Financial Wellness Through the Ages

Financial Wellness Through the Ages

By: Matt Center, Wealth Management Associate

At ML&R Wealth Management, we have a popular adage that our advisors refer to in nearly every client meeting: “Focus on what you can control”. This demand sounds simple enough, but it can present many challenges to our clients as well as the rest of the world. It requires an individual to take an honest look at their life, seize control over some areas (personal financial habits), and then delegate responsibility in others (investment and taxation expertise). In this article, I’m going to touch on a few areas that individuals need to regulate on their own, namely budgeting, spending habits, and saving throughout each stage of life.

To get started, let’s walk through some steps young adults can take in order to ensure financial wellness. For those just getting started in their careers, financial independence can trigger any number of emotions such as freedom, enthusiasm, fear, or even a sense of being overwhelmed with responsibility. Just like any stage of one’s life, we should try as hard as possible to remove emotion from the decision-making process. Although a first paycheck may look nice when deposited, it’s as good as gone without a well thought out and realistic budget. I recommend building a budget in Excel. Microsoft has a plethora of budgeting tools available, but my personal favorite is downloadable right here. This template breaks down spending areas into great detail and even offers targeted versus actual spending results if you want to track your monthly budget closely. For those who prefer a more automated experience, I would recommend a downloadable mobile budgeting app that allows you to link your bank account, credit cards, and investment accounts for a clear picture of where your money is going. There are many apps out there, and I have found “Mint: Personal Finance & Money” best fits my needs. Setting a budget will require you to take an objective look at your spending habits and where they can be dialed back, as well as where you think you may be able to boost your standard of living.

As careers progress and income increases, it is always a good practice to direct a large portion of those raises to different savings goals rather than lifestyle increases. When developing savings objectives, it helps to divvy the goals into different “buckets” to imagine filling up with your excess dollars. For those who are becoming more established in their careers, these buckets typically include but are not limited to: a rainy day fund, large purchase fund, retirement savings, and college savings for children. The first two buckets of the aforementioned list are considered short-term goals and should be held in a very liquid medium like a savings or money market account. The other two buckets mentioned are generally considered long-term and can be held in accounts that allow for investment into well-diversified investment vehicles. For example, employees of most companies can contribute to their employer-sponsored 401k plans to save for retirement. It’s never too early to begin saving for retirement and take advantage of long-term market appreciation. In order to save for higher education costs, we typically recommend utilizing state-sponsored 529 accounts. Each state has its own plan, and residents are not required to stay within their home state’s plan. Outside of saving for large capital needs in the future, it is also important to pay down “bad debt” such as credit cards as much as possible during our twenties, thirties, and forties.

During the latter portion of an individual’s career, their main financial goal should be to save for retirement and minimize their tax burden, as these are typically the highest earning years of their life. The best way to do this is to maximize 401k contributions (capped at $19,000 annually, or $25,000 including catch up contributions starting at age 50). It’s never too late to begin saving and planning for retirement, and by the time an individual reaches this stage in life, they will generally want to have built out a holistic plan with their advisor that provides for their lifestyle and replaces their income during retirement.

When an individual and/or couple retires, there are several steps they can take in order to ensure they are giving themselves the best chance of not outliving or outspending their hard-earned savings. The first would be to utilize and follow the financial plan that they built prior to retirement. This should be the first safeguard against overspending, and automating a set monthly transfer amount without volatile withdrawals helps retirees stay within those consumption boundaries. Another tool that can help provide for retirement needs is maximizing projected social security income by way of delaying benefits and planning around taking spousal vs. personal social security benefits. These strategies can become complicated, so we recommend speaking to your advisor about this prior to retirement to ensure the best plan is set into motion.

I hope these tips help you focus on what you can control, and let your trusted advisor at ML&R Wealth Management handle the rest. As always, if you have any questions please feel free to contact your advisor or a member of our team who will be happy to provide more insight into any of the topics discussed in the article.

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