Check out these other CRA articles:
Does It Pay to Buy Travel Insurance for Your Summer Trip? — California Retirement Advisors (cradvisors.com)
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.