The Answer is Always... "Maybe?"

In our decades of working with people like you to help them reach their financial goals we have learned that many of you have the same questions when it comes to your finances:

· Am I spending too much now?

· Can I spend more in retirement?

· Am I making enough money?

· Do I have enough money to retire?

· Can I buy a more expensive home?

· Is my emergency fund enough?

· Am I taking too much/too little risk in my investments?

We could literally list dozens of similar questions.

Honestly, these are all EXCELLENT questions and by asking them, or questions like this, you are already on the right track in creating your financial roadmap. Unfortunately for all of us, the answers to all of these questions is almost always: “Maybe”.

can you find a correct answer?

Now, let’s not get too disappointed. There is certainly a correct answer to all of these questions as they pertain to your long-term financial health. We all certainly do need to know if our spending is in line to ensure we are saving and investing enough to support our future retirement. We all need to take the ‘right’ amount of risk in our investments to ensure we strike the balance between taking enough risk to ensure long-term growth of our portfolio while not exposing ourselves to unnecessary amounts of market volatility.

We can go down the line of all the questions we can ask ourselves about our finances but, honestly, the only way to know the correct answers to all of these questions for YOU is to take the time to build a financial plan to see how ALL aspects of your finances interact with each other to determine if your financial path is the straight financial path. (See what I did there? :D)

Common Examples

Let me share a couple of quick hypothetical examples:

Family One: John and Jane Johnson

o Age: 63 and 61

o Household Income: $65,000 per year

o Savings: $7,500

o Taxable Investments: $55,000

o 401k Value: $450,000

o Home Value: $175,000

Family Two: Steve and Sarah Smith

· Age: 63 and 61

· Household Income: $250,000 per year

· Savings: $75,000

· Taxable Investments: $350,000

· 401k Value: $1,250,000

· Home Value: $600,000

Now, if all we have only the information above, can we answer the question for each couple:

Am I ready to retire?

At first glance it seems easy to proclaim Steve and Sarah much more ready to retire than John and Jane. Steve and Sarah make a lot more money, have a more expensive home and have managed to save a lot more in all of their accounts than John and Jane. Given what we have to go on it would be easy to congratulate Steve and Sarah on their financial success and call it day.

But, be careful. As consumers we tend to get caught up in how much someone makes and what they have. We then make the common assumption that he who makes the most and has the most wins. Right?

Well…. Maybe.

The truth is that one of the main factors of a financial plan honestly is not how much someone makes or even how much they have. All that is nice but what one of the main determining factors of a sound financial plan is what you SPEND.

Here’s why spending matters:

Let’s now assume each couple is invested at the exact same generic risk levels in their accounts: Cash for savings, 50/50 stock/bond allocation for their taxable accounts and 70/30 stock/bond allocation in their 401k accounts.

Now let’s assume each couple spends the following amounts per month:

John and Jane: $4,000 per month

Steve and Sarah: $15,000 per month

Based on this new information we can now start to determine the true chances of success if each couple would like to retire at age 65. Without further ado, here are the chances each couple still has money left in their accounts at age 90:

John and Jane: 80%

Steve and Sarah: 8% (Say it with me… “EIGHT PERCENT”)

In fact, Steve and Sarah are predicted to run out of money at about age 80 if they maintain their current level of expenses in retirement. Not exactly what you are shooting for when you are looking to stop working and give up your income. To be sure, Steve and Sarah can certainly afford to spend more than John and Jane. John and Jane would certainly run out of money A LOT sooner if they were spending $15,000 a month. But this, by itself, doesn’t mean Steve and Sarah can afford their current lifestyle for another 30 years.

Conclusion

This, of course, is just one very simple example of how you simply should not make huge financial decisions, like when to retire, based on simple pieces of information. A complete and honest look at ALL aspects of your finances is absolutely necessary to make sure you are on the right financial path.

You mission now, if you choose to accept it, is to take that next step and find out if your financial roadmap leads to success or failure. Straight Path Financial offers online tools starting at the low low price of FREE if you want to get started. We also have a more complete online planning solution and can offer professional financial planning with one of our CFP planners for a fee.

Click here to learn more about all of our financial planning solutions.

You can also schedule a FREE consultation with one of our planning professionals to talk through what solution what might work best for you.

However you decide to move forward with your financial plan, PLEASE don’t leave your chances of success up to a “Maybe.’

Straight Path Financial would love to help.

How To Retire Early With The FIRE Movement In 2023

One of the newest trends in the workplace of young people today is the FIRE movement.  The FIRE movement stands for "Financial Independence, Retire Early," is a growing trend among individuals who are looking to take control of their financial futures and retire at a young, with the goal of cutting their working life in half. 

How does the FIRE movement work?

The Idea behind the FIRE movement is fairly simple:  You work and save a large portion of your income at a young age, invest the savings wisely and live frugally in order to achieve financial independence and retire early!  Essentially, the goal is to have enough money put away to support your lifestyle without having to work a traditional 9-to-5 job until a traditional retirement age of 65.

There are many different approaches to the FIRE movement, but one common strategy is to save at least 50% of your income, invest in low-risk, diversified portfolios, and live on a bare-bones budget in order to reach financial independence as quickly as possible. This can involve making sacrifices in the short term, such as cutting back on unnecessary expenses and living in a small space in order to achieve your long-term goal of retiring at a young age.

Advocates of the FIRE movement argue that by retiring early, you can avoid the stress and burnout that often comes with working in a demanding job for decades, and instead spend your time doing things that you love and are passionate about.

Sounds great!  Right?

FIRE movement roadblocks

In reality it may prove difficult to pull off such a feat simply because, whether we like it or not, society is simply not set up to accommodate everyone retiring in their 40s or 50s. Not that this can’t happen, there are just several headwinds to keep in mind and it will likely take decades of discipline to pull it off.  Like everything else, some will succeed and some will fail and we are excited to see this movement unfold in the coming years. 

Some of the forces in today’s economy working against those interested in the FIRE movement are low starting wages, high cost of living, inflation and a struggling stock market. Not to mention lifestyle changes that will inevitably pop up along the way like marriage, children, career changes, etc. that can add sometimes significant expense increases into the equation. 

Planning your FIRE movement strategy

In order to successfully retire early using the FIRE movement it is key that you obtain a well paying job and begin strategizing as soon as possible, the sooner you are able to save the closer to your goal you will get.

Luckily, Straight Path Financial is here to help!  By using our online planning tools and professional financial planners we can help you create your own personal roadmap to success in the FIRE movement. Start planning today with the worlds most comprehensive online planner for free here.

We are looking forward to helping you on your FIRE movement journey!

Inflation Vs. Healthcare Inflation

When putting together your personal financial planning roadmap it’s important we consider the impact of inflation on your long-term financial health.  By definition, inflation is a measure of how much the prices of goods and services increase over time. While inflation has always been a  normal part of an economy, it can have a significant impact on the cost of living and the value of money over time.

Add to that the significant levels of inflation we are experiencing now are the highest our country has seen in the past 40 years.  Hopefully, this inflation will be short-lived but sadly, there is no guarantee the economy will respond to the efforts the Federal Reserve is currently making to curtail current levels of inflation, at last not any time soon.Make no mistake, inflation is a factor you will absolutely need to consider when you build the foundation of your financial future. 

What is healthcare inflation?

That said, another thing to keep in mind is that not everything has the same level of inflation.  The best/worst example of this is the rising cost of healthcare.  Whether it’s insurance premiums, prescription drugs, emergency room costs, etc. you can could on the costs of your Healthcare to increase faster than the prices of every day goods and services. 

This has significant implications for individuals and families, as the increasing cost of health care can put a strain on household budgets and make it difficult to afford necessary medical treatment. It can also have broader economic effects, as higher health care costs can lead to increased health insurance premiums and put pressure on government programs like Medicare and Medicaid.

Inflation drivers

Another difference between normal inflation and health care inflation is the reasons behind the increase in prices. Normal inflation is typically driven by a variety of factors, such as changes in supply and demand, changes in the money supply, and changes in the overall level of economic activity.

On the other hand, health care inflation is often driven by specific factors within the health care industry, such as the development and introduction of new medical technologies, the increasing cost of medical education and training, the rising cost of prescription drugs and government changes in both policy and regulation are often culprits in the ever-increasing cost of your healthcare. 

Planning for healthcare inflation

This rising costs of healthcare in our lives is especially important to keep in mind for those of you wishing to retire before the Medicare eligibility age of 65.  Those of you interested in the FIRE movement need to be especially aware of this financial factor in your lives as the cost of just having healthcare coverage at all will cost significantly more, and probably for less-desirable coverage, than what you might be used to when getting health insurance coverage through your employer. 

Those of you building your financial plans through the Straight Path online planner should pencil in costs starting, today, at about $1,000 per month per person for coverage through the ACA exchange.  Keep in mind this is the approximate cost for coverage today and will likely increase at a 5% rate over time until it’s time for you to actually start paying for your own coverage after a (hopefully) early retirement. 

You can see the current healthcare inflation number here.

Make your plan

So, buckle up!  Whether you are using our online planner or working with a professional to build your plan for you, please make sure you account for not only the high current cost of your healthcare needs but also how fast those costs are destined to increase over the next few years and decades. 

As always, Straight Path Financial is here to help you navigate the true cost of inflation on your personal financial plan. You can start planning your healthcare costs for free with our online financial planner here.

Modern Financial Planning in 2023

Whether you're an investing wizard or someone with moderate knowledge of finances. A financial plan is a way to take a look at your life through financial lenses. It allows you to build the life that you want within your current and future financial limitations.

The way we plan has gotten better with modern technology and more educated advisors. 2023 represents a shift in financial planning by combining the latest in self-serving modern financial planning technology with the most educated advisors making planning not only easier for every consumer but also more comprehensive.

What is a financial plan?

A financial plan gives you a way to look at your past, present and future finances taking into account every  financial aspect of your life including your savings, income, expenses, taxes and investments.

Furthermore, a financial plan is a road map into your future using in-depth estimates to calculate your future financial goals including your retirement, investments and big purchases.

With a financial plan you can look at your life as a ‘big picture’ and make plans that will help you budget, save and invest, guiding you towards your goals.

The difference between traditional & modern financial planning

Modern financial planning differs from the traditional way firms and advisors have been operating for years bringing about changes that benefit the consumer.

Modern financial planning differs from traditional financial planning in 2 ways, the access your given to self-serving financial planning tools and your relationship with your financial planner. Modern planning focuses on putting the planner power in your hands, while traditional planning is more closed door putting all the planning power in the hands of your financial planner.

Self-serving financial planning tools

The first difference between modern and traditional financial planning is your access to self-serving planning tools. Historically in order for you to receive a financial plan they would have needed to meet with an ‘expert’ or a Financial Planner who has access to a base of expensive and hard to use financial planning tools. 

Modern financial planning takes the capabilities of these same tools that financial planners have and puts them at your fingertips with an interface that is easy for you to use. Giving you online access to change your plan in minutes or run scenarios for your own financial forecasting. The best part about modern financial planning is that it can be done either with an advisor or without one!

A better financial planner relationship

The second difference between modern and traditional financial planning is in the client and financial planners relationship. Most financial planning firms make money by managing the money of their clients. The relationship is solely based on the net worth of the client. Their sole purpose is to get a client to partner with them for a money management type of relationship, where the Advisor and financial firm receive thousands in yearly fees and commissions which can be blended to look similar to taxes.

This means that the financial plans generated are more like a sales pitch and serve the best interests of the firm and advisor and not the client. Meeting with an advisor turns into a meeting about "How much money you want us to manage?" or "Do you want to buy an insurance policy?"

The modern financial planning relationship is based on creating the best financial scenario for a client by only incentivizing Advisors on the work that they do for their client. This can involve managing your money or just you having an advisor relationship, either way it eliminates any percentage based management fees. Instead fees are taken based on their dedicated working for you. The best part of this relationship is that the client holds their own planning power in their hands and only uses a Financial Advisor when they need them. This means that the Financial Advisor no longer works as a salesman but instead works for their client as a dedicated Advisor as it should be!

This modern way of planning is often referred to as “Flat Fee Financial Planning.’

Conclusion

Modern financial planning is the natural evolution that we have been given as newer technology allows you to gain access to self-serving tools and as the door has been opened to innovators who wish to give people a better functioning financial planning experience.

At Straight Path Financial we are focused on bring modern financial planning to the world with a self-serving and comprehensive online planner and with high quality professional planning with advisors based solely on your needs.

When to Convert Your IRA to a Roth IRA

Deciding when to convert your traditional IRA to a Roth IRA can be a difficult decision. On one hand, converting retirement investments to a Roth IRA can save you taxes in the long run. On the other hand, it does actually cost you more taxes now. In the end, a Roth IRA can be a great source of tax FREE funds to help support your retirement. Here are a few key factors to consider when determining whether or not to consider a Roth IRA Conversion:

IRA vs Roth IRA

A traditional IRA is a type of retirement savings account that allows you to contribute pre-tax dollars, meaning that you do not pay taxes on the money you contribute until you withdraw it in retirement. A Roth IRA, on the other hand, is a type of retirement savings account that allows you to contribute post-tax dollars, meaning that you pay taxes on the money you contribute upfront, but you can withdraw the money tax-free in retirement.

Here are the two main factors to consider when determining whether or not to consider a Roth IRA Conversion:

Tax bracket

One important factor to consider when deciding whether to convert a traditional IRA to a Roth IRA is your current tax bracket. Your tax bracket is the range of income that is taxed at a particular rate. For example, if you are in the 25% tax bracket, you will pay a tax rate of 25% on the portion of your income that falls within that bracket.

If you are currently in a high tax bracket, it may not make sense to convert your traditional IRA to a Roth IRA at this time, because you will be required to pay taxes on the converted amount at your current high tax rate. This means that you will be paying more in taxes upfront, which may not be the most advantageous option for you.

On the other hand, if you are in a lower tax bracket or expect to be in a lower tax bracket in the future, converting your traditional IRA to a Roth IRA may be more beneficial. This is because you will be paying taxes on the converted amount at a lower rate, which may save you money in the long run.

Age

Another factor to consider is your age. And, even then, maybe not so much your age but rather how long you think it will be before you will need the funds. One important thing to keep in mind is that any GROWH withdrawn from a converted Roth IRA will be taxed as regular income. The good news here is that the converted funds come first so you would have access to most of the amount as needed immediately. But, doing so essentially eliminates the need to convert to a Roth IRA in the first place. Bottom line here is the longer it will be before you need the Roth IRA funds, the more advantageous it is to convert to a Roth IRA based on your timeline alone.

Keep in mind also that if you are under the age of 59 and a half, you will have an early withdrawal penalty on any amount taken from your Roth IRA. Add in the need to pay regular income if you withdraw gains from your Roth IRA as well within the first five years after a conversion and the taxes can really add up. If you are under this age and need to access the funds in your traditional IRA, converting to a Roth IRA may not make sense.

How to pay the taxes

The last, and perhaps most important, aspect of a Roth IRA conversion is HOW you are going to pay the taxes. Essentially, you want to pay the taxes from a Roth IRA conversion with AFTER TAX funds and not by withholding taxes from the conversion itself. Let’s say you convert $10,000 from an IRA to a Roth IRA and you are in the 10% tax bracket. Your tax bill will therefore be $1,000. It’s important in this case to pay the $1,000 out of your savings or by reducing your tax refund for the year so ALL of the $10,000 you converted can stay in the Roth IRA and grow tax-free. Withholding the $1,000 from the conversion itself would only leave you with $9,000 in the new Roth IRA and would essentially negate any of the tax advantages of doing the conversion in the first place.

Get some help!

Overall, the best time to convert your traditional IRA to a Roth IRA will depend on your individual circumstances and financial goals. It's important to consider all these factors if you are

considering a Roth IRA conversion as part of your overall financial plan. As always, Straight Path Financial can help navigate your financial plan and help you determine if and when a Roth IRA conversion would benefit your long-term financial goals.

How To Set-up A Wants Vs Needs Budget

Let’s start by saying everyone needs a financial plan and every financial plan needs a budget. Essentially, a financial plan is somewhat worthless if all you know is income and savings without knowing the needs those two things need to fulfill in the way of spending. In our experience, clients not providing a true picture of their spending is the biggest impediment to having a reliable financial roadmap.

Even more difficult can determining the difference between wants and needs in your budget. Here are some things to keep in mind as you work to put together your budget for your financial plan:

What is a wants vs needs budget?

A "want vs needs" budget is a financial plan that helps individuals and families prioritize their spending by differentiating between their essential expenses (needs) and their non-essential expenses (wants). This type of budget is based on the idea that we all have limited resources, and it's important to use them wisely in order to achieve our financial goals. So far, easy enough!

What are "wants" and what are "needs"?

Needs are expenses that are essential for our survival and well-being. These can include things like food, shelter, clothing, and medical care. These expenses are necessary for our basic physical and emotional needs, and are often referred to as "necessities."

On the other hand, wants are non-essential expenses that are not necessary for our survival or well-being, but may still bring us joy or improve our quality of life. These can include things like a new pair of shoes, a vacation, a fancy coffee, or a membership to a gym. These expenses are not necessary for our basic needs, but they may still add value to our lives in some way.

Setting up your budget

Now, it’s time to get to work. Start by listing ALL of your expenses, including both your fixed expenses (such as rent or mortgage payments, insurance premiums, and utility bills) and your variable expenses (such as groceries, gas, and entertainment). Be sure not to forget non-recurring or infrequent items you spend money on like buying cars, weddings, property taxes, etc. The trick here is to truly account for everything you spend money on to maintain your lifestyle.

Next, categorize each expense as a Need, a Want or…. wait for it…. a Non-Negotiable expense. Think of a Non-Negotiable expense as something you spend money on as part of your life, you probably don’t need it to stay alive but it’s still something you want as part of your life and are willing to direct spending to this item as if it were essentially. Travel often fits into this category for people who feel they ‘need’ travel and vacations. Take your time and really determine what should and should not fit into each category. This part can be more difficult but will give you the insight into your own spending you will need to stay on the Straight Financial Path. (see what I did there?)

Benefits

One of the key benefits of a want vs needs budget is that it can help us avoid overspending and getting into debt. By focusing on our needs and limiting our wants to fit our means, we can make sure that we're not spending more than we earn. This can also help us build up savings and prepare for unexpected expenses.

Another benefit of a want vs needs budget is that it can help us prioritize our spending. For example, we may have a long list of things we'd like to buy, but a want vs needs budget can help us figure out which items are the most important and should be prioritized. This can also help us avoid impulse purchases and make more thoughtful, deliberate decisions about how we use our money.

Conclusion

Finally, plug your budget into your Straight Path Financial online planning tool or share it with your Straight Path Financial Planner. Either way, your financial plan will now be much more accurate and give you the guidance you need to stay on the right path, the Straight Path.

The Mission of Modern Financial Planning

Modern financial planning is about simplifying the planning process and putting the power in your hands by giving you comprehensive tools and access to Certified Financial Planners® when you need them.

The Straight Path Financial Mission

Making access to a comprehensive financial plan simple for everyone.

We have all heard the saying from the world of Geometry: The shortest distance between two points is a straight line. This, in essence, is the mission of Straight Path Financial. Our purpose, when applying this principal to your financial plan, is to help you design the ‘straight line’ that will help you reach your financial goals in the best way for you and in the shortest amount of time.

No problem, right? I mean all you need to do is make as much money as possible and spend less than that amount and everything will be fine, yes? Well…. Maybe.

Over the years we have worked with very wealthy individuals that, due to some unwise choices, were set to run out of money in just a few years. Conversely, we have worked with clients who have worked for meager wages over their lifetimes but have managed to carve out true financial independence due to simple but wise choices over their working years.

While the concept sounds simple enough, a sound financial plan to help reach your goals is a lot more than just how much you make vs. how much you spend. True, these are a couple of the factors that can give you a good start on a financial plan, but you should also keep the following in mind when formulating your financial plan:

Ø How will my expenses change as my life evolves due to marriage, children, retirement, etc?

Ø Real income growth prospects in your career

Ø How inflation will affect future buying power

Ø What kind of cars do you want to drive? How much will they cost? How often will you need a new one?

Ø What Qualified Plans will you have access to for pre-tax savings?

Ø How long will you stay in your home?

Ø Will you buy a new/different home at some point? When will this happen and how much will it cost?

Ø Do I plan to move someday? How does where I live affect my expenses?

Ø What will my investment returns be over time?

Ø How will a large market downturn affect my ability to achieve my goals?

Additionally, we all need to have a grasp on some of the intangibles of a financial plan. The ‘touchy feely’ stuff that is hard to express in numbers but can have just as much affect on your financial plan. Some examples of this include:

Ø When do you WANT to retire?

Ø How much risk are you comfortable with in your investments?

Ø Do you like your job/career? Do you foresee a change at some point?

Ø For young people, do you want a family?

Ø Do you want help with managing my investments or want to do it yourself?

Ø What is important for you to spend money on during your lifetime?

Ø How do you want your assets to be distributed at the end of your life?

You opinion on all these issues, and many more, factor into the success or failure of your personal financial plan. The fun part is everyone’s plan is different, so we all have a blank slate to create that Straight Path from where you are now to reach the financial point you want to be.

Straight Path Financial offers you two main ways to start creating that path your personal financial success: Our You Plan online offering of planning tools and the We Plan service where a professional financial planner can work with you to create your financial planning roadmap. Online plans start at FREE so you can get started with no obligation. We look forward to helping you on your personal Straight Path today.