Financial Planning at Year-End: Investing is About Time, Not Timing

No sound financial plan would be complete without some disciplined and consistent savings strategies.

Yet, a steady journey toward reaching one’s financial goals is easier said than done with more investment platforms than ever before on the market. Fortunately, resources are available to elevate financial literacy and get to the heart of what really matters – building wealth.

Creative Planning Partner and Managing Director Ryan Swartz noted that it’s common for investors to not meet their financial goals due to credit card debt, overspending, failing to plan for taxes, neglecting retirement savings, not being adequately insured and what he characterized as “behavioral mistakes.”

“Our clients have a financial plan in place that allows them to manage their progress toward their goals,” he said. “By being accountable to a financial plan that you check in with regularly, you can work to limit the risks of these pitfalls and create a process to remain on track.”

Swartz offered a simple solution to overcome many common barriers investors face.

“Most of the mistakes that investors are unable to recover from are because they abandoned their strategy, or moved away from the plan they had in place,” he stated. “Part of being a successful investor is to stick with what you know will have a high probability of success in the long run [even] when it may not be popular in the short term.”

While the markets are very unpredictable in the short run, he said, they become more dependable over long periods.

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“Use this to your advantage to meet your financial goals,” Swartz remarked. “Time in the market versus timing the market.”

He encouraged individuals not to charge more than they can afford to on their credit cards and to consistently pay off the entire balance on their card each month, thereby avoiding potentially considerable interest.

Additionally, by maintaining emergency funds that account for six months of expenses, Swartz said people can avoid the need to fall back on credit in the event of the unexpected.

Establish clear financial goals and priorities.

“Beware of spending on food, online shopping and subscriptions, which are all common areas of overspending,” Swartz added. “[Also] be aware of ‘lifestyle creep’ as your income increases over time; increase the savings rate instead of letting increased spending take away the extra income.”

He suggested enlisting the expertise of qualified tax professionals to manage tax payments throughout the year, versus one time during filing, especially as income changes.

“Consider strategies such as Roth conversions and tax-efficient income withdrawals if needed,” Swartz said.

Automating savings helps with the notion of “paying yourself first,” as he indicated one is more likely to save early and often when the process is “out of sight, out of mind.”

Lastly assess personal and financial needs to determine what should be insured.

“As your life changes, review these needs from home, auto, and umbrella coverages, to life, medical and disability,” Swartz said. “Determine what may be provided through work, but also what can derail you if you were to sever employment.”

Reviving Failing Plans

When Wealth Advisor Grant Nieland of Carson Wealth meets with families, he finds that one of the biggest barriers to building wealth is not taking advantage of 401(k) or retirement plan contributions.

“[These families have] significant discretionary income, but they aren’t taking full advantage of their retirement contributions,” he explained. “Maxing out contributions allows for tax-deferred growth and potential employer matches.”

Strategies like backdoor Roth contributions, a means of converting nondeductible contributions into a Roth IRA, can provide extra tax advantages. 

“Additionally, in the event they are 10-plus years away from retirement, making too many changes to their retirement allocation when volatility is present or being too conservative too early can affect long-term returns,” Nieland noted. “Investors need to stay focused on their financial goals and avoid reacting emotionally to short-term market fluctuations.”

Largely, he characterized such emotional decisions as among the top hurdles to investors reaching their goals – something that could be avoided with a plan in place.

“ … it’s easier to understand the risks and avoid making changes that could affect long-term outcomes,” Nieland added. “Getting a second opinion with a trusted financial professional can confirm you are on track to accomplish your financial goals or identify what changes could improve that plan.”

Another barrier is often quite simply a lack of budgeting. Being prepared with an emergency fund and applying for credit before even needing to, is key.

“So, it’s there to use if necessary and there are no barriers that could be a challenge in a tight financial situation,” said David Swearingen, private client relationship manager at Core Bank.

Resources, such as apps for tracking expenses, finding trends, saving and planning for the future can be a big help.

“It’s also important to be making payments on time, not utilizing more than 50% of available revolving credit lines, and limiting the number of credit inquiries you complete,” said Heather Seaman, senior banking center manager at Core Bank. “When there is the ability to pay balances down or off, concentrate on the highest interest rate first.”

For those who are struggling to manage their finances or want to uplift a friend or family member on this front, advisers often use discovery questions and try to see what the client truly wants to accomplish with funds that fit in their budget.

“We may have to review statements to help find trends or items that they may be unconsciously spending money on,” Swearingen explained. “Free credit reports are a great way to help a client improve one’s understanding of their finances, as you have access to a credit report annually through”

Wealth of Resources

Seaman suggested the FDIC website for courses on different aspects of budgeting, saving, credit and lending. These educational offerings can be found at the “resources” tab in its “Consumer Resource Center,” which also features the likes of podcasts, tips, and an electronic deposit insurance estimator. 

“Fannie Mae offers a first-time homebuyer’s class to help educate on how to save for, buy and what to expect during your first year in home,” she noted.

Creative Planning’s Swartz encouraged reviewing one’s financial plan to evaluate for any changes that may impact goals. If you are unable to maximize retirement contributions, he suggested increasing retirement plan contributions to capture any match.

“Increase by any amount you can,” he said. “Even 1% to 2% can make a big difference pre-tax.”

Rebalancing an investment portfolio also presents an answer for those who are questioning how to manage their flailing finances.

“As markets adjust, it makes sense to sell investment gains from areas that are performing well, while adding to areas of weakness in a disciplined way,” Swartz explained.

Be sure to check in on existing insurance coverages and, broadly, risk management needs.

“If there are life changes, small adjustments can go a long way,” he said. “Evaluate your health care coverage.”

Swartz encouraged implementing an estate plan if you haven’t done so, making sure to verify beneficiaries and review estate planning documents.

“This time of year is a great opportunity to do year-end planning,” he summed up. “Determine the items you want to make sure you tidy up before year-end.

“We recommend reviewing your overall financial plan, gifting strategies, tax projections, any benefits changes, and charitable intentions. So, you can go into the new year with a clean slate.”

Schwartz suggested listening to short podcasts from specialists in the field to better understand key concepts and trends.

“This is a non-threatening way to listen to a topic on your drive home from work, or when traveling, or even doing chores around the house,” he said.

Carson Wealth’s Nieland always asks families who are struggling, “Do you have the time, knowledge and passion to manage your finances?”

“If you don’t feel as though your answer is ‘yes’ to each one of those questions, engage with a financial professional to partner with you,” he said. “The majority of families we work with prioritize the following things in differing orders — family, faith, hobbies and their profession.”

Managing finances, he said, is usually a weekly — or even monthly – priority.

By partnering with families, Nieland indicated clients can then make the best, most informed decisions regarding their finances.

“We are not here to tell you what to do, but rather understand what is important to you, how you define financial freedom and design a path to achieve those goals together,” he stated.