With summer in full swing and the year halfway over, many are looking to reassess their financial progress. Liz Miller, certified financial planner and founder of Summit Place Financial Advisors, joined TheStreet to offer insights on how to refocus your financial goals for a strong finish to the year.
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Full Video Transcript Below:
CONWAY GITTENS: Liz Miller, certified financial planner and founder of Summit Place Financial Advisors. Welcome to the street. So we brought you here today for our mid-year financial checkup. So let’s start first with the plan.If you don’t have a concrete financial plan for the year, how do you create one and what needs to go in it.
LIZ MILLER: So everyone should have a plan. We say no matter what, how do if you’re on track for whatever you’re trying to achieve. If you don’t have a plan of some kind, it’s great to work with an advisor who can help you build a plan, but there’s a lot of steps you can take yourself. So we say the very first step is an inventory, and that means make a list as tedious as that sounds of your checking accounts, your credit card balances, everything you have take in or owe and write it all down. And you’d be surprised how good it feels just to even see that in front of you. And that gives you that starting point to say, OK, here’s what’s coming in the door. Here’s what needs to go out the door, here’s my bucket of any savings or assets I have. And then here’s what I’m going to have to pay out. And it starts making it very clear where you’re going to start that planning.
CONWAY GITTENS: And so if someone wants to create a budget, what is your advice for an easy plan that they can stick to?
LIZ MILLER: That’s so great. I can tell you as a professional, I have a million of these detailed spreadsheets that someone thinks you’re going to hand to a client and say, write down for the next six months how much you’re going to spend. And there are a few people who love that, but most people can’t stick to that. What we say is a great starting point is to remember the 50, 30, 20 rule. See that money that’s coming in that we talked about, 50% of that should go to your essentials. Now, if you live in New York City like we do, that might be a little higher because housing costs are so high here. So if you’re in a major city, don’t worry if it goes a little higher than that, particularly when you’re starting out.
But 50% should be your rent or your mortgage and those fixed payments that you can’t do anything about, then 30% should be the things you choose to spend money on. How many streaming services do you want every month. Maybe you need to cut back on one or two, right. Going out with friends. What does weekly brunch cost. That’s your 30% All those ones where you’re making choices do I go out this weekend or do I buy new clothes. And then 20% should be your target to be putting aside every month for savings. And some of that may be paying down debt, but some of it definitely should be funding your first account that we call an emergency fund where you’re building enough money that should anything happen unexpected, you’ve got some money put aside for those emergencies.
CONWAY GITTENS: So we’re halfway through the year. What tweaks should people be making now?
LIZ MILLER: So the big tweak now is to see where have you been. Maybe your resolution in January was to get better control of your spending, but it was just too overwhelming. And you tried sort of keeping track of anything and nothing happened. So this is the time to see, am I spending a whole lot more than 30% on those choices. That’s the bucket I always say to start with mid-year, how much are you spending on the things you have control over. And when you list them out, can you make some proactive decisions. I know someone who was a Starbucks addict and what they did was decide get that Keurig at home and they went to Starbucks once a week and the other days off to work, they took a mug with them of their own coffee. Well my gosh, that started it was like $100 over a month. It now got to go into savings. So little things that you really can live with. But when you make like anything like a workout goal, if it’s too big a goal, it’s not going to work. You really have to look, well, where am I spending all these things and what ones can I actually make a change to.
CONWAY GITTENS: So we’re in the heat of summer. Maybe people have already taken summer vacation, gone to family reunions. Maybe they’ve spent too much on their hotel bill or airfare. Maybe they had too many piña coladas at the pool. So what is your financial emergency repair plan?
LIZ MILLER: So the emergency repair plan these days has to start with credit card. If you’ve spent a lot and put it on a credit card, you’ve now needed to make that the priority, even though we think interest rates may come down, that just means you’re going to be paying 22% instead of 28% on your credit cards. So the first thing we want to do is take any extra savings we found from that 30% we reviewed and pay more than the minimum on the credit cards right away to start getting those out of the way.
Now, again, I think what happens is when we say pay the credit card down, pay the credit card off, for some people, it’s like I just racked up $3,000. I don’t know where that money’s coming from. So then they get so overwhelmed, they do nothing and we say that’s not the place to do it. The place to do it is how can we do it in a way we really can achieve. So if the minimum payments are 120, let’s try paying 120. I’m sorry if the minimum payment is 100, let’s try paying 120 this month. And what we want to do is just pay more than the minimum because that starts making a real dent in that balance. And then when you start seeing some success, a lot of times you can pay, find you even can pay a little bit more. You start seeing that you’re accomplishing this and you’re like, I can get to this goal. So again, we want to do it in a way that people can really live with.
CONWAY GITTENS: So let’s stick with spending for a minute. Someone comes into your office sit down with them, their spending is totally out of whack. How do you get them to prioritize their spending since you already said you can’t get them to stop spending. So what are your tactics or tools to get people to prioritize their spending?
LIZ MILLER: So we like to really start without those numbers at all and say, hey, when you think about money in your life, what does that mean to you. How do you think about money. And people who spend a lot often come from families where there wasn’t a lot of talk about savings. There may have been talk about making ends meet each month. There might have been a money lessons that where it said, well, you have your allowance, go spend that right. You just didn’t grow up with a culture that said all the time, how much of that is going into your savings. And so you’re really taking someone where they’re suddenly being told that lessons they had their whole life aren’t going to get them where they want to go. And so we want to do that in a thoughtful way and say, well, when you think about being financially comfortable, what does that look like to you. What does that mean.
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Some people are going to tell me, that means a house at the shore, as we say. And you’re like, OK, but you’re sitting here with all that credit card debt. But some people, it’s just I want to be able to help my family every month. I want to be able to send money here. I don’t want to have to worry about paying the Bills every month. And not having anything left extra. So when we start getting them to really put into words, what does it look like you to be financially comfortable, then we can start there and say you said that for you to be financially comfortable, there was a little something extra every month to help the rest of your family. OK, let’s now go back and look at your spending and think about which of those things are doing because it’s just become habit and you’re not even thinking about it. All right.
CONWAY GITTENS: And so how do you feel about high yielding savings accounts. What roles should those play in the kind of savings pie of this financial mid-year checkup?
LIZ MILLER: Well, a lot of times the high yield savings accounts are competing with the money market. So if you’re getting similar yields, they’re great. And I kind of call them both your liquid savings. And that goes back to all the people we’ve talked about how to build a little savings, how to have some emergency savings. So that high yield savings account is a great account to earmark as your emergency spending. So keep putting money in there. So you have maybe three months of income. Sometimes we even say six months of income if you’re alone and single, try to build that up so that if something does go wrong, you need a new car. You find yourself temporarily unemployed. You’ve got those savings to help get you through. And the high yield savings or the money market is a great place for that kind of money.
CONWAY GITTENS: Let’s transition to retirement, which is a form of savings. So what’s the best way to play catch up. If it’s the mid-year financial checkup and you realize that you’re not where you want to be in terms of saving for retirement. Now here we are, middle of the year. What’s the best way to play catch up?
LIZ MILLER: There’s a lot of ways to get there, right. First of all, I would say there’s a lot of great we call them calculators online. Take a look online, see what it shows you. We kind of like to say, depending on your age, think about trying to accumulate about 10 times your income currently to be ready for retirement. So that’s just a rule of thumb to get started. So if you find you’re behind the eight ball, the easy answer is I guess I have to save more. But how do we do that. If you’ve got a 401(k) plan or a 403(b) at work. A lot of times we find people are only contributing up to a match and they’ll tell you I’m at the maximum, I get the full match. And we say, no, no, no, no. So let’s go beyond the match. So the first thing that is always one of the best ways to save at work. It comes right off your paycheck and those are usually great programs. So if you can try upping for the second half of the year how much you’re taking out for your 401(k), you can usually adjust those a lot.
I work with a lot of young people in their 20s where when I have a discussion with them, they don’t even really know what they can live on. So we say, well, let’s move it. Until you feel a little pain, you let me know. And then we’ll pull it back. So we kind of keep pushing more and more of their paycheck to be immediately taken into that retirement plan. Another way to do it, particularly if you don’t have a retirement plan at work, is to again, take it right off the top, set up a transfer from your checking account where your paycheck comes right into a Roth IRA open a Roth IRA at a Vanguard or a Schwab. They make it really easy. And then you link your checking account and you set up an automatic deposit every time your paycheck comes in. So that it doesn’t end up in that spending bucket. You take it right off the top.
CONWAY GITTENS: So this is one of the questions that we got the most, and it has to do with 401(k)’s from previous jobs. People want to know what should they do. Should they leave it where it is at the old job and don’t do anything and it’s just growing over there. Should they roll it over into the 401(k) with the new employer or should they roll it into some account with Schwab or T Rowe Price or Fidelity or something like that?
LIZ MILLER: That’s a great question. So there’s two things we want to keep in mind when we have these discussions. First, I want to get to know you a little bit. Is it going to be hard for you to remember you have them at three different locations, so there’s definitely a convenience factor. If we find someone has trouble keeping track and doesn’t pay attention if they’re different places. So that in itself to me says, let’s combine it all in your current 401(k) if your plan allows for it. Not every plan does, but a lot of plans will let you roll in. Old 401(k) to your current 401(k). So if you’re the type of person where it’s all about organization, then the simple answer is move it to the current 401(k) if we’re going to go to the next level of analysis, we’re going to look at the previous ones and the current ones.
Do you like your investment choices in the current ones. Are you paying any fees up to your employer in the current ones. Some plans, particularly if you’re in a larger company, there’s sort of maybe no maintenance fee. The employer takes care of that. If you’re in a smaller company, maybe once a month or once a quarter, there’s a few dollars coming out of your 401(k) for administrative costs. So figure out if your old plan does that too or not. Also, if your old plans, if the balances are small, you may not even realize that they’re now charging you more money. You might be getting charged $10 a month, $50 a quarter to maintain it there because it’s not a real big balance. And again, we were just talking that we don’t always look at statements. And I think I find that really common with old 401(k). S because you don’t get a statement. You have to go log on and remind yourself. So go log on to the old ones. Look at the recent transaction history. And so the first thing you want to see is, are you getting hit with any fees at that old 401(k). If not, if it’s still working just fine, then it’s really comparing the investment choices what you want to do.
CONWAY GITTENS: A lot of people are gig workers, right. A lot of people are working different jobs, freelance. So in terms of a mid-year financial update and taxes, what should they be looking at now to make sure they’re on track for end of the year. April,
LIZ MILLER: Great question. And you’re so right. We get a lot of people in part time gig, contract work. And they look up surprised that they have to pay taxes at the end. So if you are doing that kind of work, you should be getting 1099s next January from those companies you’ve worked for. But it’s really the government’s view that it’s your responsibility to keep track of that. So summer is a great time to just get all those payments together, maybe check your checking account, everything you deposited. If you’ve never used an app, maybe it’s time to try a YNAB. You need a budget where you can keep track of what’s coming in or whatever your favorite way is to track this. A lot of banks now let you aggregate money from other places. You want to be able to see how much money has come in so far this year and keep track of that and see if any of them sometimes they will withhold taxes if you ask, but usually they don’t want to. So you want to get a check up, you want to see where you are. Compare it to last year. And know well, here is my taxes. Last year. I’m on track to be making 20% more. I’m probably going to have to be saving more on taxes. And if you were surprised last year, by all means start realizing I really need to start putting money into that high yield savings account for taxes next year.
CONWAY GITTENS: Now, one of the big themes this year has been the Magnificent Seven, right. And if you’re in an ETF or you’re in a mutual fund, you’re probably exposed to it if you’re in high growth. So how should someone manage big positions in their portfolio given this outsized the outsized gains from the Magnificent 7?
LIZ MILLER: Yeah. As you said, if you’re in a diversified exchange traded fund or a mutual fund, you’ve probably benefited from it and there’s not a whole lot you can do. If we do get a correction, you will get that correction as well. The big difference is, as we know the S&P 500, the NASDAQ 100 people look at these and say, well, how am I doing compared to them. And do I own those stocks that are really driving those indices? But what you and I know is 500 stocks in the S&P 500 the top 10 are now almost 30% of the performance. The 490 are doing nothing. So if you have an individual stock portfolio, you may owe a lot of names doing nothing. And you shouldn’t think there’s anything wrong with your portfolio. If you’ve got that ability, then it’s a good time to maybe trim those oversized positions so that you don’t have that same up and down risk going forward.
But if you’re in a bunch of mutual funds, you could take a little profit off the table. But you’re going to get the roller coaster ride of the market. And the truth is, there’s nothing wrong with that. What’s important is that if you have the time frame, you’re 20, 30 years old, you’ve got many years till you retire. Being in one of those funds is great. It’s low cost. It’s tax efficient. The trick is now don’t get scared out of it. If we do see a 20% correction in the market from these, because every research tells us, every study that’s been done, just stick with it. Leave your investment. If you’re investing regularly, keep investing usually within 18 months to two years at most, you’ve come all the way back.
CONWAY GITTENS: So we talked about freelancers and the gig economy. Let’s talk about the broader taxpayer in terms of a mid-year financial update, what should all taxpayers be looking at as we are in the middle of the year?
LIZ MILLER: A couple big things we always want to talk about. Let’s start just with your income. You want to take your latest W-2 and you want to look at what has been withheld. So far this year and you want to compare it to last year. You want to say, well, well, what were my taxes last year at this point. Am I far ahead, if you work with an accountant, send them that W-2, because what we’re trying to figure out is, am I withholding enough. This is the time of year to make an adjustment to say, whoa, I don’t think I’m keeping enough out of my paycheck and I don’t want to have a big amount. I have to pay Uncle Sam next April. So first, look at your W-2 earnings. So far this year compared to last year and how much taxes have been withheld in your state and federal so far this year. If you feel like you need more to be taken out, then contact your human resources people, your benefit people, whoever helps you make those changes and ask about how can I get more taxes withheld from my paycheck. So number one is your income.
Then with that, maybe you have to pay estimated taxes and you realize that you’re going to have to owe more, that you probably work with an accountant who maybe told you what your estimated taxes are. Send them your W-2 and say, hey, here’s how much we’ve paid. So far in April and June. Am I on track. Should I be paying a little more in September and next January to make sure I’ve paid enough in my tax planning. Then finally, we’re going to go to our portfolio. And you do want to look at, well, what are my gains been so far this year. If you have individual stocks and they’ve been traded, if you’re working with advisor, ask for an update on what your capital gains are so far this year. If you’re doing it yourself, most of the websites will show you what your realized gains they call it for the year. What have been your realized gains and losses. So far this year. So that again, you can see, am I going to have to pay taxes. So realized gains and losses depending on your income, you’re going to pay anywhere from 15% on that to up to 25% plus depending on your income level.
CONWAY GITTENS: All right. Great, great tips there for our mid-year financial update from Liz Miller. She is the founder of Summit Place Financial Advisors.
