Time to Read: 7 Minutes
Read just about any article about saving and you’ll likely hear how skipping your daily designer cup of latte can add up big over time. But let’s face it – joining the top 1% or 2% and staying there is a little more involved than a daily cup of coffee. Here we share a quick overview on key areas to save money and how to implement with your busy schedule.
1. Create an Integrated Tax Strategy
If you have yet to create a tax strategy, you’re missing out on more than a lower tax bill. An integrated tax strategy will, of course, identify all the tax benefits to which you are entitled. But when incorporated with your other financial goals, from retirement planning to estate planning, a tax strategy can ensure all the financial parts of your life work separately and with each other, eliminating redundancies and creating synergy.
Identify Forward Strategies Based on Past Returns
Your advisor should identify areas where tax savings can also enhance certain financial strategies by reviewing your most recent tax returns and comparing them with projected numbers for the current tax year. If you don’t give a copy of your tax return to your advisor annually, consider doing so.
Using your returns might, for example, help your advisor consider how to harvest gains in your portfolio or time a Roth conversion to maximize your expected income bracket. Or maybe you learn that an annual gifting program for children can reduce eventual state and federal inheritance and estate taxes, helping you pass wealth on to the next generation.
Tax Strategies to Save Money
A few strategies to consider (and tactics that are widely used with our BWM clients) are:
- Maximizing your tax brackets annually for Roth conversions or charitable donation “stacking”
- “Smoothing” out required minimum distributions (RMDs) in conjunction with withdrawal strategies before your RMD age.
- Fully leverage tax-optimized savings in both your own retirement plans and in creative methods when gifting to your kids
Click on the links above to learn more about each detailed strategy.
2. Take Advantage of Your Employee Benefits
It’s easy to rush through open enrollment each year and miss out on some gems, so working with an advisor who has a clear understanding of your company benefits and how they can be leveraged in your plan is a foundational component to annual savings.
For example, a Health Savings Account (HSA) is triple-tax advantaged. You don’t pay tax on contributions, earnings grow tax-free and withdrawals used for qualified medical expenses are tax-free. The younger you are, the more you can save over time. If you’re healthy and have few medical expenses, your HSA balance grows until you need it later in life. Your advisor can also make sure you take advantage of group life, disability income and long-term care insurance on your own. If you’re healthy, this can supplement what you buy on your own. And if you have preexisting medical conditions, these benefits can prove extremely cost-friendly.
To read more about how you can leverage your employer benefits to save more, read our complete benefits guide, Getting the Most from your Benefits Package, here. (We also have a few San Diego company-specific guides that we’re happy to share if you’d like to reach out.)
3. Making the Wrong Moves with the Market
Stories are legion of people who sold their stock investments at the bottom of the market after the Great Recession, only to watch market indexes double – and double again – once the dust settled and the economic recovery became reality. Everyone is prone to cognitive and emotional biases which can influence the decisions we make, but attempting to limit emotional choices (particularly in extreme market conditions) can be an invaluable tactic when trying to save.
There are also a number of strategies that can be used in certain market conditions, including declines. Knowing when to “harvest” losses in your portfolio, consider a Roth conversion, or invest cash using rules-based indicators can be key to taking advantage of otherwise negative market conditions.
4. Deploy a Solid Strategy for Your Concentrated Company Stock
Many companies now award their workers with stock in the form of Restricted Stock Units (RSUs), stock options or ESPP shares. This helps retain talent and it gives employees a vested interest in the success of the business. However, large equity awards can create unique challenges for recipients – how much to sell, when to sell, how to consider tax implications, and where to invest the proceeds. If left unmanaged, these awards can grow to represent a large portion of your portfolio and pose outsized risks to performance and the ability to safely meet your financial objectives.
To make the most of employer stock compensation, ask yourself the following question… If you received an annual bonus from your employer for $50,000, how likely would you be to immediately invest it all in the stock of your company? Depending on your answer, there might be opportunities for you to save on this strategy by deployed a rules-based strategy to manage your company stock concentration.
To watch how BWM approaches these questions using a 10b51-type strategy, watch our 20-minute video Guide to Equity Compensation.
5. Don’t Do it Alone – Hire the Right Financial Advisor
Of course, all the strategies above could be done without a guide along the way, but we commonly hear two key messages when prospective clients come to us for help:
- I don’t know how to wade through the “noise” of all the tactics and strategies available to choose the right ones for my particular situation
- I don’t have the time to organize and implement on a regular basis
We don’t think you should have to. Instead, you should focus on living your best life by knowing that you have a team of expert guides there to watch out for the blind spots and efficiently bring ideas to the table with an action plan that can better your financial life (and save you money!) when appropriate.
When you read a headline about the market, you have someone you can call if you’re curious what it means. Or you can focus on planning travel with your family and let BWM reach out if you need to know anything.
Just like a shampoo bottle may instruct you to lather, rinse and repeat, you’ll want to create, monitor and repeatedly review your financial plan for saving opportunities. How? We ask our clients to spend just an hour or two with us per quarter to review opportunities and then implement together. If you’re tackling on your own, be sure to setup your own review schedule to make sure you’re not leaving any money on the table from missed opportunities.
Investment advice offered through Stratos Wealth Partners, Ltd., a Registered Investment Advisor DBA BWM Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.