Am I Ready To Invest?

Monthly investing is a great habit. But don’t get distracted by stock market FOMO if your financial priorities aren’t in order. Let’s make sure you’re ready to start investing.

Many people have asked me about investing when they really need to clean up their consumer debt first. Average investment returns won’t outrun the interest rate on a credit card. If poor spending habits put you in a hole, making a long-term investment is like signing up for a 10k before mastering the mile. You don’t need full marathon-level skills to invest, but you do need to have the basic mile down. In other words, you need to make enough money and have the basic skills to be sure you aren’t running a monthly deficit.

“You might be eager to invest but you’re more likely to lose money investing if you have no savings cushion to rely on in a pinch… This is when investing is more like gambling.”

Check the basics:

  1. Debt. Do you have credit card debt? If so, prioritize paying it down monthly.
  2. Emergency Savings. Next, divert that monthly payment amount to a savings account until you have at least 3-6 months of living expenses saved. Shoot for more if you have an unstable job or unpredictable income. You might be eager to invest but you’re more likely to lose money investing if you have no savings cushion to rely on in a pinch. If your transmission blows up, you could be forced to withdraw investments during a bear market. This is where investors get hurt the most. This is when investing is more like gambling.
  3. Regular Savings. After you have an emergency savings funds, build up additional savings for any major purchases or expenses you already know you have in the next 1-5 years. The bigger the expense, the further ahead you should plan.
  4. Investing. If you’ve checked off the basics, you’re ready to invest. Investing a regular amount monthly will have a big impact long-term.

How much should I invest?

I suggest skipping the rules of thumb and looking at a long-term plan. I like online tools like the Vanguard Retirement Income Calculator if you aren’t ready to hire a financial planner. Put in your monthly savings amount and the calculator will tell you what you can spend monthly in retirement. If you don’t like the output, play with the numbers until you do. Then you’ll know what to aim for.

If your financial goals or worries become more detailed, invest in a financial plan. Financial planners can help you determine how much is enough to invest while also incorporating specific  goals like a career change, fertility treatments, or a relocation. Real life is vastly different from investor to investor so it’s difficult to trust a rule of thumb based on income. For example, if two people earn $150,000 and save 20% per year, that might be more than enough for someone who starts early, plans to work until 70, and lives in a low cost area in the Midwest. It likely won’t work for someone who wants to retire at 50 in a major city and anticipates needing to support their parents with a high risk of health issues.

Lastly, a financial planner can help you make the most of the next level of financial management that you’ve reached. We can do more thorough tax planning and insurance analysis. We can look at how your financial plan fits with your estate plan. When these topics become more important to you, it’s time to graduate to real financial planning.

My Financial Coach Live: Interview with Kaylin Dillon

Check out my interview with Enpo Tu on the My Financial Coach Live podcast.

Prenups aren’t so scary. But where do you start exactly? Hear my thoughts on that and more in this interview.

 

3 Ways to Budget Based on Your Situation

Budgeting is a crucial financial tool that helps individuals gain clarity and control over their money. The right approach for your financial plan depends on your situation (and your personality!). Usually, when I first start working with clients, the first thing they want to know is if I’m going to make them track an itemized budget monthly. The odds are good that, unless you were already following an itemized budget monthly before you became a client, one of these more hands-off approaches will be a better fit for your plan.

Today, we’ll delve into three budgeting methods: Traditional Budgeting, Reverse Budgeting, and Flow-Based Budgeting.

*If you want to join my budget accountability group, get on my email list to catch the next invitation. Sign up at the bottom of this page.*

 

1. Traditional Budgeting

Best for: Paying Down Debt

Overview: Traditional budgeting is what you imagine when you hear “budgeting.” This approach requires individuals to outline their expected income and expenses for the month and to set intended limits for each category of expenses. This sort of detailed budgeting works best with a tracking app.

Pros:

          • Provides a detailed understanding of spending habits.
          • Helps identify areas of highest spending.
          • Can be tailored to specific financial goals, such as debt payoff or saving for a particular purpose.

Cons:

          • Requires consistent attention and discipline to maintain.
          • Can feel restrictive.
          • Can be overwhelming.

 

Recommended Tracking Apps:

        • RIP Mint 🪦

My husband and I used Mint for 12 years, and I loved that it was low-maintenance and free. It let us see guidelines and trends, but it also made it easy to jump back in even if we fell off the wagon for a while. Mint is retiring this year, so stay tuned for my suggested replacement. I’ve heard fantastic things about Monarch and CoPilot. I’m trialing these now. I’m also revisiting RightCapital for budgeting since that’s the financial planning software I already use with my clients.

        • YNAB

If you’re ready for a more cutthroat approach to budgeting, I recommend YNAB. YNAB (“You Need A Budget”) shows no mercy – if you overspend in a category, you’ll get a pop-up asking you which other category you want to reduce to account for the overspending. You can only click out of this pop-up to review your budget after you decide! On the plus side, YNAB has a strong community of budgeting nerds online (primarily on Reddit). Community can go a long way in helping you through a tough budgeting transition if you need to make drastic changes.

 

2. Reverse Budgeting

Best for: Those spending less than they earn.

Overview: Reverse budgeting focuses on savings goals. Instead of starting with expenses, figure out how much you need to save monthly to meet your retirement, college, travel, and other goals. If you’re meeting those savings goals monthly, there’s only a need to track where the rest of the money is going if you want to. Set up automatic account transfers to meet your monthly savings goals without fail, then be sure those funds also invest automatically, if appropriate.

Pros:

          • Hands off. Very little time or maintenance is required.
          • Guarantees a specific saving rate.
          • Provides flexibility for discretionary spending.

Cons:

          • Doesn’t provide a detailed understanding of spending habits.
          • Only works if you have excess cash flow every month.

 

3. Flow-Based Budgeting

Best for: Those wondering “where does the money go?” each month

Overview: Flow-based budgeting is all about narrowing the scope of money decisions. I was introduced to this concept at a financial planning conference this year by presenter Natalie Taylor. Instead of looking at your “needs” vs. “wants” in your budget, flow-based budgeting looks at what is automated vs. what requires you to make an active decision.

Pros:

          • Simplifies decision-making: if there’s money in the spending account, you can spend it; if not, you wait.
          • Weekly refresh provides a clean slate, which can be encouraging for those who might have overspent in the past.
          • Reduces the need for continuous tracking.

Cons:

          • May not be meticulous enough for those who need to pay down debt under a particular timeline.
          • Those with irregular income may struggle to determine the right weekly amount.
          • May require some extra setup time to open new accounts and change payment information.

 

How it Works: 

Designate three different accounts or cards for the following three categories.

          1. Fixed Account: AKA the monthly autopay account. This account is for monthly commitments already on autopay, like your mortgage, subscriptions, and utilities.
          2. Flex Account: AKA the weekly spending account. This account is for expenses that require an intentional purchase, i.e., groceries, gas, shopping, etc. Make an initial estimate of weekly expenses, add some cushion room to that estimate, and replenish the account each Saturday. You’ll need to adjust this some as you get up and running.
          3. Non-monthly Account: This account is for expenses that tend to recur annually or sporadically. These tend to be larger items and may or may not be on autopay. Examples include property taxes, holiday spending, car repairs, and annual travel.

If you want to do this with separate credit cards instead of separate accounts, pay down the flex spending card every Saturday to reset the spending amount. The main goal is that once you’re set up and humming along, all you need to reference for your spending decisions is the balance in that flex spending account (or on that card). It’s much easier for your brain to decide if you can afford something if all you have to do is look at the balance of one account.

Tips:

      • If you need to cut your spending, you’ll still need to look at trimming expenses from your fixed account.
      • If you set up a new subscription in the fixed account, reduce your transfers to the weekly spending account accordingly.
      • If you and your partner have separate accounts, set up separate fixed accounts, flex accounts, etc. Or set up a different combination that mimics the setup you have now.

 

Conclusion

Budgeting is personal. What works for one person may not work for another. The key is to find an approach that aligns with your goals, lifestyle, and temperament. Whether it’s the detail-oriented approach of traditional budgeting, the savings-first mindset of reverse budgeting, or the simplicity of flow-based budgeting, there’s a strategy to help everyone take control of their finances.

Prenups Do More Than You Think

2 sets of hands clasped together on either side of a table. In between: a document, pen, and wedding rings.

Marriage is, for many people, the foundation of a happy life. But modern living puts pressure on us in so many ways, and money is often at the core. Finding a way to build trust and openness can be difficult. We all have complicated relationships with money, which begin in our childhoods and reflect our parents’ attitudes and beliefs. There are often hidden sensitivities and danger spots that neither partner is aware of – until something crops up that creates a problem.

In addition, it can be hard to navigate through all the things that Gen X and Gen Y will potentially face:

  • Multiple careers, multiple 401(k)s
  • Complex equity compensation
  • Blended families
  • Family wealth
  • Moving to a new city or state
  • Leaving the workforce
  • Starting a business

Having a road map that begins with honest, structured conversations and allows each partner to weigh in on decision-making and feel heard can be the best way to build a long-term, respectful relationship.

You might be surprised to know that what I’ve just described is a prenuptial agreement, also called a prenup or pre-marital agreement. The present-day prenup was originally conceived to protect each partner throughout the marriage and simplify the proceedings in the event of a divorce.

There are still a lot of situations where a prenup is necessary. But even for couples without those prenup-necessitating factors, the process of being thoughtful about money and making your plans and wishes explicit in the form of an agreement can be a part of starting a healthy marriage out right. Among many other positive functions, a prenup can be a springboard to allowing each partner to build a professional life that satisfies them while also keeping the family and marital life on track.

The Basics – Situations (and People) Prenups Are Designed to Protect

Blended families: Protecting children from previous relationships is often the first consideration of a prenuptial agreement. It may set aside funds for their future education or other needs, or protect existing financial obligations to children or an ex-spouse.

Protecting Existing and Created Wealth: The traditional view is that the prenup can protect the wealthier spouse – but that only works for existing wealth. Equity is increasingly part of the compensation package, and the potential for this type of compensation to suddenly be worth vast amounts of wealth – years after it was originally granted – has grown. Prenuptial agreements that protect both partners and spell out exactly what is included and what is not are becoming the norm.

One Partner Has More Debt: Debt is one of the most challenging aspects of joining finances. Existing debt can become the other partner’s responsibility, and debt incurred during the marriage may also be fair game for creditors. Prenuptial agreements can help clear the air, spark healthy conversations, and set clear boundaries that will help everyone feel protected.

Business Ownership: If you own your business, whether outright or with a partner, including it in a prenup can preserve the value, protect partners, and keep the business from becoming marital property as it grows in value during the marriage.

When the Choice is for One Partner to Forgo Work: If a couple decides that one partner will be putting a career on hold to undertake family-oriented duties, a prenup can help protect them. This can include annual contributions to an IRA, a life insurance policy, and other financial arrangements that allow the non-working spouse to create wealth on their own terms.

Clarify Non-Marital Assets: Inheritances are non-marital assets. However, they can be unintentionally commingled and converted to marital property. Additionally, some states only protect original inheritance values as separate property, and consider any appreciation in value during the marriage to be marital property. A prenup can explicitly define non-marital property so there is no question about how to treat it.

The Bottom Line

Careers, families, our dreams and goals, and our desire to create a true partnership with someone else can all be accomplished – with the help of some honest conversation and then creating a prenuptial agreement that speaks to everyone’s best interest. It’s not a contingency plan for divorce – it’s a road map to a long and happy life.

 


The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA

Tax Planning – Do I need it?

I frequently get asked if I think someone could use tax planning. Everyone wants to hear that I hold secrets that will unlock boatloads of tax savings for them. Why pay more to Uncle Sam if you don’t have to? But the truth of the matter is that tax planning involves enough time and cost that it makes sense to get an idea in advance whether or not you’re a good candidate.

I’m sharing this guest blog post from My Financial Coach that outlines what tax planning can do for you and who is more likely than others to be a good candidate to uncover tax savings during the tax planning process. You can view the original post by Jonathan Vander Werff, CFP® here: What Would Your Tax Planner Do?


 Empty heading

What Would Your Tax Planner Do?

Did you become a Bitcoin millionaire last year and cash in? Tax day is only a little over a month away and it’s almost time to settle up with Uncle Sam.

Are you self-employed? Have a rental property? Any foreign income or investments? Did you track your transportation expenses when you volunteered at your favorite charity? You should consider hiring a professional to help you file if your taxes are complicated. But do you hire a professional tax planner or a tax-preparer?

A tax-preparer looks back at the prior year and asks about what you might have done to reduce taxes. A tax planner does this too, but will also give you a plan to minimize taxes for the coming year. In other words, tax preparation is a reactive process and tax planning is a proactive process. Like a financial plan, a tax plan should be long-term in scope while offering the flexibility to address short-term concerns as they arise.

If your tax preparer is pointing out tax-saving techniques that you should have employed in the previous year, you’re missing out on a big benefit offered by a tax planner. If you were penalized for inadequate quarterly estimated tax payments, that’s a lack of tax planning. If you paid substantial capital gains taxes, it’s likely that a tax planner could have helped you minimize those taxes. Your tax planner might have suggested that you reinvest those capital gains into a Qualified Opportunity Fund in order to defer and reduce those capital gains taxes.

You know a child and dependent care tax credit is available, but do babysitter expenses qualify? Is anyone in your household attending post-secondary education? Don’t miss out on American Opportunity or Lifetime Learning tax credits. Maybe you have medical expenses, but not enough to take a tax deduction. You can still get a tax break with a Health Savings Account if you’re eligible. You might be one of the millions of people who’ve transitioned to working from home. You could plan on filing state income taxes in two states if your employer is located in a different convenience of employer state. If you’re not self-employed, you probably don’t get to write off home office expenses like phone service or internet. But maybe your state, California for instance, forbids employers from requiring you to incur work expenses without reimbursement. Your tax plan should make sure that you’re making the most of these credits, deductions, and state-specific requirements.

A tax planner would likely benefit a taxpayer who owns a business or interest in a partnership. What type of business entity makes the most sense for your small business? How do you properly employ family members? Does cash accounting or accrual accounting make more sense for your business? Does being self-employed mean you can write off the mileage of your daily commute? You need to know what miles to track and how to properly log those miles. A beneficiary of a trust should also reach out to a tax planner to identify the ideal taxability of distributions.

In the same way your financial coach will help you understand how major financial decisions impact your goals, your tax planner can let you know how that decision would affect your tax bill. Many of the concepts and tactics recommended by your financial coach should be performed in partnership with your tax planner, such as:

  • Managing your tax bracket, today and during retirement
  • Giving to charity
  • Converting pre tax IRA or 401(k) money to Roth
  • Tax-loss harvesting and rebalancing portfolio
  • Contributing to and distributing from qualified retirement plans
  • Selecting the most appropriate retirement plan for your small business
  • Asset allocation and location – do tax-exempt bonds make sense for you?

If the name of the game is minimizing taxes, what you don’t know can hurt you financially. As you and your tax preparer wrestle with your tax return this year, ask yourself if you feel prepared and confident about the filing. If not, an experienced tax planner is likely the professional to bring you some peace of mind that you’re paying no more than tax law requires. Reach out to your financial coach with questions about how taxes impact your financial goals or how a tax planner can help you.

Best,

Jonathan Vander Werff, CFP®

Financial Coach

What to Make of the Current Market Volatility

Stock Market Chart Image

The Federal Reserve intends to move more aggressively in fighting inflation. The Fed will likely do this via a series of 50 basis point rate hikes, beginning with the May Federal Open Market Committee meeting. This is going to be the first time in 22 years that the Fed has doubled the normal 25 basis point increase.

Chairman Powell remarked at a panel discussion at the IMF on April 21st that it is appropriate “to be moving a little more quickly” on rate hikes. He also communicated that, according to him, financial markets are “acting appropriately generally.” This means that markets are adjusting to the expectations of higher rates and the recent volatility is generally to be expected in light of the anticipated rate hikes.

Markets are forward-looking, so prices today reflect what markets think will happen in the future. Markets are having trouble interpreting this rate increase information because we have yet to see corresponding data showing whether or not rate hikes are working. Until we have more data to work with, we can expect continued volatility.

 

Has Inflation Peaked?

March inflation reached a 40-year high at 8.5% annualized. This inflation rate wasn’t a surprise, but it’s still a startling number for consumers. The remaining question is whether the Fed actions and a gradual resolution of supply issues will help inflation to resolve relatively quickly, or if inflation is here to stay longer term.

There is one positive note: Core inflation, which is defined as all prices except food and energy, fell in March. As we enter late spring, warmer weather will likely bring down energy costs. Additionally, consumer and government pressure may result in lower prices at the pump as oil companies bring more drilling online.

Bond yields have increased significantly, and the dollar remains relatively strong as US growth continues to outpace that of other countries.

Why does this matter? Historically, the dollar appreciates at the start of Fed hiking cycles. And a stronger dollar means imports are less expensive, which could help offset inflationary pressures.

 

Are Markets Concerned About Global Growth?

The war in Ukraine has had an immediate and drastic impact on global growth. The IMF recently released a report on the world economic outlook that found lower growth would be likely.

The IMF is projecting that global growth will slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January. Beyond 2023, global growth is forecast to decline to about 3.3% over the medium term.

 

What is Happening with Earnings?

What’s happening at the company level is also important. After four record quarters of earnings results in 2021, investors are looking to the second-quarter earnings season for insight into where the markets are headed.

Over one-third of the companies in the S&P 500 have reported earnings this quarter and, so far, nearly 80% of them have beat the Wall Street analysts’ expectations. We typically only see around 60-70% of companies beat earnings expectations.

While revenue growth is likely to be strong, earnings per share expectations are moderating. This means that margins may be getting stretched – and companies with pricing power will be in better shape to withstand ongoing inflationary pressures.

 

How Should Investors React to the Market Volatility?

Increased market volatility is normal given the number of economic variables that remain unclear currently. Markets really dislike uncertainty. However, the overall takeaway is that the fundamentals of the economy remain strong.

Demand for consumer goods is strong. Demand for better wages and more job opportunities are leading more people to return to the labor markets. Additionally, The Institute for Supply Management is reporting signs of resolving supply chain issues.

For investors with long-term investment horizons, it’s best to stay the course of your financial plan and your investment strategy. There’s no reason to try to predict what direction these economic variables will go in the short-term.

 

The Bottom Line

We’re definitely at an inflection point when it comes to inflation, interest rates, and global growth. Inflection points feel tense but remaining disciplined in the face of uncertainty is the best time-tested strategy.

 


 

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA.

This work is powered by Seven Group under the Terms of Service and may be a derivative of the original. More information can be found here.

Additional disclosures here.

A Scoop of Vanilla Podcast Interview: Lindsey Talks Prenups with Kaylin Dillon

Check out my interview with Lindsey Swanson, CFP® on her podcast A Scoop of Vanilla. We talk prenups, relationship power dynamics, and when to start talking to your partner about how you want to handle your finances together.

 

Lindsey has dedicated her practice to providing financial advice for sex workers and gig workers. She’s passionate about making financial services available to communities traditionally ignored by the financial services industry.

Talking Money With Your Partner

Being able to talk about money and work through uncomfortable conversations is the mark of a strong partnership. Many of us would agree with that but that doesn’t mean we’re good at it. Most people do not grow up hearing adults modeling healthy financial conversations, which means most of us could use some practice developing this important skill. Money is also deeply personal for everyone. Broaching a conversation about how to manage money as a couple means tapping into each others’ childhood, history, personal values, fears, and dreams. It’s no wonder that, according to a 2019 study from the Financial Therapy Association, nearly 80% of people surveyed hadn’t talked to friends or family members about money in over a year.1

So how do you successfully communicate about this loaded topic? The answer is: with care. It can help to have a framework that fosters the psychological safety, respect, and kindness you strive for in other aspects of your relationship. Ultimately, when you know your partner understands where you’re coming from and cares about your feelings around money, you will be able to discuss finances constructively with confidence – even when you don’t totally agree!

 

Be Curious and Open

Whether you’re dating, planning your wedding, or have been married for years, it’s never a bad time to start talking more about your finances and how you want to approach them in your relationship. Like any new skill, it’s best to work on mastering the basics first. When it comes to talking about money one of the key basics is to approach the topic first with curiosity and a desire to learn more about your partners’ feelings around various money topics.

Tip: keep the conversation in a healthy mode of curiosity by agreeing up front to take decision making off the table.

Here are a few questions to get your wheels turning:

“How did your family handle money growing up? How did your family view and talk about money?”

This question helps clarify existing beliefs and habits, which is necessary to start moving forward and having more in-depth, constructive conversations.

“If money were no object, what would your ideal life look like? What would it mean for you if you could achieve that?”

This allows you to open up your mind to more possibilities and can help get to the root of your financial desires and goals.

“What’s one thing you would change about the way we manage our money?”

This helps set a baseline and gives you both a chance to share concerns and wishes so you can start aligning on a shared future vision.

“What would you like money to do for us that we haven’t done yet?”

This question may help you develop more tangible action items that can help you on your way to your shared vision.

👉 Sign up here for more conversation tips and money discussion prompts.

 

Set Collaborative Goals

It’s essential to set financial goals in order to put your money to work towards your life goals. The critical part is doing it together. If you’re new to setting collaborative financial goals, start with one you can control. For example, a great first goal together could be to review your spending together monthly.

If you’ve created trust and comfort in your financial conversations, you can start discussing more difficult money goals. These could be prioritizing paying down debt or building up an emergency savings fund. If your finances are in good shape, you can tackle life goals such as saving for kids’ college education, buying your dream home, or funding a new business venture.

When you set goals together, you get buy-in from both sides. Each person gets to express their thoughts and opinions and, ultimately, finding common ground will give you room to adjust to life’s inevitable surprises while still remaining on the same page.

Lastly, don’t neglect individual financial goals. Let your individual goals help guide how you set up your finances. You may have a joint checking account you each help fund to cover shared expenses while you also save to personal accounts for individual goals. There’s absolutely no right or wrong way to do it as long as you find a way that works for the two of you. Having conversations around what you each value individually will help each of you support each other’s individual goals as part of your big-picture goals as a couple.

 

Make a Plan

Goals are only as good as the plans made to achieve them. Once you’ve had conversations and highlighted some key goals, get out a pen and paper (or a Google Doc) and write them down along with achievable action items you can take to get there. Committing plans to writing can be powerful. Spelling out your goals and steps also helps you remember them when life gets busy. Don’t worry about making a perfect plan. Real life will always get in the way and require you to make adjustments. Just setting a starting point and moving in the right direction will take you far.

In addition to making plans to achieve your big, long-term goals, your money plan can consist of many different things. It can outline financial responsibilities for the household, such as who pays the bills, who reviews the spending, or who manages the investments. It’s not uncommon for partners to each think the other is handling a task so it’s worth checking together to make sure the lines of responsibility are clear and that you’re both comfortable with them. And if you’re one of the many busy couples that operates by addressing “fires” like past-due notices and tax deadlines as they come up, your schedules and stress levels will benefit greatly if you discuss responsibilities clearly and give yourselves room to divide and conquer financial tasks proactively.

 

The Takeaway

Talking about money is hard but avoiding it is harder in the end. Communicating about money is just as vital to your relationship as any other type of communication but it also takes practice. Start small and build confidence and trust before tackling bigger conversations. If you’re both willing to practice the skill of communicating about money, you’re already off to a fantastic start and you have a lifetime ahead to keep practicing.

 


Sources:

1. McCoy, Megan. Exploring How One Exploring How One’s Primary Financial Conversations Varies by Marital Status. Financial Therapy Association. 2019.

Disclosures:

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA.

Kaylin Dillon Financial Planning, LLC (“KDFP”) is a registered investment advisor offering advisory services in the State of Kansas and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.

The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Kaylin Dillon Financial Planning, LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.

KDFP does not warrant that the information on this site will be free from error. Your use of the information is at your sole risk. Under no circumstances shall KDFP be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the information provided on this site, even if KDFP or a KDFP authorized representative has been advised of the possibility of such damages. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.

HYPERLINK DISCLOSURE: The information being provided is strictly as a courtesy/convenience. When you link to any of the websites provided here, you are leaving this website. We make no representation as to the completeness or accuracy of information provided at these websites.

KDFP is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technology, websites, information and programs made available through this website.

When you access one of these websites, you are leaving our website and assume total responsibility and risk for use of the websites you are visiting.

KDFP does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to KDFP’s website or incorporated herein, and takes no responsibility thereof.

HelloPrenup Podcast: Navigating Finances as a Blended Couple with Kaylin Dillon

How do I get on the same page as my partner? How do we navigate conversations around finances, assets, debt, and goals? How do we navigate life events? How do I feel confident as a woman in my marriage? And the biggest question of all… How do I get a prenup and feel really good about it?

Whether you’re single, engaged, married, or divorced, you’re going to get a lot out of this episode. Check out my interview with Host Lauren Lavender of HelloPrenup.

Hear me talk about why I focus on working with couples with prenuptial agreements and blended families. I care about helping couples uphold their legal agreements in a way that supports their relationship. Whether it’s for a divorce or a marriage, couples don’t enter into marital agreements lightly but tracking the terms of an agreement into the future (indefinitely) is no easy task.

As you’ll hear, I believe “Couples deserve to have ongoing support in these matters and no one is better positioned from a cost and visibility standpoint than their financial advisor.”

I really enjoyed my conversation with Lauren. We dive into why upholding legal agreements is so important and how the lack thereof has affected me personally. We also talk about the all-too-common trap of money shame and to seek help if you need it. Lastly, we cover why blended families really should consider prenups and estate planning in order to protect the financial outcomes of their families.


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Planning for 2022 Taxes

The IRS Has Increased Several Key Deductions and Exemptions

The spike in inflation we’ve seen this year has impacts beyond having to pay more for goods and services. The IRS uses consumer price inflation (CPI) to determine certain increases to exemptions and deductions for federal tax purposes. These are automatic and calculated from the rise in CPI. That means that the increased inflation this year may actually end up saving you money. While the changes are for 2022 and you won’t be paying the associated taxes until 2023, it’s a good idea to be aware of the new limits.

You may be able to make changes as you go that can help you maximize the benefit. For example, the amounts for Flexible Spending Accounts (FSAs) and the commuter benefit increased, so you may want to have more taken out of your paycheck. This saves you money by paying with pre-tax dollars.

The income levels at which AMT applies also went up. If you have stock options, AMT very often comes into play. The increase amounts to $2,300 over the 2021 level for a single filer. While it doesn’t seem like much, it may be enough to allow you some flexibility in structuring them that will save you on taxes.


Taking the Standard Deduction
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The standard deduction increased in 2018, and many taxpayers now opt not to itemize. For 2022, this choice becomes even more attractive as the deduction for a married couple filing jointly increased by $800. Taking the standard deduction simplifies tax preparation, but if you have deductible expenses such as medical expenses, property taxes, mortgage interest, charitable giving, or others (and there are hundreds), you may be passing up tax savings.

If your total itemized deductions are close to the amount of the standard deduction, there are strategies for charitable giving that can increase your tax deductions in any one year. This can be done without increasing your overall plans for giving. Giving some thought to your deductions as you move through the year can help you keep track of where you want to be.


Standard Deduction Amounts 2022

Standard Deduction Amounts 2022

 


Alternative Minimum Tax

The alternative minimum tax was created to limit the amount that high-income taxpayers can lower tax amounts through deductions or credits. It sets a floor on the amount of tax that must be paid. The AMT is particularly relevant if you have been granted incentive stock options (ISOs) as part of your compensation.

The AMT is adjusted based on the price you pay for the shares (the strike price) and the fair market value when you exercise. Because you can choose when to exercise, you have some flexibility in avoiding or minimizing AMT, but it requires careful planning of your income.


Alternative Minimum Tax (AMT) Exemption Amounts 2022

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Flexible Spending Accounts and Commuter Benefits

The dollar limit for 2022 contributions to a flexible savings account is $2,850, an increase of $100 over 2021. If your plan allows carryovers, the new carryover limit is $570.  The monthly commuter benefit contribution limit for 2022 to your qualified parking and transit accounts increased to $280.


Gift and Estate Tax Exclusions

The annual federal exclusion for gifts was bumped up $1,000 to $16,000 for 2022. For a married couple, this means they can gift $32,000 to any individual without using their lifetime exemption. The lifetime exemption also went up, to $12.06 million per person.


The Takeaway

Increases in deductions and exemptions are one of the few areas that inflation can help out investors – but you’ll need to plan ahead to take advantage of some of the increases. There are lot of moving parts to a comprehensive plan that can save you money on taxes, and it’s never too early to get started in making the right moves.


Tax Planning 2022 IRS Deduction and Exemption Increases

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