By Larissa A. Mehlfelder, CFP®, CAIA, BFA™
Throughout my career as a financial advisor, I’ve had the privilege to work with many highly successful business owners and executives. Many of my clients take time at the beginning of the year to think about what they want to accomplish in the year ahead and create a plan to achieve their goals. As their advisor, it’s my job to help them plan financially and set themselves up for a powerful and productive year ahead.
If you’re interested in achieving financial success in the new year, now is a great time to clean house and establish some goals. Here are 5 ideas for ways you can improve your personal finances and develop good financial habits.
1. Manage your debt. The goal shouldn’t necessarily be to eliminate debt, but to manage debt and use it strategically. Leverage can be an effective financial tool in the right circumstances, such as borrowing money at a lower interest rate than what can potentially be earned by investing it, or using debt to buy assets that appreciate in value.
Home mortgages are a good example of this because homes usually increase in value over the long term and the interest may be tax-deductible. If you can earn more in the market than your effective mortgage interest rate (including the deduction), then carrying the mortgage may be smart.
Borrowing money to start or grow a business is another example of using debt wisely. It often takes an infusion of cash to get a new business off the ground or expand an existing business. With interest rates at or near historic lows, now may be a good time for taking on business debt, or to restructure debt, such as converting from a variable to a fixed interest rate.
2. Control your spending. Regardless of how much you earn, there is always going to be someone who seems to have more than you. More homes, beautiful vacations, or even a private plane. But attempting to compete in the ‘who has more’ game inevitably leads to much discontent.
If you focus on your own values, and what is most important to you, you will probably find that you have everything you need to be happy and content in your life. Learning to see your life through this lens will go a long way toward reducing or even eliminating excess spending.
Think twice — or three or four times — before making large purchases to be sure that they really will be additive to your lifestyle. During this “cooling off” period, think about whether the purchase makes sense in the big picture for you and your family. If it does, you can feel confident in making the purchase, but if you’re having second thoughts, it may be wise to hold off. You should also lean on your advisor to help make this a less emotional decision. Your advisor can run projections to clearly show you what the financial impact of a particular purchase will be.
3. Increase your savings. If you’re successful with the first two ideas, you should have plenty of excess capital to save. You can devote savings to short-, medium- and long-term goals.
Short-term savings might go toward things like taking the family on a European vacation or having major renovations performed on your home. Medium-term savings might be devoted to paying cash for your next major purchase (like a vehicle or watercraft) instead of financing it.
Long-term savings are usually earmarked for your investment portfolio. In addition to traditional asset classes like stocks and bonds, if you are willing to take on a longer lock up period, you can invest in alternatives like private equity or venture capital. Be sure to utilize tax-advantaged accounts like IRAs, SEPs, 401(k)s for long-term retirement savings and 529 plans for college savings.
4. Give away money strategically. You probably have goals for earning money, but what about giving money away? Now is a good time to devise a strategic plan for philanthropy in the new year. Affluent individuals and families in particular can benefit by creating a comprehensive charitable giving strategy.
Your plan might incorporate a donor advised fund (DAF), family foundation or community foundation. Family and community foundations make private grants to charitable organizations. A DAF, meanwhile, is a pool of money managed by a charitable organization on behalf of multiple donors. You get to decide which charities receive donations from your piece of the fund and when they will receive them. Donations are tax-deductible during the year they are made.
5. Check your asset allocation and rebalance your portfolio, if necessary. The beginning of the year can be a good time to consider rebalancing — especially now, given the strong stock market gains of the past year. These gains might have pushed a 60% stock-40% bond portfolio closer to a 70% stock-30% bond allocation. To correct this, you could sell some of your stock positions and use the funds to purchase enough bonds to bring the allocation back to 60%-40%.
A good financial advisor will meet with you to examine your investment portfolio (at least annually) to see if your current allocation is still in line with your risk tolerance and time horizon. If it isn’t, the two of you should create a plan to rebalance your portfolio to bring things back into the proper balance while also being cognizant of realizing taxable gains and being aligned with the advisor’s recommended weightings to each asset class.
How Simon Quick Can Help
A Simon Quick advisor can partner with you to help you establish healthy financial habits and guide you along the way. To learn more about working with an advisor, call us at (973) 525-1000 or send an email to email@example.com.
About Larissa Mehlfelder
Ms. Mehlfelder joined Simon Quick in June 2009 with prior experience in wealth management and investing. As a Client Advisor based in Morristown, NJ, she works with clients in developing and implementing their financial planning objectives. Throughout her wealth management career at other boutique financial advisory firms, she has gained valuable experience monitoring client investments and spearheading strategic marketing efforts. Ms. Mehlfelder earned a BS degree in Finance with a minor in Mathematics from The College of New Jersey where she maintained Dean’s List status. She completed Fairleigh Dickinson University's Program for Financial Planners in 2011 and became a CERTIFIED FINANCIAL PLANNER™ practitioner in 2012. She earned her CAIA Charter in March of 2014 and is a member of the Chartered Alternative Investment Analyst Association. To learn more about Larissa visit her LinkedIn.
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