2023 EP0121 | PLANNING MATTERS | Proactive Planning for 2023 and 5 Key resolutions

We want you to plan for success. Welcome to Planning Matters Radio.

Peter, it is really good to see you. We have some important topics to discuss today. Of course, it's proactive planning for 2023 and five key resolutions.

2022 was such a brutal year for investors. 2023 is sure to be challenging, but there are some action steps that we can take now to set ourselves up for future success. Let's talk through some of those resolutions. First, on your list, something you say is very important, rebalancing. Why is that important? Well, it's often overlooked, which is why it's important that we give the reminder.

Look, rebalancing is one of the fundamentals of long-term financial and investment success, because rebalancing is what keeps your portfolio in alignment with your acceptance of risk. Erin, I don't know if you've ever driven a car that has been out of alignment. It's the worst. Yeah, it keeps veering off to the side. And what would happen if you just let it go, right? It would be dangerously off course and you run the risk of getting into a bad accident.

And you know what? Even if you kept your hands on the wheel, a trip is not usually just a straight shot. It takes some work to get to your destination to keep it between the ditches, so to speak. And what rebalancing is, is adjusting, right, along the way to maintain the proper course. So on one hand, we've got the point A to point B, and we need to make sure that we are doing the work to keep the portfolio on track and on course. I think that that is the regular rebalancing, kind of the minimum amount of time and attention that somebody should be paying to their portfolio, going in and realigning it to your risk tolerance probably at least once a quarter. But even in more significant circumstances, when there is a major market correction, this becomes all that much more important. And a lot of people's portfolios become out of alignment over time or in the midst of a major market move, either up or down, by the way. And so regularly checking up on that alignment, taking the car into the shop, so to speak, going and consulting with your planner or advisor to make sure that your portfolio matches your acceptance for risk and is on course to get you to your intended destination is very important. And again, Erin, all too often overlooked, which is why it's number one on our list for resolutions or goals for 2023.

I feel like that's one that I can keep for sure. Absolutely. Again, minimum time and attention should be paid to your money.

Right. Number two on your list, pay down debt and lower expenses. I feel like this is probably very common as far as anybody setting financial resolutions for the new year.

Sure. Except that American society nowadays finances more of the day to day purchases in life. I mean, we put the trip to the grocery store on the credit card. We put the gas on the credit card.

We put the drive through line on the credit card. Well, because the interest rates rose so much in 2022 and are slated to continue rising in 2023, those daily purchases, along with financing more major purchases like automobiles or homes, are all that much more expensive. The big one in my mind, though, is the daily purchases.

I'm a Dave Ramsey smart investor pro. I'm not really a fan of using the credit card at all, but so many people do. If we can get those paid off, paid down, eliminated, not carry debt over more than month to month, it would go a long way in improving everyone's financial picture and progress and monthly cash flow. It would give you more expendable, disposable cash each and every month in your pocket. Right. And just to kind of underscore the obvious, Peter, one of the reasons it's so important is we know the Fed is going to continue raising interest rates, which makes our debt more expensive.

Yeah, absolutely. Again, from your home to your vehicle, your student loans, especially the credit cards, those are insidious. I mean, I'm seeing credit cards anywhere from 16 to 26 percent right now. That is a negative rate of return working against you. So when someone comes into my office and says, hey, I've got some money that I'd like to invest and do something with. And on the other hand, they have some credit card debt.

It is a bird in the hand. I cannot guarantee that kind of rate of return by investing money, but I can guarantee you, if you don't pay off the debt, that that negative rate of return is working against you very hard. Right. And next, number three here, keep saving for retirement. This is always important, but also, Peter, just to touch on something that we've spoken about earlier, new retirement account limit contributions, they're up significantly for 2023. And they need to be. I mean, retirement, we are finding out cost more and more and things in the future cost more anyway.

So I'd love to see them even higher. But most people don't take advantage of the maximum amount that we're able to save anyway. But whatever you can do, whenever you can do it as early as you can and continue the process, save for retirement, folks. And the benchmark in my mind for doing what you should be doing for contributing toward traditional retirement investment accounts is that 15 percent pay yourself first, get 15 percent of your gross household income put away in traditional retirement, long term investments, your 401ks, your IRAs in some form or fashion. We need to be doing as much as possible for retirement. And we can talk about the order of operations in the best place if we maybe do a future episode on where and how to determine what tools to use. But that should be a priority. We should be striving toward at least that 15 percent. And yes, the contribution limits for 2023 up a little bit, maybe allowing a few more dollars to get into those accounts, which is a good thing. It is good.

All right. So, Peter, next on your list, update your estate plan slash beneficiaries. You know, when we think of a state plan, it's so much more than just your home.

So why is this so important? Yeah, because it's so much more than just your home, although the home is oftentimes the thing that is sort of most argued about, most contentious within the planning. Do I put it in trust?

Do I name it in my children's names during my lifetime? Is there anything that I can do to protect it against Medicaid spend down requirements? There oftentimes is not specific documentation as far as beneficiaries on a home. So the home is important, yes, but all of the assets, I mean, the investments, the bank accounts, the IRAs, you need to look at how these things are going to transfer.

Have you documented how you intend to have them transferred? Because nothing can cause infighting amongst the family or just complications that you do not want to place on your family more than an unaddressed estate plan, not properly documented, not properly discussed. You got to prepare the money for the people.

You got to prepare the people for the money. So there do need to be discussions and there needs to be careful legal planning, which you slide up on screen now in some of the tools. But that probate process by and large can be avoided with the majority of assets just by properly naming beneficiaries and discussing these during your lifetime. And unfortunately, I've seen a lot of out of date beneficiaries or no beneficiaries listed on accounts whatsoever. Those beneficiaries can be named right within the IRAs or the 401ks and bypass the probate process. Probate, by the way, I've heard it defined as a lawsuit that you place on your family on behalf of your creditors after your death. And I thought that was a pretty appropriate description of what probate is. If we can avoid it with the majority of our assets, why wouldn't we take those simple steps?

It doesn't take a lot of time. So just double check it. And it is so important. There's so much that can be addressed because the passing of assets. Yes, that's important after your passing. But the estate documents also cover what would happen in the decision making process if you could not make those decisions on your own behalf. Who do you trust to make financial and healthcare related decisions? And we have a network of attorneys that we work with to help our clients make sure that those things are addressed. And in our reviews, we always double check beneficiaries and the setup of accounts, whether we are in control of them or if they are outside of our direct view.

Mm-hmm. And naming those beneficiaries or making sure they're up to date, again, a very easy process, something that we should be doing probably more often. Can be easy, but unfortunately, when it's forgotten, it also can lead to a lot of unnecessary and increased difficulty and heartache on a family. Right. And the last resolution here, we have proactive tax planning. What does that mean to you? It means looking ahead rather than behind. So we're in the midst of the time of year, maybe on the front edge of when people are really thinking about all the forms coming in the mail and preparing and filing.

But that is all historical. That is looking back at last year, what has already happened. It's a very important process, but it is not proactive. And we are in a planning mentality, looking ahead and being proactive. And with any financial move you make, there are tax considerations and implications that you need to be aware of and plan forward to better control. And taxes are a expense that we will all face. There's never been a dollar that has been created or earned or grown or invested that the IRS did not have some kind of tax plan for, but you can, in many cases, control and minimize taxes, even some certain circumstances. We've talked about episodes on this as well, where you can eliminate taxes on certain dollars altogether.

So being proactive in your tax planning, looking forward, can be one of the most effective things that you can do financially. It is not what you make. It's what you keep. It's not what you have. It's what you get to keep out of it.

And that is a very controllable expense in many ways. Very well said. Well, I feel like these are five resolutions that I can definitely keep, but I know you're going to keep me honest, Peter. So this is a very important conversation. If somebody would like to talk through anything that we've covered today, what's the best way to reach you?

Yeah, to look at those opportunities or even just for some accountability. If you need somebody to sort of hold your hand and make sure you do it, give us a call, 919-300-5886, 919-300-5886. Or you can visit online, rashanplanning.com. It looks like Rich on Planning is my last name.

You can also email me, peter at rashanplanning.com. All right, Peter, thank you very much. Happy New Year. All right, don't let these resolutions slip or go get broken. So stick to them. And again, kind of just accountability is the key for a lot of folks in keeping those resolutions.

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