The story below is from our November/December 2021 issue. For more stories like it, Subscribe Today. Thank you!
How lifestyle choices can affect your finances – plus other great tips for 2022 financial preparation.
It used to be breadwinners would grind through 30 years or more in the same job to earn a pension, work to ensure their children had better opportunities and strive to accumulate money to transfer when dead. Those days are gone. People see wealth differently today.
Quality of life has become a primary focus. That’s changed how families and business owners view money, prioritize investments and seek help to make smart decisions. Amassing wealth has taken a back seat to enjoying life while you’re living it.
This modern mindset is causing a shift in everything from financial advisor expectations to technology solutions.
Smart Money Habits
Younger people tend to have challenges with the basics. Things like how to open an IRA are issues many struggle with before simply asking someone who knows. Questions are about the foundational aspects of getting started with investing for the future.
These individuals in particular are looking for answers about how to create an envisioned lifestyle. It’s not about being rich, superior or having an easy life with no worries. It’s more about having enough to afford simple pleasures and ultimately, a fulfilling retirement. Many plan to continue working into senior citizen years.
Most people who are affluent tend to be more educated about financials, budgeting and where their money is going. Typical queries from this group include “I’ve maxed out my 401(k), what should I do next?” Questions are about strategy.
Those under the age of 50 are allowed to contribute up to $19,500 to a 401(k) before maxing out. Older adults can do catch-up contributions for an additional $6,500. Depending on income level, individuals may be eligible for tax-free contributions to Roth IRAs. Beyond that, lower risk options include municipal bonds, fixed index annuities and universal life insurance. HSAs (health savings accounts) are a tax-free investment option for reducing tax liability with out-of-pocket medical expenses.
Real estate can be a good investment for both younger and older adults, but this comes with risk. It’s important to understand the market, maintenance costs and how to leverage tax benefits in this sector.
No matter one’s age, basic smart money habits are about the same for everyone. Invest 10% to 15% of what you make. Have a plan that includes diversified holdings to reduce risk. Capitalize on pre-tax retirement savings vehicles, or in the case of a Roth, tax free disbursements later in life. Be as consistent as possible with a dedicated long-term strategy. This is standard advice people hear but often fail to implement.
There’s room, however, to get a lot more thoughtful – and creative – with tax liability concerns. Individuals, families and business owners can save a lot of money by considering how investments may affect taxes owed before the year ends. Once a new calendar year begins, there’s little you can do to fix large capital gain liabilities or money moves that trigger a higher tax bracket. Tax law involves subjective interpretation, but that only works when advice is based on current law language.
Finding the Right Kind of Help
Hiring an investment professional today should be more about getting advice and project management support than annual meetings to discuss risk tolerance. No wonder people are getting frustrated with advisors focused on transactional conversations and generating 60-page reports. That doesn’t effectively address the lifestyle issues most are trying to plan around today.
Fiduciaries became a thing with the Department of Labor fiduciary rule. Since that time, this role has evolved. Today, even beginning investors can pay a credentialed investment advisor by the hour to get customized, strategic financial advice geared toward individual goals. Such professionals can be a good resource for everything from basic budgeting and investment plan guidance to making better 401(k) decisions and adopting money retention strategies with accumulated wealth.
People are expecting more from financial advisors. That’s a good thing. It doesn’t make a lot of sense to buy into formula approaches as lifestyle decisions become more individualized and important.
Using technology to enhance lifestyle goals
A variety of technology tools have come to the forefront in recent years to help with personal and business money management. Depending on individual challenges and goals, some of the free tools available can be useful. These include:
Mint: a free personal money manager from Intuit; capabilities are limited
Acorns: offers micro and robo-investing from $1-$5 per month as a low-risk way to start getting in the habit of setting money aside.
Credit Karma: also free from Intuit providing credit scores and investment product recommendations; know the service is funded by banks who get consumer referrals to their products, so incentives are in place to push sales.
Zelle, Venmo, CashApp & PayPal: provide a variety of options for giving and receiving funds, often for free; hidden fees and privacy concerns can be an issue.
Fintech Explained
Technology employed by both businesses and consumers to replace traditional financial transaction methods is at the core of the fintech movement. Many of these services are now automated and enhanced with software AI (artificial intelligence) functions.
There’s been a lot of AI growth with consumer interactions. Everything from chatbots to bookkeeping data entry can be enhanced with computer learning. Sci-fi movies may depict machines overtaking the world, but that’s not a realistic outcome for how AI works today. Software is designed to learn to predict needs as it processes consumer habits. These tools only work properly when integrated with human oversight.
Still, AI is being adopted as a tool in most industries, including the slow-to-change accounting field. Progressive financial firms are using AI to automatically log and categorize business transactions in almost real time. Financial professionals can then focus brief time on verifying machine data entry is correct so a majority of the time can be spent creating customized and inventive strategies for client financial goals. It’s a fantastic development that will provide considerable benefits for the firms and clients who become early adopters.
Families today are looking for money solutions that make life easier and more fun. New technologies and early adapters are making it simple to do things that might have seemed impossible five years ago. As lifestyle priorities continue to take precedence over accumulating massive wealth, customized money management has become more focused on quality of life aims. This means it’s now possible to create a comfortable life with less.
The story above is from our November/December 2021. For more stories, subscribe today or view our FREE digital edition. Thank you for supporting local journalism!