February Client newsletter
It is finally SNOWING!! As I sit and write this, the snow is lightly falling and it actually looks and feels like winter in MI. Although I love the warmer winter weather, one of the things I love most about the state of Michigan is the changing seasons. Lately it seems like fall stretches to spring and we seem to skip winter more and more. There is something special about the quiet and the calm and the freshness that fresh falling snow brings - it is different than any other experience throughout the year. As we roll into February and, maybe like me the year feels like it is flying by, look back on the good intentions that we started the year with; how are you doing? If we are being honest, I think that most of us would say that we have fallen back into the habits and routines that we ended the year with and regardless of the great intentions we started the year with, we didn’t put up much of a fight to change. So often it is easier to maintain the status quo rather than put up the fight to change and we tell ourselves we are okay with this. Maybe 2023 should be a year that the stats quo isn’t okay and change is.
I have spoken with a handful of people who have seen the benefits of taking on the challenge of change and have over a period of time seen tremendous results. They have paid off 6 figures in debt, they have found new careers, they have accomplished education goals, and so much more. This wasn’t easy and it wasn’t quick, but change that is worth making rarely is. Let me encourage you to continue to strive to make the changes that you see are important for you, your family, your health, your finances, etc. If there is something that I can do to assist or cheer you on, let me know.
February Element Focus is……Savings Rate (SR)
Savings Rate tells an important story about your current financial wellness and preparation toward long-term financial security. It allows me to measure the overall flexibility in your plan (a higher Sr provides more cushion for unexpected liquidity needs). And it can help you feel more prepared for financial setbacks.
Setting a reasonable savings goal and sticking with it is highly correlated to financial independence. Set a goal, save the right amount of money each year, and don’t give yourself a pass. It might be the most important indicator of long-term success for many people. In reality, most people struggle to save money for the future because humans, by nature, tend to have a behavioral tendency “to give stronger weight to payoffs that are closer to the present time” (it’s called “Present Bias”). That bias often results in you spending before saving.
As a result, lifestyle and consumption choices are by far the biggest variable in savings rates.
There are dozens of examples where increased lifestyle costs might result in fewer dollars to save (think housing, food, family size, education, etc.). Also in competition with our ability to save is a modern economy that continues to have more stuff to buy, more easily (think subscription services, doorstep delivery of anything, etc.).
All of these lifestyle considerations have tradeoffs. If you’re going to have any money left to save, there are so many things to say “no” to. You just can’t get the “best” of everything if you’re going to maintain a healthy savings rate.
February Planning Opportunities
Emergency Reserves Update - Last month we looked at our Burn Rate and reviewed our monthly spending. This was an important step that now leads us into reviewing emergency reserves or emergency funds. I recommend maintaining at a minimum 3 months of monthly expenses as your emergency fund and for most people I think that it is more appropriate to have a 6 month emergency fund. This varies based on a lot of factors. Things like job security, job replacement availability, one or two incomes in the household, and many other factors. I will be reviewing your emergency reserves and reaching out to you if we need to make adjustments. If you have questions, please give me a call.
Insurance Review…Disability - Insurance is never a fun discussion but it is a necessary one. This month the focus is on disability insurance. If you are like most people, your disability insurance is provided to you through your employer. There are several things to consider when reviewing disability insurance. First, are you paying for it with pre or post tax dollars. If you are using pre-tax dollars to pay for your disability insurance, your benefit, if needed, will be taxed as you receive it. If you are utilizing post tax dollars to pay for your disability insurance, your benefit, if needed, is tax free. This will impact the amount you receive from your disability policy if needed. Also, you will want to review your waiting period, the amount of your income the policy covers, and what the policy considers a disability in order to pay out. If we haven’t reviewed your policy and your options, I will be reaching out to you this month. If you have changed policies and we haven’t discussed it yet, please let me know so that we can set up some time to review your new policy. If you have any questions, please give me a call.
Client Actions
Another month with no great requirements for you to accomplish. However, a couple of reminders for you as we move through February. You should have received or be receiving your 1099 documents that you will need in order to complete your taxes. If there are any that you are missing or need a time frame on when you might receive them, let me know and I will see what I can do to provide you with more information. These 1099’s will be for your deposit accounts (interest over $10.00) brokerage accounts, retirement accounts, annuities, etc. You also should have or will be receiving your 1098 which is used to report mortgage and home equity interest paid. If you have any questions around preparing for your income taxes, please let me know. The best thing you can do to help be prepared for filing your taxes (whether you do them yourself or have a professional do them) is having your documents in order.
February is also our first month for SSFP serves. I am working on putting together an opportunity for the current and future clients of Silver Strand Financial Planning to be able to gather and serve together. These are great opportunities to meet some of the amazing people involved with Silver Strand Financial Planning and serve others in our community. My desire is to live a generous life and to be part of a community of generous people and this is one small step that I believe helps move us in that direction. Stay tuned for more information and if this is something that you are interested in participating in, please let me know.
It is always my intention to have my monthly client letter in your inbox by the first of the month. However February has thrown a few things at me already, that were not planned but are great lessons and reminders. First, our refrigerator quick working. One morning last week we woke up to a freezer full of thawing food and a warming refrigerator. It has been a long time since we have had to look at buying a refrigerator and we were living in a world of sticker shock and information overload - lesson learned, again, emergency funds take the stress out of emergencies. Second, I woke up on the February 1 and had several emails from Bank of America introducing me to my new bank account, instructions on setting up online banking, and a request to verify my email. We have never banked at Bank of America and we didn’t open the account. After speaking with a representative at a Bank of America branch, not calling the number in the emails, I found out that this is something that is happening (so be on the lookout) but more than that, they had all of my current and correct information: address, phone number, email, date of birth, and even social security number. I have helped many people through this but never felt the immediate helplessness and frustration and questions that occurred when I was the one needing the assistance. It has taken some time but I we have completed the necessary steps and are moving forward. It is a reminder, for me, that it is important to check your credit reports, be diligent about protecting personal information, take data leak notifications seriously, and to have someone in your corner to help you through these unexpected experiences. If you ever find yourself in a similar situation, please let me know and I can walk you through and walk with you through it.
On a happier note, the Bloomfield Hills Christian High School boys varsity basketball team that I help coach won the regular conference championship! Now on to the tournament…Go Defenders!