Do you hold more cash than the average person? Let's explore strategies for maximizing wealth specifically tailored for “rich” individuals or accredited investors. I will break down an ideal guideline across your checking, savings, and emergency funds, while also providing insights on enhancing returns from other investment avenues.
Typically, individuals inclined towards saving fall into two categories: liquid savers, representing the everyday person, and long-term savers, characterizing the “rich”. Liquid savers prefer readily available funds, often held in checking, savings, high-yield (HY), or certificates of deposit (CDs) accounts. In contrast, long-term savers recognize that keeping cash in the bank is a depreciating asset. They maintain minimal account balances and seek tax-advantaged options to grow their savings, investing above the current inflation rate.
How much should you maintain in your liquid accounts? A useful guideline is to have twice the average monthly spending in your checking, an additional month's spending in your savings, and for those with emergency funds, six months of income in a high-yield savings account. While CDs may not be as favorable as HY savings accounts, a potential shift into CDs could be considered if the Federal Reserve decreases interest rates.
Assuming contributions to company-sponsored retirement accounts, Health Savings Accounts (HSAs), and Roth's are maximized, attention should shift to after-tax accounts, preferably those with tax advantages. Insurance-based options, such as annuities or universal life insurance, present themselves, but eligibility is contingent on health qualifications.
For accredited investors seeking alternative options, exploring Regulation D offerings is advisable. These private placements adhere to FINRA guidelines, governing solicitation, issuance, and fundraising limits. Unregistered and non-public, these securities, like stocks or promissory notes, diversify portfolios beyond market conditions. Due diligence is crucial, requiring a longer process compared to registered securities. Tax implications vary by investment type and merit consultation with a tax professional. An example is Yrefy, a promissory note offering up to 10.25% on a 5-year fixed-income product.*
Engaging with a knowledgeable investment advisor who understands your goals is integral in adopting a wealth-building strategy inline with “rich” individuals.
1. Yrefy Fact Sheet
Many of my fellow millennials are projected to undertake an average of five trips this year. Not only are we surpassing our generational counterparts in the frequency of vacations, but we are also managing to spend an average of $1,000 to $2,000 less in the process. This data is derived from a 2019 survey. In light of the escalating costs of airfare and the evolving landscape of vacation rentals, the question arises: how can anyone sustain such a lifestyle? Let's start with addressing budgetary concerns and tackling accommodation strategies.
While not always the most enjoyable task, it is imperative to comprehend both income and expenditures. This year, the primary concern for my clients revolved around their spending habits in 2023 and the unanticipated costs that ensued. Having been a long-time user of Mint, I've transitioned to Credit Karma now. Although their services are complimentary, the majority of the dashboard comprises third-party marketing. Monarch stands out as a commendable solution, offering monthly reports and household overviews.
With your data consolidated, it's time to streamline your financial commitments. Prioritizing minimalism and functionality becomes crucial, especially when spending extended periods away from home. Subscription services prove to be the easiest to cut, redirecting those funds to a savings account. Additionally, reassessing insurance, phone plans, internet expenses, and storage facilities could potentially result in savings of up to $400 per month.
One significant factor, often overlooked but capable of contributing an extra $10,000 annually to your pocket, is scrutinizing grocery and dining expenses. A weekly night out in the downtown area can easily accumulate to $100 for one person – equivalent to the cost of a domestic round-trip ticket each month. Adopting a strategic approach, such as maximizing the use of your freezer to minimize waste and shopping for the month to curb impulse purchases, can be effective.
When it comes to travel, accommodations and dining represent the most substantial costs. I strongly recommend exploring destinations that offer an authentic travel experience. As we bring our son along on our journeys, frequent dining out can become costly. Hence, we opt for trips where we can indulge, such as an all-inclusive package or a once-in-a-lifetime experience. Otherwise, we seek accommodations with kitchen facilities and proximity to a grocery store. In our recent trip to Belize, sharing sunrise moments with my son daily meant more to me than frequenting restaurants.
Our travel revolves around quality time and immersion in new cultures. Distinguish between what you observe and what truly enriches your soul, and journey on with purpose.
1. MILLENNIALS’ TRAVEL STATISTICS: HOW DO THEY TRAVEL?
Every December, I make it a point to discuss matters related to charitable giving and gifting, and this year is no different. While there are numerous opportunities to contribute, it's crucial to consider tax efficiency, especially given the adjustments to the Annual Gift Tax Exclusion and Lifetime Gift Exclusion. Before exploring the specifics of these increases, let's first clarify the distinction between the Annual Gift Tax Exclusion and the Lifetime Gift Exclusion.
The Annual Gift Tax sets the threshold for how much you can give before needing to complete Form 709. Any excess beyond this limit falls into the Lifetime Gift Exclusion, representing the maximum amount you can give before reporting the federal gift tax. It's important to note that the donor is responsible for paying the tax, and typically, these contributions are not tax-deductible unless they are charitable. Once the lifetime gift exclusion is exhausted, the federal tax on additional gifts may range from 18% to 40% if the contributions exceed the annual limit per donee. It's like navigating a gift-giving journey with a few tax signposts along the way!
Federal Gift Tax Rates
In 2023, the Annual Gift Tax Exclusion stood at $17,000 per donee, and next year, in 2024, it will see a bump to $18,000 per donee. Meanwhile, the Lifetime Gift Exclusion, which was $12.92 million in 2023, is set to rise to $13.61 million in 2024. Staying informed about these figures is crucial, but navigating the complex landscape of gift taxation demands the expertise of a professional tax advisor, especially considering the potential expiration of the lifetime gift exclusion post-2025 due to temporary changes in the Tax Cuts and Jobs Act 2017.
It's worth noting that gifts take various forms, and only direct transfers to your spouse, medical providers, tuition/education, and gifts to political organizations qualify as exclusions. Crafting the optimal tax strategy for your giving requires careful planning, as we always say, if you fail to plan, you plan to fail.
1. Gift tax, how it works and the limits
2. The Estate Tax and Lifetime Gifting
3. Frequently Asked Questions on Gift Taxes
In October of each year, taxpayers typically anticipate the release of the IRS tax bands for each bracket. However, this year, the eagerly awaited information was not released until November 9th. It's crucial to distinguish between brackets and bands, with the former being a result of the 2017 Tax Cuts and Jobs Act. The current brackets stand at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Notably, these brackets are slated to expire at the close of 2025, at which point the previous tax brackets are expected to take effect, with rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.7%, unless congressional intervention occurs. Unlike brackets, tax bands undergo annual adjustments to account for inflation and reflect changes in income for the respective year. Now, let's review some of the modifications currently in place.
Every filing status comes with a standard deduction, complemented by additional deductions available for use in the upcoming tax year. For the current year, the inflation adjustments affecting the standard deduction and annual gifts are outlined below. As you can see, the annual exclusion for gifts is set to rise to $18,000 for the calendar year 2024.
Leveraging retirement contributions presents a valuable opportunity to minimize your taxable liabilities, provided you meet the qualifying criteria. Notice the recent adjustments to IRA/Roth phase-out limits, now set at $123,000 to $143,000 for those filing jointly, and $77,000 to $87,000 for single filers. Strategically allocating funds towards retirement savings, coupled with a committed adherence to a budget, stands out as a strong approach to securing your financial success.
Ensuring effective planning is key as you approach the upcoming year and here are some important takeaways:
In an ideal scenario, especially for those aged 50 and above with a family high-deductible health plan featuring a Health Savings Account (HSA), there's an opportunity to contribute up to $46,800 and potentially adjust your marginal tax rate by 10%.
It's crucial to consult with a tax advisor to tailor a plan to your unique circumstances. These insights serve as tools for your discussions with them. Keep in mind, these approaches and methods are only a few ways in which I help families grow their savings. Collaborating with professionals ensures that your goals remain aligned and provides a comprehensive strategy for your financial success.
In 2023, the Federal Reserve revealed that generational wealth in the U.S. reached a staggering $140 trillion. What's interesting is that Baby Boomers account for just shy of half of that wealth. But here's the thing – this transfer of wealth doesn't have to wait until the time of death. Baby Boomers are well aware of the importance of future planning, especially in the face of discussions about new laws affecting high net worth and ultra high net worth individuals. So, the big question is how to make sure this wealth transition to your minor children goes off without a hitch.
When you're hashing out your legacy plans with your attorney, they'll probably recommend creating a trust for minors as part of the handover process. This is an excellent way to ensure that the wealth is transferred exactly as you intend it to be. You can strategize the allocation, plan preemptive distributions, and make sure the beneficiaries receive the funds as you intended. Beyond all the benefits of this approach, the main win here is that it helps you avoid probate and steer clear of the nightmare scenario of funds getting locked up in an account for the minor.
Having dealt with a blocked account firsthand in Washington, it’s my opinion it's at the detriment of the child beneficiary. The court system steps in, assigns a case worker, evaluates the assets' division at the estate's expense, and then locks the funds in an account until the child reaches adulthood. These locked accounts have modest growth and typically sit in a basic savings account. If you want to steer clear of this mess, your options are to go through the hoops of becoming a guardian ad litem, appealing to the court for that role, and satisfying several financial responsibilities to gain the court's approval. It's a hassle, and to make matters more frustrating, finding a lawyer in Seattle to help with this process is no walk in the park.
Now, there's another way to avoid the probate maze, and it's through beneficiary statements and transfer on death instructions. Depending on the type of account, this can be another fantastic option for minors. The key takeaway here is this: don't leave a financial puzzle for your heirs to sort through. Make sure your wealth transfer aligns with the best interests of the recipient. If you have any questions about wealth transfer or have recently come into an inheritance, give me a call. I'm here to help you piece together the most tax-efficient strategy possible.
Term life insurance stands out as one of the easiest insurance options to secure. Although there are various reasons people might hesitate to obtain it, cost tends to be a primary concern. While this may appear as a drawback, it's crucial to emphasize the significance of consulting an experienced agent and obtaining sufficient coverage.
In a realm full of salespeople and rapid-fire quotes, the question arises: who can you truly rely on? While snagging a quote within 20 minutes or less might seem convenient, you could potentially compromise on coverage or miss out on special considerations. Such tools work wonders for individuals well-versed in insurance products and familiar with the nuances among them. However, if you haven't had that exposure, your best path could be engaging an independent insurance agent. Such an agent can offer choices from multiple companies, catering to your specific needs. When seeking out an independent agent, don't hesitate to inquire if they function as fiduciaries. This signifies their commitment to acting in your utmost interest. If they can't promptly affirm this commitment or if their response seems evasive, it's advisable to search for someone who unequivocally prioritizes your well-being. Another promising sign is if they openly disclose the commissions they earn for each product recommendation. This transparency indicates they remain uninfluenced by compensation.
Term insurance constitutes a vital component of estate planning. Determining the appropriate coverage involves assessing factors such as debt settlement, one-time expenses for your beneficiaries, and supplementary income. To accomplish this, drafting a budget becomes necessary. Take into account all outstanding debts and potential future financial obligations. While the process might seem meticulous, enlisting the right expert can result in a comprehensive plan that provides vital support to your beneficiaries during the most challenging phase of their lives.
As you delve deeper into the realm of insurance, comprehending the diverse benefits of various insurance products becomes essential. If you're interested in receiving quotes, don't hesitate to shoot me an email. Let's work together to identify the perfect fit for your needs.
Most people plan their retirements around specific financial goals and timelines they set for themselves. However, retirement planning is truly a family affair. Every decision you make will impact not only your own future but also the lives of your family members and loved ones. Involving the whole family in the planning process is crucial for successful execution.
To begin, prioritize open communication and mutual support among family members. Determine the most effective ways to communicate both emotionally and practically. This could involve regular family meetings or seeking guidance from a financial advisor to facilitate discussions.
Next, discuss your collective aspirations for the future and identify areas where your family's goals align. While many retirees have a desire to travel and explore the world, it's common for them to also prioritize staying close to family, especially grandchildren, as they age. By understanding what truly matters to you, you can shape your goals accordingly.
Once you have established effective communication and identified shared aspirations, focus on the lifestyle adjustments required to meet your needs. Consider how your daily routines may change, particularly for those who plan to travel extensively. Many retirees take up new hobbies, engage in volunteer work, or pursue part-time employment to maintain a fulfilling and purposeful lifestyle. Discuss the necessary lifestyle adjustments to ensure success.
Another crucial aspect is addressing the topic of longevity. Planning for a longer retirement becomes increasingly relevant as life expectancies rise. It is now common for older parents to move in with their children, and there are even instances where children are financially compensated for caring for sick and aging family members. Discuss the possibility of a longer life and ensure you have the financial resources and family support to accommodate it.
Remember that retirement planning is a dynamic process. While these points serve as a starting point, regular reassessment and adjustments are necessary. Above all, prioritize effective communication, as it not only facilitates the planning process but also ensures that each family member's voice is heard. If you require further information or assistance, feel free to schedule a meeting with me today using the link below.
In the vibrant tapestry of human diversity, the LGBTQ+ community stands as a beacon of resilience, courage, and pride. As this community continues to strive for equal rights and recognition, it is crucial to shed light on the unique financial challenges they face. From wage gaps and employment discrimination to the complex intricacies of family planning and retirement, the financial landscape for queer individuals demands attention and understanding. This article delves into some of the unique considerations in retirement planning and how to better prepare for the future.
Yes, everyone has different needs but when you are a member of the LGBTQ+ community the journey towards expanding your family entails heightened financial obligations from the outset. When you evaluate the available options: in vitro fertilization (IVF), surrogacy, or adoption, the cost associated can be well over $60,000. Expanding your family comes with not only financial implications but also emotional ramifications. Families opting for adoption often experience prolonged periods of emotional turbulence and uncertainty in their journey with the child they have welcomed into their lives, enduring months or even years of back-and-forth interactions. Understanding the best options for withdrawals could save you from paying undue taxes.
When considering long-term care alternatives, the challenges encountered by LGBTQ+ individuals extend beyond the fundamental facility requirements. Some factors of consideration include ensuring the facility and caretakers have aligned values, as well as meeting their financial limitations. Historically, the LGBTQ+ community has been impacted by HIV and AIDS. While treatment advances have come a long way, immunocompromised individuals are more likely to require home care. The LBGTQ+ community is 2-3 times more likely to live independently due to the premium cost of specialized care.
In a 2021 Bank of America Philanthropy Study: Charitable Giving by Affluent Households, affluent LGBTQ+ households were more likely to contain multiple different charitable vehicles and give at a higher rate than their non-LGBTQ+ households. The variety of vehicles used for their charitable organization are intentional through the utilization of donor advised funds and charitable distributions from an IRA. When a legacy plan is carefully curated it is mutually beneficial to the owner and charity.
Affluent LGBTQ+ Americans Prioritize Making an Impact
Source: Bank of America. “2021 Bank of America Study of Philanthropy: Charitable Giving by Affluent Households.” September 29, 2021
Beyond the glittering surface of progress, many members of the LGBTQ+ community encounter formidable financial hurdles that impact their livelihoods and long-term stability. We want to help smooth these barriers out. When looking for a financial advisor, on top of all the other qualifications, you want to make sure that the individual honors pronouns, doesn’t lump you into the group of their clients, and provides you with the comfort of a plan best suited for your needs and journey. Book an appointment below to see if we are the right fit for you.
1. Candid Conversations: LGBTQ+ Planning
2. The 2021 Bank of America Study of Philanthropy: Charitable Giving by Affluent Households
As Father’s day approaches, I think of my dad and all the wonderful life lessons he taught me - like how to throw a football, change spark plugs, and evaluate if something is a need or a want. Some of these lessons don’t have much impact now but it does spark the conversation on teaching finances to our children. Depending on your child and your family’s comfort level with finance, you may approach these pillars at different times. This topic is not meant to be a 15-minute TedTalk but instead should be a lifelong discussion that evolves as they grow.
Tackling the Basics: If you get money where does it go?
Early on (2-3 years old) when our son would get money, we decided to put three containers in front of him labeled: savings, spending, and giving. Our son didn’t need to know the main objectives behind each category, the point was to involve him in the decision making process. We would celebrate it all the same.
As he got older (5-6 years old) and the containers were a little heavier, we set up bank accounts for each of these containers. Instead of putting them all in the same bank, we separated the savings account into a high yield bank and put his spending/giving accounts with a bank that was easy to access. I like this for a couple reasons. First, it breaks the stigma of needing to hold all your money at one institution because you’ve been a customer for a while. Second, when you divide it up between banks it puts the significance on the purpose of the funds therefore aligning to what is best suited for your needs. Around this same time we introduced a new rule, you can put as much as you like in spending BUT you need to match it in savings. A simple change that helps him understand the value of money and how he shouldn’t spend outside his means.
One day he proudly came up to us and wanted to use his money to buy a gift for a friend. Out of all the categories the giving tends to be the hardest for kids to understand. This simple choice shows he is comfortable with his savings and doesn’t feel the need to spend money on himself because his needs are met. At this point he demonstrates an understanding of how each category works and it’s time to move to the next opportunity, investing.
Investing 101: When do you introduce investing?
Coincidentally, the Roblox IPO was available which provided several learning opportunities. Roblox has an internal currency called “Robux and he understood that he could purchase “Robux '' to buy things within the game. He connected with the idea - if he bought Roblox instead of Robux his money has the potential to grow without doing more chores. Of course these are not exactly the same but it was similar enough to peak his interest. He purchased Roblox with his own money. At the end of each month, we would say “it's time to look at how much your Roblox has made”. Then I would ask him, “are more people buying or more people selling?” This review helped him understand the highs and lows of investing. In fact, one day when he came home from school, I was preparing his birthday and I said I have good news! His reaction was priceless "Did my Roblox stock go up?”
He is still showing interest, so we proceed to share more knowledge. As he gets older, we will look at more visually based tools that allow him to research his investments and compare them to the S&P. As he grasps these concepts more, we discuss how long to hold those investments and when is the best time to move to another investment.
Just like anything with kids you need to establish a program, set up a routine, and encourage questions. Before you set up an account for your child make sure to understand the difference in account types by reading my 3-part series, Better than Basics: Level Up Your Financial Literacy, or book an appointment with me below. Teaching our next generation about finance is our opportunity to build a strong foundation early on and ensure financial independence for their future.
If you fail to plan, you plan to fail.
Nowadays, women and investing is becoming a hotter topic. Sites like Dow Janes and Ellevest target their marketing towards women as their investing needs and goals for retirement do not conform to the traditional path. For example, I’ve seen men do some of the riskiest things with their lives and those habits inevitably lead to shorter longevity. Therefore, women often focus more on longevity since they tend to outlive men. While evaluating their portfolios, women will want to pay attention to these three behaviors to avoid letting returns slip away.
In Vanguard's, How American Saves Study, it shows that women participate in their 401k contributions more than their male counterparts; however, they are saving at a lower rate.
Oftentimes these savings rates increase as the women become higher income earners. Some other factors for lower contributions and account balances involve women entering the workforce later in life and women often start at the entry level positions and work their way up. Between the lower rate of savings and the wage gap - currently 82 cents per every dollar a man earns - it’s even harder for women to save for a lengthy retirement.
Lower Risk Tolerance
Men and women differ in many ways when it comes to their risk tolerance. For instance, men take more risk when investing. To determine your risk tolerance, complete an investor profile. An investor profile is based on several different factors: risk tolerance, financial goals, and time horizon. Time horizon is arguably one of the most important factors to creating your investor profile. If this is a roadmap to retirement, think of the time horizon as the destination and the speed is your risk tolerance.
Another consideration when analyzing the lower risk tolerance of women is evaluating the downside potential. Many investors focus on how much they can make and the potential loss. Since women make less on average, the thought of losing their hard earned money is not worth the high risk.
Let’s assume you are able to contribute at a greater rate and you have a higher risk tolerance. Then the only thing standing in the way is research and execution. Research is not much of an issue for female investors, the concern is execution. Execution can be stunted in a variety of ways: trying to time the market, imposter syndrome, or they are just plain too busy.
Unfortunately, these three behaviors create a trifecta for lower returns and most women are repeat offenders. It’s not with malicious intent that women do it but instead it’s from natural programming with the instinct to protect. This protection resonates differently amongst women but it starts with their association with money. To take a closer look at that, sit down with me and make your investments a priority.
If you fail to plan, you plan to fail.