Financial New Year’s Resolutions You Can Keep
With a new year almost upon us, it is now time to think about your New Year’s resolutions for 2024. These resolutions should include financial resolutions that you can keep as well. Setting the Stage for Financial Success in the New Year A good starting point is to reflect on both your financial successes and those areas where you may have fallen short this year. It is important to set financial resolutions for the new year, but it is also important that those resolutions be realistic and achievable. Stretching is okay, but overreaching and falling short each year can lead to frustration that can discourage you from doing proper planning. Creating a Realistic Budget Budgeting plays a key role in achieving financial stability. Knowing how much money is coming in and going out, and where that money is going are critical elements in your overall financial planning efforts. There are several steps to creating an effective budget, including: Identifying income sources Tracking expenses Setting savings and spending goals Tracking your progress against those goals Calculating Your Net Worth Your net worth is the total of your assets minus your liabilities. This includes your investments, your home and any other real estate, the value of any art and collectibles, the value of a business and any other assets you own. Subtracted from this number is the total of your liabilities, typically debts owed such as a mortgage, other loans, credit card debt or other types of debt. Your net worth can represent net assets that you can convert to cash. Growing your net worth over time can help ensure financial security over time. Managing Debt Wisely Carrying too much debt can have an adverse impact on your financial well-being. Large debt payments can detract from your ability to save and invest towards your financial goals. There are a number of strategies for reducing and managing debt, including the following: Debt consolidation strategies, which include consolidating your debt into one loan at a lower interest rate. Debt snowball vs. avalanche debt repayment methods: The snowball method entails paying off your smallest debt first, then the next smallest and so on. The avalanche method is the opposite, you focus on the largest debt first and then move down the ladder. The snowball method tends to be considered the preferable approach in most cases as it tends to accelerate the process a bit. Negotiating with creditors to lower your interest rate or even forgive some of the debt can pay off in some cases. Developing a debt reduction plan as a financial resolution may be your best plan. Especially if this translates to a permanent strategy to reduce your debt and then maintain it at a management level. Building Emergency Savings Having an emergency fund should be an integral part of your planning. As the name implies, an emergency fund is a sum that is there in case the unexpected happens. An adequate emergency fund can help soften the financial impact of unforeseen situations like a job loss, a prolonged illness, unexpected car or home repairs and a host of other situations. How large your emergency fund should be will vary based on your unique situation. Most experts suggest having at least three to six months worth of your ongoing expenses such as housing, food and other basics in a liquid account such as a savings or money market account. You may feel you need more than this depending upon your needs. Accumulating an emergency fund does not need to be hard. You might consider doing an automatic transfer to your designated emergency fund account each pay period, much like your 401(k) contributions for example. The effort to start and maintain an emergency fund is worth it, knowing your basic needs are covered provides peace of mind that can free you to concentrate on achieving your longer-term financial goals. Reviewing and Adjusting Your Financial Resolutions Establishing financial resolutions is not the end of the process, in fact it is only the beginning. It is critical to review your plan to achieve these resolutions periodically during the year. Things may not always go according to plan; periodic check-ins allow you to review your progress and to make adjustments as needed. It is important to set goals and milestones towards these goals in order to be able to track your progress. If you find yourself falling short in any areas, you may need to make adjustments. This might involve the amount you are saving or perhaps your progress in reducing your debts. In these examples, you might need to reduce spending elsewhere to free up the money to get back on track. Things do not always go according to plan with financial resolutions. It is important to stay motivated and to be accountable to yourself in terms of monitoring your progress and making adjustments as needed. While it can be frustrating to fall behind on achieving your financial goals, focusing on the benefits of the end goal can be a good motivator to make adjustments and get back on track. Conclusion It is important to review your financial situation at the end of each year and to set financial goals for the new year. It is also important to track your progress against these goals and to make adjustments as needed. This is a good time to reach out to your Wedbush financial advisor for help in reviewing your financial situation and in formulating goals for 2024 and beyond. Happy New Year and best wishes for 2024! Disclosure Wedbush Securities does not provide tax or legal advice. Please consult your tax or legal advisor. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s
Year-End Financial Checkup: Positioning for a Strong Finish
Year-end is a good time for a personal financial checkup. It is important to look at how you did during the year compared to your financial goals and expectations for the year. This can help you determine if your planning was on track and can help in formulating plans for the upcoming year, and with your overall longer-term financial planning. Short-Term Financial Goals These are goals for time periods ranging from a few months out to one or two years. This could include goals surrounding the amount contributed to retirement accounts, taxable investment accounts, savings goals, reducing spending, paying down debt or others. Short-term goals are the “gateway” to achieving your long-term goals so it is important that you are on track with these goals. Long-Term Goals This is a good time to assess your progress towards your long-term goals and to make any adjustments to these goals going forward. Long-term goals are those that have multi-year time commitment to attain them. Examples might be saving for retirement, saving for your children’s college education, buying a home and a host of others. Are you on track towards achieving your goal financially? Do you need to make any adjustments to your savings strategy? Does the goal need to be revised? Assessing Income and Cash Flow As we move into 2024, it is important to assess your anticipated income and cash flow for the coming year. Will anything be changing good or bad for next year? Were there any items that contributed to unusually higher or lower income and expenses this year? Will those items remain in place for the foreseeable future, or will things get back to normal next year? Expenses and Budgeting How much you spend in comparison to how much you make is the key determinant in your ability to save and invest to achieve your financial goals. Do you have a budget in place? How did your spending compare to your budget this year? Do you need to make any adjustments going into next year to be able to stay on track towards your financial goals? This is the time to evaluate your spending and your budget to start the new year on the right track. Tax Planning A key financial task prior to year-end is to assess your estimated tax liability for the year. Is it in line with your expectations? Do you have enough set aside to cover any additional tax liability when you file taxes early next year? Moreover, tax planning for next year is a critical part of your financial planning efforts. Are there steps you can take to reduce your tax liability? These might include: ● Retirement plan contributions ● Charitable contributions ● Ensuring that you are capturing all deductions that you are entitled to Savings and Investments Did your savings for retirement and in general meet your expectations for the year? This is the time to determine your goals in these areas for next year and to have a strategy in place to maximize savings and to ensure that your investments are in line with your overall objectives and risk tolerance. Are you maxing out your retirement plan contributions? In reviewing your investments, was performance in line with your expectations? Ideally, you will have a benchmark to compare your portfolio to. This might be an overall benchmark like the S&P 500, or a blended benchmark of several indexes tied to your portfolio’s asset allocation. Your asset allocation is critical to investment success. Is the allocation still appropriate based on your progress towards your goals? Does your portfolio need to be rebalanced to be in line with your investment strategy? This is a good time to do that rebalancing. In the process, you might be able to harvest some tax losses that you can use to offset capital gains elsewhere and reduce your overall tax hit. Also in the course of rebalancing, you might find yourself in a position to donate shares of appreciated assets like stocks, ETFs or mutual funds to a charity. The market value can be a deductible charitable contribution, and donating securities eliminates any capital gains taxes that would arise from selling appreciated shares held in a taxable account. Credit and Debt Management As you review your finances at year-end, be sure to check your credit scores. This number can impact rates on any loans needed in the future and is sometimes even considered when applying for a job. If there are issues, be sure to come up with a plan to correct any deficiencies causing these issues, such as late payments, etc. Take a look at your debts to determine if you can pay any of these down quicker or if you can refinance any debts at a lower interest rate. Both will pay off in the long run. Are there ways that you can save money in the new year? This involves reviewing your budget and spending, including credit cards. In many cases even a small reduction can free up money for other priorities that can be beneficial to your long-term planning. Estate Planning As part of your year-end review, be sure that your loved ones are covered in the event of your death. A will is the basic estate planning document; in some cases a trust or other types of planning may be appropriate. Be sure all life insurance policies and retirement plan accounts have up-to-date beneficiary designations. This is especially important if you have recently experienced any life changes such as marriage, divorce, the death of a spouse or others. Year-end is an excellent time to sit down with your Wedbush advisor to discuss your situation and to be sure that you are on the right path for 2024 and beyond. Disclosure Wedbush Securities does not provide tax or legal advice. Please consult your tax or legal advisor. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to
How to Maximize Charitable Giving for Tax Benefits
As we approach the end of the year, many investors focus on helping others and on any year-end tax reduction moves they can make to reduce their tax bill for the current year. Fortunately, charitable giving is a win-win in terms of accomplishing both goals. What are Charitable Contributions? Charitable contributions are donations made to charitable organizations directly or to a fund that will manage the donations and allow you to give the money to one or more charities over time. Charitable contributions may be tax deductible if you are able to itemize deductions on your tax return. Types of Charitable Contributions Contributions can be made in cash or by gifts of appreciated securities or other assets. Some people choose to establish a donor advised fund (DAF) or private foundation to which they make tax-deductible contributions and then allocate funds to the charitable organizations of their choice over time. Wedbush Securities partners with American Endowment Fund, a sponsor of donor advised funds. Be sure to speak with your financial advisor regarding the unique opportunity that this provides. Maximizing the Tax Benefits For a charitable contribution to benefit you from a tax perspective, the donation must be made before the end of the tax year that you plan to claim the deduction in. Bunching contributions into a single year can help you reach the threshold where you are able to claim your charitable contributions as a deduction for the current tax year. By bunching, we mean taking the amount of contribution that you might make over two or more years and bunching those contributions into a single tax year. Even with the increased standard deduction limits included with the Tax Cuts and Jobs Act legislation, itemized deductions are generally a better option in terms of tax savings. This is where a strategy like bunching contributions into a single year can pay off. Donor advised funds are funds administered by a third party such as a brokerage firm. You can contribute cash or other assets to the account. You receive a charitable deduction in the year of your contribution. You can then make donations to eligible charitable organizations over time. Wedbush Securities partners with American Endowment Fund, an independent, national sponsor of donor advised funds with $6B in foundation assets. Using appreciated securities to make your contributions can offer several advantages. Your contribution amount will be the market value on the day of the contribution. Not only will you be eligible for a tax deduction of the contribution amount, but contributing appreciated securities eliminates any capital gains taxes that would be incurred if the securities had been sold outright. For those who are at least age 70 ½ and who have a traditional IRA account, you may choose to give via qualified charitable deductions (QCDs). These are contributions made from their account to a qualified charitable organization and are tax-free withdrawals from the IRA. For those who must take required minimum distributions, QCDs can be used to meet some or all of this requirement. For those who do not need some or all of the money from their RMD, QCDs can reduce the tax hit. Keeping Accurate Records As with any other tax deduction you take, it is important that you keep all records regarding any charitable contributions. Be sure to get a verification from the charity to which you donated so that if there are any questions from the IRS, you can verify the amount contributed and that you are deducting. Be sure to keep any canceled checks, receipts from electronic donations and other types of verification generated when making the contribution. Choosing The Right Charities Choosing the right charities is important from the standpoint that you want to be sure that your donations are in line with your values and what is important to you. It is also important from the standpoint that you want to ensure that your contributions will be tax-deductible. Tools such as the IRS search tool can help you be sure that your donations are going to a legitimate charitable organization. Tax Law Changes and Updates For tax years 2020 and 2021, the deduction for cash contributions was up to 100% of your adjusted gross income (AGI). This has been reduced to a maximum of 60% for tax years 2022-2025; it drops to 50% after 2025. The Secure Act 2.0 legislation added the option for those who are eligible to do QCDs to take up to $50,000 and divert that to a Charitable Remainder Trust or to a Charitable Gift Annuity. Under Secure 2.0 beginning in 2024, the annual limit of $100,000 for QCDs will be increased each year for inflation. Charitable giving can be a win-win in terms of tax planning and helping causes you believe in. Contact your Wedbush financial advisor to discuss how to incorporate charitable giving as part of your overall financial planning strategy. Disclosure Wedbush Securities does not provide tax or legal advice. Please consult your tax or legal advisor. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.