Financial Planning Steps To Start 2024 Right Part 2

We explore 10 Financial Planning steps to start your 2024 off right part 2. In the first show, we talked about some personal issues that you should consider and assess progress you made towards goals last year. In this show we build off of that list rounding out the last 10 financial planning steps to start this year off on your best financial footing.
bullseye 2024

Kevin Zywna, Wealthway Financial Advisors: Tonight, we’re going to talk about financial planning moves to start the new year right version two, version one was the first show of the year. And if you want to catch some of the details on that, you can always go to our website, where we have at least the last eight to 10 shows on our Dollars & Common Sense page. And I think we have even another button where you can get all the historical shows. But version one was the first show of the year. The second show where I meant to talk about this was taken up by listener calls. And that’s great. And I welcome those, I want those, I think that the calls are fantastic for helping provide a real world perspective for all listeners so that they can hear other people asking questions to hear what’s on their mind. What problems or issues they have, from a financial statement planning standpoint, so they know they’re not alone. Many of these questions are very common. We hear them often in our practice. Where we can help provide answers, direction, guidance, that’s what we’re here to do first. So that’s what the calls are all about.


10 Financial Planning Steps to Start 2024 Right

Some financial planning rules to start the year off right. So show number one, we talked about some personal issues that you should consider – assess progress you made towards goals last year. Have you identified new goals for this year that you need to plan for/incorporate into your budget process? Savings Plan? How about any life events that are likely to occur this year – move, marriage, birth, kids, job change, retirement, all those things to consider that might be on the horizon. You need to confirm whether you or your family members reach any financial planning milestones like, age 59 and a half, 70 and a half, age 65, Medicare, any of those big age milestones come up? Here’s some of the things I said back then remember, check out our website.

Step 1: Evaluate Cash Flow And Your Budget

Cashflow issues – we talked about in show number one, do you expect your household income or expenses to change over the course of the year? Do you need to review your cash flow plan? Your savings plan? That’s primarily the main thing we’re talking about there.

Step 2: Maximize Financial Benefits Through Your Employer

How about employee benefits that you now have available to you? Review your corporate benefit plan, take advantage of all the opportunities that you have there. Are you taking advantage of them? Why not dig into that? Are you able to contribute to an IRA or your company sponsored retirement plan? Do you get matching on it? These are things you should know. If you don’t know, you should be checking them out.

Step 3: Understand New Regulations Regarding Retirement Plans

Researching about RMDs (required minimum distributions). Coming up this year, that rule is kind of made a little bit more complicated now with the Secure Act 2.0. It used to be just seventy and a half when you had to start taking those required minimum distributions from traditional IRAs and 401 K plans and 403B’s and TSPs. That has been pushed back now, and will continue to be pushed back, up to age 75. But right now we’re at 62, I think, it is off the top of my head, might have to go check that one.

Step 4: Make Financially Smart Charitable Donations

Any annual gifts that you want to make this year, you don’t have to wait to the end of the year to do that you can make them early in the year. And if you make qualified charitable distributions directly from an IRA, you can do that at the beginning of the year. You don’t have to wait until the end, you’ll have to do it on a monthly basis. You don’t have to do it weekly to your church. A lot of charitable organizations love to get a big fat check early in the year instead of it trickling out throughout the course of the year or waiting until the end allows them to plan and budget much more effectively. So annual gifts, something to consider this year from a financial planning standpoint.

Step 5: Ensure You Have An Adequate Emergency Fund

So now we get into some new areas that I didn’t talk about in the first show. We’ve got some things to talk about regarding assets and debts. There are some tax considerations, insurance issues, and even some legal and estate planning issues, as well. So here are some things that you want to consider now to set yourself up for success throughout the course of the year. So one of our basics, your emergency fund, do you need to adjust or replenish your existing emergency fund? So generally speaking, an emergency fund is considered three to six months of your routine monthly expenses. So for example, if your household expenses to pay the mortgage, the lights, the water, the food in the refrigerator, the car loans, the kids’ tuition, whether that’s your childcare or private school, what have you, clothes, that type of thing. Say it’s 10,000 bucks a month. Okay, so then your emergency fund should be between $30,000-$60,000 for three to six months of expenses. You want that tucked away in an easily accessible bank. Safe, easily accessible, safe bank savings account.

Now, a lot of this should be separate from your checking account, so don’t commingle it with your checking account or mentally account from it. It should be really separate and even better yet some people we know open up a separate bank account in a separate bank just to kind of keep it away from their hot little hands. Because nowadays, with the easy flow of electronic funds, just putting in the savings account at your same institution is easy to get a hold of. So some people put it in a separate bank that they don’t have electronic access to, and they would have to make a phone call or go into the bank branch to have money transferred or withdrawn in the form of a check. I’m not saying you have to go to that extreme. I’m just using that as an example. But that money needs to be set aside for life’s true emergency. So car repairs, major home repairs, large medical bills, anything unexpected from a financial standpoint, one of the largest being an unexpected short-term job loss. So a layoff, or an unexpected firing, for whatever reason – that happens. Even federal government employees, one of the safest forms of employment that exists in the country, can get furloughed. We know that has happened over the last several years. So that unexpected loss of income that is what your emergency fund is for. And that is one of the first things that you should assess at the beginning of the year. Do you have enough? Do you have it in the right place?

Step 6: Prepare For Any Significant Changes That Impact Your Finances

After you do that, are you planning to buy or sell any significant property this year? Are you going to buy or sell a house? Are you going to buy yourself a car, or buy yourself a business? Those are big financial transactions. So you should be thinking about those now? What needs to be put in place to make sure that those transactions happen as efficiently and effectively as possible?

Step 7: Re-evaluate Your Investment Tolerance And Portfolio Performance

How about as it relates to your personal investments? Do you need to review your investment risk tolerance? Risk tolerance is kind of a thorny subject for us at Wealthway Financial Advisors. We’ve gone away from the traditional investment risk tolerance questionnaire, where your investment advisor would try to assess how comfortable you are with the volatility of your portfolio, how much it would go up and down in value. We’ve pretty much learned through the years that people don’t do a good job of assessing their own risk tolerance. I mean, given the option, most everyone does not want their investment values to ever decline and wants them to only go up. Well, that’s not realistic. That’s not the real world. But people tend to skew that way when they answer the risk tolerance questionnaire so well, we don’t use them anymore. In our practice, we have other means of having this conversation and assessing our clients’ comfort level with how we invest. For those people who don’t work with an advisor, that’s something that you should consider.

Kevin Zywna, Wealthway Financial Advisors: Tonight we’re talking about financial planning moves or considerations to start 2024 off right and get you pointed in the right direction for the rest of the year.  We got into some investment concerns and questions that you should be considering. How about talking about risk tolerance? Do you need to review the performance of your investment accounts? Well, yes, you do. You should always know the performance of your investment accounts.

And, you know, one of the things that we do for our clients is, we aggregate all of their separate investment accounts- the Roth IRA, traditional IRA, joint brokerage account, however many accounts they have, we pull it all together, and we do the math on the rate of return. Then we report to our clients every three months exactly how their investments are performing. So there’s no guesswork. And there’s no ambiguity on how am I doing? We know exactly how our clients are doing from an investment standpoint, and everyone should know exactly how their investment accounts are doing. Sadly, there are still some brokerage companies out there that don’t report investment performance for their clients, either at the account level or at the aggregated account level. We get new clients that come in, I’m always like, Well, how do you even know how things are going? And they are like, I don’t know, the value goes up, it goes down, that’s the only way I can assess. Well, that’s a horrible way to assess something so important. So if you don’t, know they are getting better. I am seeing performance numbers show up more frequently on more brokerage, and investment accounts. But still, we’re far from having them show up on all of them. So know your investment performance.

Now, you don’t need to know it on a daily basis, a weekly basis or monthly basis, quarterly or annually is fine. Anything more frequent than that tends to cause too much anxiety, and too many bad decisions. So know your investment performance. But know the right time period to assess your investment performance as well. And then once you know that, how about do you need to do something about it?

Do you need to rebalance your investment portfolio otherwise adjust your asset allocation, asset allocation, a fancy term for the different categories that make up the investments in the totality of your investment portfolio? So a good standard practice of good investment management is to do occasional rebalancing of the portfolio. So when we build a portfolio, we have these different categories that we expect to have certain percentages that make up the portfolio. So for example, maybe 15% of the portfolio is in us large company growth style stocks, and maybe 10%. Isn’t domestic internet, I’m sorry. Developed international style company. So those are companies headquartered outside the US, typically in Europe or Japan, those more developed markets. How about commercial real estate? How about US small company stocks, value style, all these are different categories. And so what you put into the portfolio from a category standpoint, you tend to want to keep that asset allocation consistent over time.

And it’s natural, as investments go up and down in value over time, that there’s going to be drift style drift, we call it away from those percentage set percentages that we expected, it’s important to rebalance back into those percentages, because then you have a higher degree of confidence, higher degree of probability of achieving your desired long run rate of return. If you don’t rebalance, then you start to get style drift. And there’s a lower probability of reaching your long term rate of return. And it is in effect, if it’s done right, it is in effect, forcing you or the investment manager or the investment advisor, the financial advisor to, in effect, sell a little a few some of the investments high relatively high and buy some of the investments of relatively low. And that’s exactly what you’re supposed to do in a systematic discipline, way. You do that over time. That’s how you achieve your best long term performance results. So adjust your asset allocation or rebalance your investment portfolio. Something to consider as you take a look at how to properly manage your investments for the rest of the year.


Wealthway Financial Advisors

Step 7: Take Advantage Of Tax Efficient Accounts

Okay, do you need to review your asset allocation across different accounts in the portfolio? For example, consider holding tax efficient investments in taxable accounts and tax inefficient investments in tax deferred accounts. Okay, there’s a lot of words in that thing, right there. What does that mean? And where does this kind of granular, now we’re getting down into the weeds of portfolio management. But bonds, if you hold bonds, or bond funds, or bond ETFs, typically throw off a lot of income. That’s one of the purposes of holding bonds. So income produces taxes. So you can shelter that income if you keep it in a tax protected wrapper such as your traditional IRA or a Roth IRA. That activity is not taxed as it happens because it’s in the tax protected wrapper. So you would prefer to have them in that type of wrapper as opposed to a regular taxable brokerage account that doesn’t have that protection. And so they’re in that type of account, we would prefer to see investments that don’t throw off a lot of income like individual stocks, individual securities, growth stocks, like your Amazon and your Microsoft and so forth. So they have good potential to grow, but they don’t create a lot of income. It’s much more tax efficient.

Caller Questions Answered

Unpacking Portfolio Balancing

Right now we’re going out to Virginia Beach to speak with John. Good evening, John, you’re on Dollars & Common Sense.

Caller:  Good evening, I’ve got two questions, if you have time for both of them. The first is when you were talking about and pardon me if I get the words wrong, but re-evaluating how your things are distributed and possibly selling off some of the higher value ones following that money back into lower value ones that you think are going to grow. How do you determine that? You know, like a stock is doing well. Maybe it’s going to keep doing well and be doing better and, you know, support a lot of ones might not do anything at all. So how do you go about making that decision on what to sell?

Kevin Zywna, Wealthway Financial Advisors: Right Okay, so, good question. What you’re talking about there, John is rebalancing the portfolio. So it’s pretty common in our industry to display the different categories, the different asset classes. Same thing, different word. Different categories as a pie chart, and each piece of pie or slice of pie in that pie chart is made up of a percentage. And so the total pie is 100%. And then you’d have different slices or different asset classes, that might be 10% of the portfolio. And then another slice of pie would be 15% of the portfolio, and so forth until it equals 100. So in our practice, we have sophisticated portfolio management software. So we set up an asset allocation for all our clients. And then when we pull up their accounts. It aggregates all the accounts and then we measure it against their target portfolio, that target asset allocation. And then we can see which slices of pie have grown too big. So if we thought it was supposed to be 12%, and now it’s 16% of the portfolio, we want to rebalance that back to its original allocation, back down to 12. So that would tell us then to sell 4% of that particular asset class, and then we would redistribute it into the other slices of pie that haven’t grown as large. And that is effectively, like I said earlier, selling off some of the assets that have performed relatively well and so we’re selling relatively high. And we’re buying those other slices of pie that have lagged the portfolio and buying relatively low selling high and buying low. You do that a little bit over time. And that’s how you maximize your long run return.

Now embedded in your question was, how to do it, but when to do it also. So generally speaking, we feel that once a year is enough. At one point in time, monthly rebalancing was in vogue, then quarterly rebalancing, we think annually is kind of the optimal time to take a look at your portfolio and then rebalance it. So did that make some sense?

What Is The Wealthway Financial Advisors Process Of Developing And Managing A Portfolio

Caller: Yes, I think it does. And I had and this kind of off the wall. If I was with you, and you had all my stuff allocated, if all of a sudden for some reason, I wanted to buy new stocks that may or may not be in my portfolio. Can I just call and say I’d like to buy 100 shares of, you know, Ginsu, or whatever? Is that something you’ve been able to do? Or, if not, how will you go about doing it?

Kevin Zywna, Wealthway Financial Advisors: Yes, okay. Well, so we aren’t brokers, right? We’re not stock brokers. And so we don’t traditionally take direct, buy and sell orders from our clients. We fundamentally work with delegators, people who don’t want to mess with the dirty details of investment management. So on the front end of a relationship with clients, we lay out our investment plan. We do a professional, sophisticated Investment Policy Statement, which is a broad document that lets everyone know, sort of the rules of investing how we’re going to do it. And we make sure everyone’s comfortable with that. And then we present our recommended asset allocation, that pie chart pie graph of what we think is appropriate for their needs. And we talk about that. And then we go one step further, here are the investments we are going to start out with that closely align with the different categories that we set up in that asset allocation. And so here’s what we specifically think they are, and that’s where we’re going to get started. And then once we have an agreement on all the big picture stuff, then our clients leave it up to us to handle the micromanaging of the details. If one of the investments that we have in the portfolio is underperforming, and we don’t feel the prospects are good going forward, it’s our job as the investment advisor to sell ABC fund, say and replace it with x, y, z. Now, we do a little bit of say, is there a little bit of flexibility in there? Yes, there is. And sometimes we have clients for a variety of reasons who want some shares of say Apple or Facebook or Microsoft or something like that. And as long as they’re reasonable, small portions of clients overall net worth, then we will accommodate that. But as you describe it, you know, we handle all the details. So our clients don’t have to. What do you think about that?

Caller: In a general sense, that makes perfect sense. But I just didn’t know if there were, you know, one off instances where, for whatever reason, the bug bitten by this particular item, if that would be done through you.

Kevin Zywna, Wealthway Financial Advisors: So the short answer is, yes, it can. And we would say that as long as, again, a small, less than 5% of your overall portfolio. We can usually accommodate something like that, but I want to make sure it makes sense. And so what we do do, John, here’s maybe a better answer to your question – we definitely have some clients who to have what they call a Play account, because they like the action. They liked the excitement of investing, but they know that, left to their own devices, for their entire net worth, that’s a road to ruin for them.

So they’ve offloaded to a professional that has a system and a process and experience in place to deliver a better result. But I do, tell people, I get it if you want to dabble in stocks here, take $50,000 of your money, put it in a separate account. I don’t want to see it. I don’t want to know about it. I just want to know what the value is. Once or twice a year, you just tell us that. I don’t care what you’re buying and selling. I don’t care how frequently you’re doing it. Scratch that itch with that small account and let us handle the important money.

Caller: Okay, well, thank you very much. I appreciate it.

Kevin Zywna, Wealthway Financial Advisors: Thanks for the call. Some good, nuanced questions in there. We’re talking about rebalancing. The beginning of the year is a good time to reflect on your investment strategy and rebalance appropriately. Make sure you’re aligned with your overall asset allocation. If you don’t know what I’m talking about, if you don’t know what an asset allocation is, if you don’t know what rebalancing is, and you are investing, chances are you’re doing it wrong. Okay, these are fundamentals to good long term investment management asset allocation rebalancing. So if you’re just picking stocks here and there on Robin Hood on an app, or something like that, you’re probably not setting yourself up for long term success. So whether you work with a professional, or you do it yourself, the terms asset allocation and rebalancing should be well-known to you. Okay.

10 Financial Planning Steps to Start 2024 Right Continued

Step 8: Evaluate Your Mortgage

All right, how about some other asset and debt issues to consider throughout the course of the year? Do you have a mortgage that you might want to refinance? You probably don’t. If you cut your mortgage, and or refinanced in the last, oh, I don’t know, 10 years, at least prior to 2023. You know, interest rates were historically low in the twos, threes and fours. We were screaming from the mountaintops during that period of time, now is the time to take a 30 year fixed mortgage, stretch it out as long as you can. Do not try to pay it down early, do not get a 15 year mortgage, take that cheap, long-term money and stretch it out as long as you can. So most people do have those. We find now obviously, current interest rate environment is a little bit different, we were seeing 30 year fixed rate mortgages above seven, almost pushing eight percent. Lately, we’ve seen them down in the fives. So even in that range, while that’s higher than we’ve been accustomed to, for the last decade or so it’s still historically reasonable, I don’t know this for a fact, I feel like that’s around average 6-7-8 percent long term, 30 year fixed rate. So it’s not horrible. It’s just not as good as it was. And real estate people will tell you this all the time, buy your house, but rent your mortgage. So that means you can go ahead and you can always refinance at some point in the future, but get that house that you want. Whatever the prevailing rates are, that’s what you kind of have to live with. But in the future, if they go down, you always have the option to refinance. So something to consider there.

Step 9: Access Loans You Have Cosigned

How about are you a cosigner guarantee on any loans or agreements? If so, you want to check with the other interested parties to confirm the terms, the payment history, and the current status of those loans. So if you are cosigning a loan, you are like a backup bank. You know, there’s the bank who makes the original loan, typically to is a family member, son, or a daughter, who doesn’t have enough credit. Mom or dad is the cosigner or guarantor of the loan or the credit card. This allows the child in this example to build credit, or maybe repair broken credit with a backup. So that if the son or daughter doesn’t make good on this loan, then guess what – the bank is coming to you, mom or dad to make sure that you make good on that loan. So just something to consider. It’s fairly common with kids starting out of high school or college getting their first credit card or car loan that they need to have a guarantor, or cosigner. So something to talk about if you are one of those people.

Step 10: Review Your Credit Report Annually

How about review of your credit report? Yes, that’s a good thing to do, at least annually, review your credit report and find out what’s on there. A lot of people don’t do that even if you have good credit, it’s good to know how other companies are reporting to the credit bureau. So at least once a year, you should do that. And you can do it for free at There are many imposters out there, many junk sites that try to collect your information and use them to sell you things that you don’t need or spam you with email that you don’t want. So is the free site to go to. And you can request a credit report from three different credit bureaus, the three main ones are TransUnion, Experian, and Equifax. And so and you can get a free credit report from each of them once a year. So a good strategy, if you really want to stay connected to your credit and credit reports is to get a free report from one of them every four months. And that way, you’re getting information every four months, but you’re only requesting one from each of them, a credit report from each of them once a year by staggering it that way. So something to consider there. Everyone should have a sense of what their credit is, their credit score.

In the old days when I first entered the banking industry when I got my first job, it was a very dark and murky, opaque world of credit reporting. And almost all the power resided with the credit bureaus and the banking system. And it was very difficult for the consumer to either question learn number one question challenge, correct any information on their credit report. Since then, because of those unfair conditions laws have been enacted, that has shifted the some of the power back to the consumer, so that if there are discrepancies, you have now easier channels to dispute that, and to correct that, because, you know, a good credit report, and a good credit score is vitally important to long term financial health and financial success, not everything. But you know, a lot of financial transactions that you do, will be traced back to your credit report – insurance rates, things you don’t think I mean, everyone knows, like credit cards and bank loans, car loans, personal loans. Yes, everyone kind of knows that they’re going to pull a credit report, and they’re going to check your credit score, but it also, sometimes, your insurance premiums can be impacted by your credit score, those that have lower credit scores, and, and worse credit histories will pay more in insurance premiums, because insurance companies deem you to be a greater risk. A lot of employers will check this information to get a sense of your character, because it is true whether we like it or not that our desire or ability to pay back debts that we owe, if you don’t do a good job of that, that can be a poor reflection on what you might be like as an employee. So having a good clean credit report with a good credit score, which takes a long time to build by the way, and can be lost relatively quickly if you make the wrong mistake. So check that credit report.


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