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How to Successfully Live Within Your Means & Reach Your Financial Goals

Written by support@seostats.com on . Posted in Budgeting & Money, Cash Flow, Financial Planning, Goals, Saving.

You’ve probably heard the old adage, “live within your means.” But what does that entail? In the most simplistic terms, living within your means involves spending less money than you earn. Ideally, this allows you to invest more money and reach your financial goals sooner.

Unfortunately, in the U.S., this isn’t a very popular approach. According to CNBC, the average American has $90,460 in debt, which is usually a combination of credit card debt, a mortgage, personal loans, and student loan debt. The truth is, most Americans spend more than they earn.

Now, I’m not against taking out loans altogether, especially if it’s a mortgage or for higher education (with the goal of increasing your earnings). But it’s worth asking yourself: what if you started spending less than you earn, instead of taking out loans or accumulating credit card debt? Would it leave you more money to invest?

Ideally, I recommend saving at least 20% of what you earn and investing it toward your future goals. This can be challenging to do at times, especially when you’re first starting out. But, if you can aim for 20%, you’re more likely to experience success. Out of the hundreds of clients I’ve worked with at Lake Road Advisors, the ones who are most successful save at least 20% or more.

However, I know that living within your means isn’t always easy. It requires a total change of mindset, and sometimes, a shift in your lifestyle too. But if you’d like to spend less so you can have more in the long run, here are 5 helpful tips for doing so.

5 Tips to Live Within Your Means

  • Don’t try to keep up with everyone else. It’s tempting to try to keep up with the Joneses, but it’s not worth the effort. Don’t accumulate credit card debt trying to appear wealthier than you are. Instead, before making a purchase, remind yourself of your financial goals. Visualize your future. Your long-term goals are more important than “having more” today.
  • Save for large purchases instead of using credit. It’s okay to delay a big expense instead of using a credit card to buy something now. While you save, you’ll have time to carefully consider your purchase and ask yourself, “is this something I really need?” For example, you may realize your kitchen doesn’t need a pricy renovation, and your older car still drives fine.
  • Avoid impulse shopping. Amazon and other websites make it too easy to accumulate “stuff.” Instead of clicking checkout right away, leave items in your shopping cart for a few days. After some time, if you still think you need these items, go ahead and buy them. This approach helps you avoid emotional spending, also known as “retail therapy” and accumulating items you don’t really need. Unfortunately, retail therapy doesn’t make you feel better; it just distracts you from whatever issues you are experiencing and creates clutter in your home. Worst of all, it can set you back financially.
  • Create an emergency fund. Life can bring sudden changes, even if you’re living within your means. That’s why it’s so important to have an emergency fund to dip into if you need it. I recommend saving enough to cover 3 to 6 months of your typical expenses. If you have an emergency fund, you won’t have to use a credit card or home equity loan in an emergency, and you’ll avoid accumulating debt.
  • Cut up your credit cards and use your debit card instead. If you don’t want to cut them up, try hiding your cards for a little while. Using a debit card forces you to make sure you have the funds before making larger purchases (novel idea!). Taking the little extra time to check your balance encourages you to think carefully about your spending.

Above all, living within your means is about shifting your mindset. It’s about asking yourself what you really need versus want. And it’s about scaling back today to achieve financial goals in the future. When you’re spending, always ask if what you’re buying aligns with your financial goals. Does it get you closer to where you want to be?

Remember, if you forgo a few material things now, you may be able to live a better lifestyle in the years ahead. Ask yourself what’s more important to you: extra stuff or living a more secure and goal-oriented life? When it’s put this way, it’s easy to say, “no” to extra purchases.

 

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

Financial Moves To Make In Your 60s and Beyond

Written by support@seostats.com on . Posted in Estate Planning, Financial Planning, Insurance, Retirement.

We’ve come to the final installment in our five-part series on financial moves to make at each decade of adult life. In previous blog posts, we looked at what moves to make in your 20s, 30s, 40s, and 50s. Those likely don’t apply to you at this age, but they may have value for younger family members, friends, or acquaintances, so please share them if you know someone who could benefit from the advice.

This final post looks at the matters that apply to those ages 60 and above. But remember: financial planning never really stops. You’ll want to keep an eye on your investments and get help as needed to protect the wealth you’ve accumulated and help others who may benefit from your lifetime of wise decision-making.

 

Delay Taking Social Security

Technically, you can claim Social Security payments as early as age 62, but most experts would urge you to wait until later. You can’t collect the “full” payment until age 66 or 67 (depending on when you were born) and by age 70, you’re eligible for the most you can receive. That amounts to a significant pay raise in the monthly amounts you’ll collect not only at age 70 but the rest of your life.

There are justifications for taking the payments before 70, namely that you need the money or are in such poor health that you don’t expect to live long enough to benefit from the higher monthly amounts. Some fear that the Social Security program is in such shaky ground itself that it won’t live much longer itself, but Congress has a long history of protecting Social Security and recently authorized higher payments, so we wouldn’t worry about that.

 

Examine Your Medicare Options

Medicare is a valuable healthcare benefit, but a confusing one. There are time limits each year on when you can enroll, and you don’t want to miss the deadlines. Therefore, we recommend doing the research on what Medicare plans make sense for you long before the enrollment season begins.

One complication you may encounter is caused by enrolling in Medicare, then dropping it because you have taken a job that provides healthcare options. Once you leave that job, you’ll have to reapply for Medicare within seven months or be without health insurance for at least several months. Stay on top of the rules and deadlines so you aren’t exposed to significant medical costs that you have to fund out of your own pocket.

 

Revisit Your Portfolio – Again

You might have maintained an aggressive portfolio heavily weighted toward stocks in your 40s and 50s, but in your 60s it may be time to lock in some of those gains. After all, you’re reaching the point in your life when you’ll soon rely on your retirement funds to cover much of your daily expenses. A sudden market crash might wipe out much of your savings when you’re counting on them.

That’s why many financial plans shift toward more conservative investments as you age – bonds, primarily – so you aren’t as exposed to significant risk. You’ll still want some equities in your holdings to give yourself more growth opportunities, but not at the levels that were reasonable when you had a longer timeline before needing to cash in. In your 70s and beyond, you’ll still want to re-examine your portfolio. We recommend an annual review to be certain nothing has been overlooked or if new additions/subtractions are in order.

 

Revise Your Will and Make a Legacy Plan

Ideally, at this stage in your life you have accumulated a significant amount of wealth and can now think about how you want to pass it on. Your will is the primary instrument for doing that, but you can refine your contributions through charitable giving to benefit an organization or cause you care about. This is a complex area that requires assistance from knowledgeable estate-planning attorneys. However, many charitable institutions have staff members who are well-versed in how the law allows you to help their organizations through the right gift-giving mechanisms. You may wish to contact them first, then discuss the matter with your lawyer.

 

Manage Your Required Minimum Distributions (RMDs) From Retirement Plans

Once you reach a certain age, the federal government requires you to start withdrawing money from your tax-deferred retirement accounts, such as a traditional IRA or 401(k). The amount you have to withdraw is governed by tables that estimate your life expectancy, the idea being that you would take out proportionate amounts each year to sustain you for all the time you have left. Each year that you take an RMD means you incur taxes on the amount withdrawn.

Until recently, the year that one reached age 70.5 was the one that first required a taxpayer to take an RMD. Congressional legislation modified that so that now a taxpayer can avoid the forced withdrawals until age 72, 73, 74, or 75 depending on what year they were born.

Additionally, Congress has made permanent a provision to allow taxpayers to consider certain charitable contributions as part of their RMD requirements. (Previously, lawmakers would wait until the end of the year to decide whether to allow charitable contributions to count against RMDs.)

The value of a Roth IRA – the retirement account that imposed the tax in the year the contribution was made – becomes evident in the face of RMDs. If you’ve accumulated a sizeable portion of Roth IRA savings by age 72, you can withdraw them as needed and not pay taxes on them. Ideally, a good balance of amounts in traditional IRAs and Roth IRAs will allow you to tap into your savings as needed without incurring too high of a tax payment each year.

 

Enjoy Yourself

We hope that you haven’t delayed enjoying the fruits of your labors until now, but if you have, now’s the time to do so. Some people in their 60s and 70s have been so focused on their careers and providing for others that they have not thought much about spending their savings on themselves. Many of today’s older Americans are in far better health than their parents and can take on activities that might have been unthinkable for earlier generations. Retirement doesn’t have to mean spending days in a recliner or playing shuffleboard in the Florida sun. It can mean going on long-distance bike tours, learning to scuba dive, or go on photography expeditions to exotic locales.

If you’ve planned well and taken the steps we’ve advised here, you should be in good shape – financially, at least – to do whatever you want in your 70s, 80s, even 90s. Of course, should you want to discuss your options in depth with us along the way, we’re happy to set up a time to do so.

 

 

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network (XYPN).

 

Financial Moves To Make In Your 50s – Are You Close?

Written by support@seostats.com on . Posted in Estate Planning, Financial Planning, Insurance, Kids, Retirement.

This fourth blog post in our five-part series on financial moves to make in every age decade looks at what you should consider as reach your 50s. Previous posts looked at what was needed in your 20s, 30s, and 40s. We hope that you’ve already addressed most of those issues with your own financial planning. You may also want to recommend those blog posts to family members or others who are in those age categories.

In this post, we’ll look at what else you can do in your 50s to set yourself up well for the decades to come, as well as help others if possible.

 

Make Catch-Up Contributions to Your Retirement Plans

Because many Americans are behind in saving for retirement, the federal government allows “catch-up” contributions on many retirement options. Due to inflation, the amounts allowed for 2023 have increased for almost all the retirement plans. You need to be over 50 to qualify for the extra contribution limit. But along with higher contribution limits on many of the plans, the total amount that you can set aside for retirement will take a significant jump in 2023. For example, employee contributions to 401(k)s will rise from $20,500 to $22,500 and the catch-up contribution will rise from $6,500 to $7,500. So someone turning 50 in 2023 will be able to put $30,000 in her 401(k) account while she was limited to $20,500 in 2022.

 

Consider Long-Term Care Insurance

Long-term care insurance is a tough product to swallow for many consumers. To recognize its value, you have to admit to yourself that as you age you may need significant health services, potentially for months on end. That’s not a prospect that most of us are willing to embrace, especially when we’re in our early 50s and feeling in great shape. But it’s better to consider long-term care insurance when you’re fit and not already suffering a chronic condition that may disqualify you.

To understand its value, you have to imagine a bleak picture: You’ve bed-ridden, needing constant nursing care, and are facing large monthly bills. You won’t be able to turn to Medicaid for help until you’ve depleted all your savings. Long-term care pays for the services you require (with dollar amounts corresponding to your premiums) so you can protect your accumulated wealth, either for yourself and your spouse once you recover or for your heirs if you don’t.

Note that some companies are offering a “hybrid” form in which there is an “investment” element as well as the insurance so at least some of the premiums pay off in ways other than the care itself. While that may make the product more appealing, it isn’t necessarily the best financial move. We recommend doing your research and consulting different providers to see which option is best for you.

 

Decide How You Might Help Your Adult Children Financially

The prospect of making a good living as a young adult is not as certain now as it was for earlier generations. A Georgetown University report attributed this to the rising cost of postsecondary education, limited access to high-quality work-based learning, and the absence of comprehensive counseling and career navigation services. Consequently, you may see a need to help your children financially longer than your parents helped you.

This is a discussion to have with your spouse and your children so everyone is clear about what to expect. For example, you may offer to help your adult children make a down payment on a home, on the condition that they handle the monthly mortgage payments themselves. Or you may want to share with them what they stand to inherit from your estate. Money can be a taboo subject within families, but the better understanding your children about the reality of their financial status, the better prepared they will be to make their way in the world.

 

 

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network (XYPN).

 

Financial Moves To Make In Your 40s – Stay The Course

Written by support@seostats.com on . Posted in Budgeting & Money, Cash Flow, Financial Planning.

This is the third in a five-part series on financial decisions to make in different decades of your adult life. The first blog post addressed the issues most relevant to those in their 20s and the second blog post discussed topics relevant to those in their 30s. Now we move on to the subjects that are likely pertinent to adults between the ages of 40 and 49.

As we noted previously, these blog posts are intended to help you achieve a secure long-term future. One of the keys to achieving that is to invest as early as possible and adapt the habits that will maximize your chances of reaching your goals. For that reason, we “front-loaded” the suggestions we think are worthwhile in both your 20s and 30s. Ideally, you have done so. But be sure that you have by reviewing those two blogs first.

In your 40s, unless you have a career change or go through a divorce, it’s a matter of refining your efforts, so this post will be focused on the more tactical moves you can make.

 

Max Out Your Retirement Plans

At this point, you’re likely doing well enough in your occupation that you have more than enough to cover your costs of living and providing for your family. If so, be certain you are maximizing your contributions to your retirement plans. With a good 20 years or more of tax-free growth ahead, each dollar you put in can make a difference in what you’ll have once you are no longer working.

To add a small wrinkle of complexity, you may want to opt for a Roth IRA contribution rather than a tax-deferred option. As we said initially, the right financial move for you may differ from the assumptions we have made here about your career and personal circumstances. For instance, if your earnings in one year are lower than they normally are – beginning your own business, for example – you may want to pay taxes on the retirement contribution now rather than when you withdraw the funds when you probably will be in a higher income bracket.

 

Take Advantage of Health Savings Accounts

Another government-created vehicle that has tax advantages is one that often is overlooked: the health savings account (HSA). While it primarily is intended to help Americans cover medical expenses, it has three notable tax benefits: 1) contributions can be made tax-free, as with an IRA or 401(k) account 2) investments grow without incurring taxes on earnings and 3) withdrawals for qualified medical expenses also avoid taxes. Once you reach age 65, you can withdraw the money for non-medical reasons without a penalty fee, although you do have to pay an ordinary income tax on such withdrawals.

 

Ensure Your Portfolio and Risk Tolerance Still Match Your Goals

You may have heavily weighted your portfolio toward stocks when you were younger and benefited from their growth. Are you still willing to assume the risk they represent, compared to safer investments such as bonds? If you have ideas about an early retirement, now might be the time to move into investments that have less potential for loss than equities do. If you don’t expect to stop working anytime soon, you’ll likely want to stay invested in stocks.

Of course, this is highly individual, depending on each person’s circumstances and goals. But no matter what your situation, you’ll want to avoid a lopsided investment portfolio that could keep you from achieving the financial stability you seek. For instance, if you’ve concentrated funds in your company’s stock and benefited from its growth, now may be a time to sell off some of those shares and diversify into other holdings.

This blog post and accompanying video will explain more about stock options and how they fit into your overall investment plan:

Stock Options: Valuable, But More Complex Than You Might Think

 

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network (XYPN).

 

Financial Moves To Make In Your 30s – Building Your Foundation

Written by support@seostats.com on . Posted in Budgeting & Money, Cash Flow, Financial Planning.

This is the second in a five-part series on financial decisions to make in different decades of your adult life. The first blog addressed the issues most relevant to those in their 20s. Now we move on to the subjects that are likely pertinent to adults between the ages of 30 and 39. If you missed the first post, we recommend you review it first to understand our assumptions and be sure you’ve taken action on the items we mentioned there.

As we noted previously, these blog posts are intended to help you achieve a secure long-term future. We don’t think good financial planning means not having any fun. That’s important throughout your life. But you do want to achieve a balance, particularly in your 30s when life is likely getting more complicated. Here are some suggestions on making the right moves during this decade.

 

Buy Term Life Insurance

Life insurance is not an investment, and we don’t recommend buying any insurance products that describe themselves as such. Term life insurance is intended only to provide cash if you or your spouse dies. As such, it should only be designed to protect the survivors from large liabilities – current and future – such as mortgage payments, existing college loan repayments, or future college expenditures. It is not to serve as a complete income replacement for the deceased contributions. Rather, it allows the surviving spouse to take some time off and not have to rush to go back to work. You can keep the term life insurance payments lower by not over insuring and acquiring it when you’re young.

Watch this video for a short explanation of life insurance:

Save For Retirement Before Saving For Your Children’s College Educations

As was the case with the retirement vs. college debt issue we described in the first blog, saving for retirement takes priority, but for different reasons. Once you retire, you won’t be able to borrow money to cover your expenses. (Yes, reverse mortgages are an option, but not one we recommend.) Conversely, student loans and scholarships are available that can help mitigate the cash outlay for college tuition and housing.

Think of this as a variation of the airlines’ advice to put your own oxygen mask on first, then your children’s. You don’t want to set up a situation in which you reach retirement age and become a financial burden for your children. Set aside enough money to allow each of you to achieve financial independence.

Here is more on why we recommend prioritizing retirement savings over college savings:

 

Consider Setting Up a 529 Account and Funding It Early

If your budget allows, consider funding both your retirement account and a 529 educational plan for your children. Both of these investments grow tax-free, and the earlier you fund them the larger they’ll be when it’s time to use them. Ideally you would have enough money to put a lump sum in the 529 plan soon after your child’s birth. If not, allocating a smaller amount at regular intervals – the dollar-cost averaging principle – is a wise approach. Also, don’t be afraid to be aggressive with your 529 investments in the early stages because you’ll have time to take on the greater risk they represent.

This video breaks down the advantages of a 529 and why we think they’re a good idea:

 

Examine Your Housing Costs and Consider Buying a Home

Mortgage rates and housing prices have changed rapidly recently, with significant variations in markets depending on your location. As such, you may be more nervous about purchasing a home now than a couple of years ago. But rents have increased, too, so you may want to pencil out the monthly costs of renting vs. owning and see if now is the right time to buy your own home. Mortgage payments still are tax-deductible, which is a significant advantage in terms of reducing overall costs.

A few caveats: Don’t buy if you’re uncertain about staying in your current area for more than a couple of years. The costs of closing can wipe out the savings you gain. Also, don’t buy a home as an investment vehicle primarily. Rather, think of it as a better use of money you would otherwise need to use to keep a roof over your head. And finally, don’t buy a house beyond what you can afford with the thought of its growing in appreciation. Many people made that mistake during the housing bubble of 2007-08. When the bubble burst, their homes were worth less than what they paid for them, leaving them “upside down” in their mortgage payments.

 

Set Up A Will and Consider a Trust

It may seem premature in your 30s to think about your estate, but if you have children, it may make a difference to their futures if you’re suddenly not around. A will determines who receives your assets, but without a trust, those assets may not be put to use as you would have preferred. An 18-year-old potentially could receive his entire inheritance all at once and not have the maturity to handle it wisely. A trust could parcel out the amounts he would receive at different ages and what it can be used for to minimize the risk of wasteful spending. Additionally, you would help your survivors avoid a lot of potential stress and acrimony by naming your children’s guardians and backup guardians in the will rather than having them sort it out after your passing.

This video lays out the elements of estate planning, but as mentioned, you should contact an attorney for advice tailored to your circumstances:

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network (XYPN).

 

Financial Moves To Make In Your 20s – Time To Build Habits

Written by support@seostats.com on . Posted in Budgeting & Money, Cash Flow, Financial Planning.

Achieving financial security takes discipline, knowledge, and actions appropriate for your age. To help you do so, we’re introducing a five-part series of blog posts specific for each decade of adulthood: 20s, 30s, 40s, 50s, and 60+. We’ll give you concrete suggestions on what matters most in each age category and link to videos or other blogs for more detail.

Everyone will have different considerations based on these circumstances. This is therefore an approximation based on what has been relevant for most of our clients in different age brackets. Readers should adjust the recommendations to their own lives as pertinent.

The principles of financial planning – making time an ally, living within your means, sticking with a process to evaluate your plan– apply to everyone. But the best time to embrace these principles and act upon them is as soon as you can. In your 20s, you’ll want to develop the good habits and frame of mind that will set you up for a secure financial future.

 

Save For Retirement First, Pay Off Student Loans Second

At many points in your financial journey, you’ll need to pick one course of action over the other – even if they both seem worthwhile. The first decision you’re likely to face comes once you’re earning enough to more than cover your living expenses.

If you borrowed a significant amount to attend college, you may wonder which comes first: paying off the debt or putting money into your retirement plan. Most likely, saving for retirement is the better option. Student loans typically are set at low interest rates, and you can generate a better return with a retirement account. Even if the rates were equal, you come out ahead by reducing your taxable earnings.

If your employer makes a matching contribution, that’s even more incentive. Take advantage of the compounding interest rate that time provides you at this early age and you’ll be well-prepared for retirement decades from now. And if you have the option, consider putting money in a Roth IRA or Roth 401(k). Your tax rate now is likely to be less than it will be when you retire, so better to pay taxes now than 40 years from now.

One caution: Get advice on the type of investments that are best for you at this age and realize you will likely need to adjust them in coming decades.

Take a look at this video on Lake Road Advisor’s core investment principles:

 

 

Establish An Emergency Fund

For many people fresh out of college, landing a job that lets them keep up with their expenses is a cause for celebration. The temptation is to go out and buy a lot of things you’d always wanted. The better move is to put aside a portion of your salary to build up an “emergency fund.” This is the money you’d rely upon should something unexpected occur. That job might disappear or you have an accident or illness that keeps you out of work for months.

On a more positive note, you might want the flexibility to change course – move to a different city, take a specialized training course to qualify for a better position, etc. The rule of thumb is to have three to six months of expenditures saved as part of that emergency fund. Throughout your working life, you’ll want such assurance that should something happen, you’ve got a financial cushion beneath you.

Learn more about emergency funds and tying your investments to your goals:

 

Be Careful With Credit Cards – Live Within Your Means

Taking out a credit card and paying it off on time each month gives future lenders the assurance that you’re a trustworthy borrower. That will qualify you for larger purchases, such as a mortgage. But be careful. It’s easy to get carried away and buy items that you don’t need or can’t afford when you have that piece of plastic in your wallet. Before you know it, you’ll find yourself struggling to pay off the monthly bill and chew up your income paying the high interest rates that credit cards carry.

You can avoid this by being mindful of your cash flow and living well within your means. In our experience, families that can save greater than 20 percent of their income and buy less than they can afford are the ones that enjoy the most financial success. That’s not to say you shouldn’t have fun in the meantime, but keep it all in balance.

This video explains the three buckets of a smart cash flow system that can help you achieve that balance:

 

Lake Road Advisors (LRA) is a virtual wealth management firm headquartered in Corning, New York, with offices in Ithaca, NY and Portland, OR, founded by Paul Sydlansky, CFP in 2016 to provide financial planning for busy mid-career professionals with young families. LRA partners with couples long-term to build financial plans that allow them to live the life they want while preparing for the future by making smart money moves to grow their wealth. They can be reached by phone at the Corning, NY office at (607) 438-2914, Ithaca, NY office at (607) 463-8400, or Portland, OR office at (607) 292-2172 or at the firm’s website at https://lakeroadadvisors.com/

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

CERTIFIED FINANCIAL PLANNER™ vs Financial Advisor: What’s the Difference?

Written by support@seostats.com on . Posted in Financial Planning, Resources.

Recently, a client told me about a conversation they’d had with a friend. The client’s friend claimed they did not work with a financial advisor because advisors charge high commissions.

This is a misconception that many, many people hold as the truth – and most professionals in the financial industry do very little to clear up the confusion.

When it comes to a CERTIFIED FINANCIAL PLANNER™ vs financial advisor or other industry professional, there are differences you need to understand.

Of course, my client knew how far from the truth their friend was. At Lake Road Advisors, it’s not that we don’t charge high commissions. We don’t charge commissions at all!

But aren’t we financial advisors? We are – and all advisors are not running the same type of business. Here’s what you need to understand when considering hiring a financial professional, including the differences you’ll find between a CERTIFIED FINANCIAL PLANNER™ vs financial advisor.

 

The Lack of Transparency Leads to Confusion Around Who Gives Financial Advice

This misunderstanding about how businesses charge to deliver financial advice to their clients is part of why many people simply don’t trust the financial industry as a whole. In fact, Financial Advisor Magazine reports that only 23% of investors trust financial advisors.

I get it. I personally know many people who have had bad experiences with pushy salespeople who call themselves financial advisors and sold products for high commissions.

This bothers me as someone with the job title “financial advisor.” The reality is, that’s all the term is: a job title. It does not confer any kind of expertise, knowledge, professionalism, or ethical standard.

Because anyone can use the term, I often refer to myself as a CERTIFIED FINANCIAL PLANNER™ vs financial advisor, because I don’t want to be lumped into that broad category that includes businesses that look nothing like the financial planning practice we run at Lake Road.

The problem starts with transparency. It’s very difficult for you as a client to know precisely who you’re dealing with when someone shows up calling themselves a financial advisor.

 

CERTIFIED FINANCIAL PLANNER™ vs Financial Advisor: There’s a Difference!

“Financial advisor” is a broad, unregulated term. Again, anyone can call themselves a financial advisor, regardless of background, education, or training.

Someone who is an insurance agent, a stock broker, an investment advisor, or a financial planner can all call themselves a financial advisor — even though, clearly, these professionals all do very different things for the people they work with.

Making the problem even worse is the multitude of titles and designations that financial advisors have. Many of these titles are little more than marketing strategies; they don’t actually indicate relevant training or experience.

You can dive into some of the specific designations that do hold weight here. Generally speaking, you want to look for someone who holds the CFP® credentials.

A CFP® is a CERTIFIED FINANCIAL PLANNER™ accredited and regulated by the CFP® Board.  To use these marks, a CERTIFIED FINANCIAL PLANNER™ must undergo rigorous education, training, and experience standards. They must also sit for and pass an intensive board exam and maintain continuing education credits over time.

Perhaps just as important, if not more so, is the fact that a CERTIFIED FINANCIAL PLANNER™ also needs to commit to a code of ethics. As a CFP®, I am legally and ethically bound to act in the best interest of my clients at all times. Our firm upholds the fiduciary standard — no matter what.

You’d think this would be a given for any financial professional, but that’s where the high-charging advisors come into play. Not all financial professionals are required to act in their client’s best interests. Some only need to do what’s “suitable,” meaning it can work for you but it’s not necessarily the best option or solution.

 

When Working with a CERTIFIED FINANCIAL PLANNER™, You Know What You’re Getting

Remember, anyone — regardless of what they actually do for you — can call themselves a financial advisor. But only certified and credentialed professionals can use the CFP® marks, which is why this is a great designation to look for if what you need is comprehensive financial planning and investment management advice.

If you want to go a step further, look for a CFP® who works within a fee-only firm. When a planner or advisor is “fee-only,” it means they only accept payment for services directly from their clients; they don’t receive commissions or payments from third parties. The only thing they sell is their service, which again, is comprehensive advice (not products).

Working with a CERTIFIED FINANCIAL PLANNER™ vs financial advisor can bring more transparency to the process. You know what you’re getting.

To me, the real value in what we do lies in the relationships we build with clients and the financial planning — not the investment management. We take our time to understand your goals and what’s important to you, and we don’t prescribe before we diagnose.

You may not get that with a salesperson whose top priority is to sell you a product. If you want a financial plan, make sure you go to a financial planner who delivers that advice, rather than recommends products (or specific investments before understanding what you’re trying to achieve!).

Ultimately, I do agree with that friend of my client’s who disliked high-commission advisors. If you are paying over 1% for a financial advisor who talks to you once a year and only about your investment portfolio, then yes, you are overpaying.

But don’t shun all means of receiving financial advice. Instead of not working with anyone, consider working with an actual CERTIFIED FINANCIAL PLANNER™ who serves as your fiduciary to build a plan for not just your investments, but your entire life.

Want to see a quick video on How to Find the Right Planner For You? Click below and watch Episode 3 of “The Build”, our 24 part video planning series that takes you from start to finish in building a financial plan with Lake Road Advisors!

What to Consider Before Going from a Dual Income Household to a Single Income

Written by support@seostats.com on . Posted in Budgeting & Money, Cash Flow, Financial Planning, Goals, Saving.

We work with many clients who have a dual income household. They’re usually married and both spouses are professionals in demanding fields, and often, they also have children.

Undoubtedly, at some point or another, these clients face an important question: should they go from a dual income household to a single income one?

Whether this question arises before the first child, after, or once even more children are added to the family, having one parent stay home to raise those kids is almost always an important consideration.

This is even more true if you’re doing your financial planning in a place like the Northeast, where childcare costs are notoriously expensive and can easily cost as much per month (or even more!) than the mortgage payment on your house.

Given that, the answer to dropping an income and moving away from a dual income household is not so obvious. What you might lose in income, you could make up for in savings. It’s a tricky balance to strike, and much depends on your specific situation (not to mention what you and your partner prefer and want for your family).

If you and your spouse are thinking about going to a single income, here are some things you can consider to help you get clarity on what’s right for you.

 

Test Out the Financial Reality

The idea of dropping an income and going from dual income household to a family with just one income earner can feel impossible. But have you run the numbers? If not, the first step is to make a mock budget and see what your finances might look like with one working parent and one stay-at-home parent.

Obviously, the inflow side of the equation will go down. But look at your expenses, too. What costs could you cut? These might include childcare, transportation, meals out, and more if one spouse no longer needs to work a full-time job.

Once you draft your sample budget, review it together. Does it seem doable and realistic? If so, the next step is to put that theory to the test. Try a test run with this new budget as best you can, and pretend like you have to live on one income, starting now. Can you make it work?

Use your “new” budget for at least one month, but ideally three or four to see how it goes. The added benefit of this experiment is that you’re actually still earning two incomes, so if you reduce expenses during this period that should free up additional cash flow. You can put that money straight into savings to extend your emergency fund, a smart move to make if you do transition to a single income.

One of our clients tried this, and reported that it was one of the most helpful things to do to help make the final decision. “Living off one income before we made the switch to single income definitely took some work, and some tough conversations on where to cut and what to keep.”

 

Think About How Long You’ll Be a Single Income Household

Another big consideration in this decision is how long you expect to run your household on one income — because nothing says you can’t return to dual income household status in the future.

SIt down with your spouse and talk through the following questions to establish how long would be a good time period to live as a single-income family:

  • How long do we want to have one parent stay at home and not earn an income? Will it be until the kids start school? Or will one of us be a stay-at-home parent until the kids go to college?
  • What is our Plan B if living on one income isn’t right for us, or something changes? What’s our “exit strategy” if we need to revert to a dual income household?
  • Will the person who leaves the workforce have the ability to jump back in when needed (or desired)? Do they have a skill set that will stay relevant?
  • Are there in-between measures we could take (like working part time or from home)?

Getting clear on your answers to these questions will allow you to back into a financial plan that works for your family. Living on one income for 5 years before your child starts school, for example, is much different than planning for one parent to stay at home for the next 18 years until your kids start college.

This will also help you decide on the kind of emergency fund that feels right for your situation. Normally, we advise clients to keep at least 3 to 6 months’ worth of expenses in an emergency fund. But that might look more like 6 to 12 months’ for a family who wants to transition from dual income household to single.

It’s always smart to build a buffer into your savings, and aim to have more than you think you will need.

 

Don’t Discount the Emotional Side of the Decision

Even if going from a dual income household to a single-income family makes financial sense, it might not necessarily feel good from an emotional standpoint (at least, not right away).

Any big transition is tough on a family, and when you throw finances into the mix, things can get complicated. It’s important to acknowledge that the non-working spouse might have a lot of conflicting feelings about their new role, especially if they really valued their job or ability to contribute to the household finances.

My wife, Amy, was very uncomfortable at first when we decided the best move for our family was to have her be the stay-at-home parent. She felt uneasy about not having her “own” money that she earned at her job.

We always contributed the majority of our money into a joint account, but we also each had our own checking account for “play” money; we could use this money for whatever we wanted, and it came from our own paychecks.

We kept these separate checking accounts even when my wife wasn’t working. The fact that she wasn’t contributing to this was tough for her to adjust to, but it also wasn’t forever. Eventually, we made the decision for her to go back work in part so I could start Lake Road Advisors in 2016. She went from not contributing to being the main breadwinner for more than two years!

This illustrates another important point to keep in mind when making this decision: it doesn’t have to be a permanent change. If, for whatever reason, your family decides that both spouses should work, then you can make the transition back. Don’t feel like you’ll be stuck forever with your initial choice.

 

Stay Focused on What’s Important

Almost every family who makes the decision to have a spouse stop working and stay at home to raise children struggles with the choice. It’s not an easy one, and either option – whether you stay at home or have both parents continue to work full-time – comes with pros and cons.

Remember, nothing is all good or all bad. As with most things in life, you have to make trade-offs. Here, the fact is you may give up some financial flexibility by moving away from a dual income household. And if you number-one priority is that flexibility, then becoming a single-income family might not be the best choice.

That’s why it’s critical to understand your goals and what’s most important to you. Take some time to consider your goals and your priorities, and then let those factors guide your financial decisions.

 

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network (XYPN).

5 Signs You Need an Accountant for Your Taxes

Written by support@seostats.com on . Posted in Business Owners, Taxes.

When it comes to doing things yourself, or hiring someone to help you, most people ask a simple question to decide: “Can I do this myself?”

The answer to that is usually pretty simple, too. It’s either yes, you can, or no, you can’t. If you can’t do something yourself, you need to hire someone. And if you can handle it on your own, why bother?

There’s a big problem with this reasoning, however. Asking if you can do something isn’t as helpful as asking things like, “Do I want to do this?” or, even better, “Is this the best use of my time?”

I know I could paint my own house. But I’m just as confident that it would takeme at least three times as long as it would take a professional painter. It probably wouldn’t come out looking great (I am especially terrible at where the ceiling meets the wall), and the time I saved by doing it myself could be applied to other things that are even higher value than the dollar amount I paid for the work: spending time with my family, for example, or focusing on my business in a way that will help increase revenues.

Keep this in mind as you’re thinking about tax time next spring, especially if you’re asking if you should do your taxes yourself or not. It’s just like me and painting my house: yes, you probably could do your taxes on your own…

But do you think you are getting the maximum benefit from doing that? Are you confident you’ll make less mistakes and take advantage of as many tax breaks and credits as a CPA who knows tax law inside and out would? Is doing your taxes yourself the most efficient use of your time?

Probably not. As your financial life evolves, there comes a point where doing your own taxes just doesn’t make sense. Here’s how to tell if you’re there already, and need an accountant for your taxes:

 

1. Your Financial Situation Is More Complex Than It Used to Be

I know a lot of folks who did their own tax returns when they were working part-time jobs in college, and continued the practice once they graduated and started their careers.

And that made sense: as a college student or someone in the first few years of your working life, you probably (a) didn’t have a ton of money to invest in professional help and (b) didn’t really need it, because your financial situation was likely pretty straightforward.

When you started out, you may have been single, with no children or other dependents, did not own property, and may have worked a job where you got paid W2 income with no bonuses or perks like equity compensation.

But as you grow and advance in your career, you start earning more money. Your compensation package may evolve, or you could even start your own business which radically changes what your income looks like.

Your life can evolve, too, as you get married, start a family, buy a home, and make choices that have real consequences on your taxes.

As your life (financially and otherwise) gets more complex, it’s a sign that it’s time to work with a professional to make sure you’re handling your taxes appropriately. You can’t afford to make mistakes or miss out on tax breaks that could save you money.

 

2. You Own Rental Property

Owning a property that you rent out and earn income from can really help reduce your tax burden — but it can also complicate how you file.

Rental property can be advantageous from a tax perspective because deductions for mortgage interest and depreciation can help your bottom line. On the flipside, there are some potential pitfalls.

The IRS considers income you earn from your rental property as passive income. That makes the money your rental generates subject to special rules beyond ordinary income taxation. That can prevent you from using losses on rental properties to offset your other taxable income, like the salary you earn from your job.

I explained more about how rental properties might (or might not) fit into a financial plan to build wealth here, but when it comes to taxes — you need an accountant to help you and ensure you claim rental property income correctly.

 

3. You Have Executive Compensation

If you have supplementary compensation to your salary and bonuses, that’s a good sign that you need an accountant to help prepare your taxes.

Anyone with stock options, restricted stock, restricted stock units, performance units, phantom shares, and ESPPs should work closely with a CPA and a financial advisor to ensure you’re leveraging these assets appropriately… and not doing things that will land you in a lot of hot water come tax time.

Managing executive compensation can be extremely complicated and getting the timing and taxability of when to exercise and sell shares and options wrong can literally cost you tens of thousands of dollars. Even without making mistakes, if you don’t understand what actions will trigger taxable events, you could end up with a nasty surprise tax bill in the following year.

 

4. You Don’t Have Time

Again, I can paint my own house. But not only do I have no interest in doing this, I really don’t have time. Between running a business, spending time with my family, and pursuing personal interests, there’s not a lot of free time left over.

And I’m not particularly motivated to give up one of those things so I can make room to do my own taxes.

You’re probably in a similar situation. Doing your taxes well takes a lot of time. One of the main reasons to work with any professional is not only for their expertise but because you can outsource a task that may otherwise steal away entire days, even whole weekends, of your life each year.

Couldn’t that time be better spent?

 

5. You Own Your Own Business

Ask any successful business owner how important accounting is to their company and continued growth, and I’m confident they will say it’s critical.

Entrepreneurs usually succeed not because they’re excellent number-crunchers, but because they possess an in-demand skill set or ability. Performing the actual task that makes your business, marketing that service or product, and getting people to buy are big enough jobs to manage.

You can’t do those required tasks successfully and also build a strategy for continued success unless you understand the strengths and weaknesses in your business. That’s where a good accountant can become a critical partner in improving your chances of doing well now and in the future.

A solid tax accountant can help bring that all to light and provide insight on key performance indicators, which helps you improve your decision-making for your business. Plus, every other reason to hire an accountant listed above probably goes doubly for you as a business owner; not only do you have personal taxes to worry about, but you have business taxes to manage too!

These are just a few of the many, many reasons you need an accountant for your taxes. If even just one of these signs shows up in your own life, that’s good enough to reach out to a CPA and learn more about working together.

 

Lake Road Advisors (LRA) is a virtual wealth management firm headquartered in Corning, NY, with offices in Ithaca, NY, and Vancouver, WA. Founded by Paul Sydlansky, CFP®, in 2016, it serves successful couples planning their next chapter—whether that’s retirement, part-time work, or a less demanding second act. Paul has worked in the financial services industry for 25+ years. Prior to founding Lake Road Advisors, he worked at Morgan Stanley in Manhattan for 13 years, where he was a senior-level manager within the Institutional Equities Department. In 2018, he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER® and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network. They can be reached by phone at the Corning, NY office at (607) 438-2914, Ithaca, NY office at (607) 463-8400, or Vancouver, WA office at (607) 292-2172 or at the firm’s website at https://www.lakeroadadvisors.com/