Can't get yourself FIREd? You can still have a LIFE.

FIRE stands for financially independent, retire early. The movement continues to grow, with retirees in their 20's through 40's. It has caught on because it is unexpected - we don't picture retirees being so young.

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Advice for All Stages

Recent Graduates / Early Career
Typically in your 20's

Cash Flow: 

  • Allocate at least 20% of your gross income to long-term savings and / or paying off debt.  Now is the time to get money invested so it can compound.
  • Start identifying spending habits and patterns by creating a budget or trying out the WholeWallet30.

Tax Planning: 

  • For many during this stage, it makes sense to save to a Roth versus pre-tax retirement vehicle since starting salaries tend to be lower than in mid / late career.  

Investments: 

  • Invest in extra schooling now if you think you will need it.  Life has a way of getting more complicated, making it harder to go back to school down the road.
  • Educate yourself on how to invest.  Read financial blogs and whitepapers or hire a fee-only financial planning professional to make sure you get started on the right path.  

Insurance: 

  • Make sure you obtain renter's insurance if you are renting an apartment.  
  • Obtain disability insurance.

Estate Planning:

  • Create at least an advanced health care directive, power of attorney financial and will.  You may not even have to visit an attorney if your situation is simple enough.
Early - Mid Career
Typically in your 30-40's

Cash Flow: 

  • You may feel overwhelmed during this time, whether it is from having young children or working long hours as you move up the corporate ladder.  Start outsourcing.  For example, pay a house cleaner or someone to help with the garden, even if you won't do this forever.  You need to survive this "crunch time" without sacrificing personal relationships and your work performance.
  • Resist trying to live a lifestyle you cannot afford.  Many people work for decades before being able to take annual trips to Europe or eat at expensive restaurants.  Bgrateful for what you have accomplished so far, and focus on living within your means.

Tax Planning: 

  • Make sure you are taking advantage of your employee benefits (many of which have tax benefits). 
  • If you are self-employed, look at your tax-deferred benefits with a fee-only financial planner or your tax professional.  

Investments: 

  • Stay on top of your portfolio.  Re-allocate at least annually and make sure you are investing new savings (versus forgetting about it and leaving it in cash).  

Insurance:

  • Revisit life insurance.  You likely need more coverage now than when you were in your 20's, especially if you have someone who is dependent on your income.

Estate Planning:

  • It is likely a good time to meet with an attorney now and update your estate planning documents. Together, you can decide if it makes sense to create a living Trust.
Mid / Late Career
Typically in your 40-50's

Cash Flow: 

  • Continue to track household expenses.  
  • Calculate if you are on track for retirement.  If not, adjust your savings strategy now before it is too late to change course and you end up working longer than desired.

Tax Planning: 

  • You may find it makes more sense to save to pre-tax retirement accounts versus Roth accounts now as your income rises.  Do an analysis on your current and projected retirement tax bracket.

Insurance: 

  • See if it makes sense to get long-term care insurance at this time or if you want to plan on self-insuring.
  • Revisit liability insurance.  You have likely done a good job of accumulating assets - now make sure they are protected.

 Estate Planning: 

  • If you find yourself getting married, divorced, or re-married, engage an attorney to be clear on separate versus community property.  
  • Have your estate planning documents reviewed every 5 years to account for changes to the tax code
  • Check your beneficiaries and the titling of your accounts to make sure they are in line with your intent.

Family Finances: 

  • Teach money skills to children, nieces and nephews.  Involve them in the financial decisions you are making, such as whether to refinance a loan, or have them attend a meeting with your financial advisor.  
Retirement / Financially Independent
Typically in your 60's+

Cash Flow:  

  • As you move into retirement, conduct an analysis to determine when you should begin taking social security benefits.
  • Develop a portfolio distribution strategy.

Tax Planning:  

  • See if it makes sense to do Roth conversions between the period you retire and the year you receive social security income.

Investments:

  • Outsource financial planning and investment management now if you haven't already.  The risk for dementia increases as you age.  You want to have a plan in place before this happens.
  • Explore the opportunities afforded to seniors in your area for free or inexpensive learning. For example, in the San Diego area, there is Osher Institute and Oasis.

Insurance: 

  • Create your aging plan.  Decide if you want to age in place or make some modifications to your home to make it more livable.

Estate Planning:

  • Communicate your wishes to your family in the event something happens to you.
  • Notify family where they can find your estate planning documents, safe deposit box key, or anything else that is pertinent.
  • Don't forget about your "digital" estate plan. Make sure usernames and passwords are safely stored and available for family members that may need them.

Prepare yourself for the "gig economy"

Many believe the "gig economy" is here to stay and will continue to get bigger. I heard a futurist speak at a conference a couple years ago, and he predicted there will be a "match.com" for employers and workers. Work will become more project-based with workers not necessarily being employees of a company but functioning as independent contractors. With Microsoft's recent purchase of LinkedIn, Microsoft may see LinkedIn as that matchmaking site. I will be asking our educational speaker next month for her thoughts, but I recommend professionals do the following: 1) Update your LinkedIn profile and clearly define your skills. Create a recurring task to review and update your profile quarterly.

2) Always be networking. Even if you love your job and have job security now, the future is unknown. I see many people who feel secure with their positions only to be let go due to a company sale, re-location, or structural change within their industry.

3) Reflect on what you are good at and enjoy doing. I just read the book, Spark Joy. The author is a decluttering guru from Japan, Marie Kondo. Her childhood stories are just as entertaining as the organization methods she developed and illustrated in the book. As a child, she would wake up early to organize her family's kitchen, and she practiced until she perfected a system for organizing every cabinet and drawer in her house. While she drove her family crazy at times, I am sure they couldn't deny she had a skill that she was very passionate about.

4) Create a vision of what you want to be doing in the next 5 years. Document everything you need to do to reach that goal. Break the action items into achievable goals for each of the next 5 years.

Contemplating a Career Change?

Quite a few friends and clients have recently shared that they are contemplating a major career change.  They have a passion for something other than what they are currently doing 40 hours a week.  Before making the plunge, consider the following:

1.   Be honest with yourself about why you are contemplating the change.  Did you recently get overlooked for a promotion?  Is there a new co-worker or manager that you don’t get along with?  Have you been overworked? If the urge to flee is due to something that is temporary, consider sticking out your current situation for another 6 months to see if conditions improve.  Consider moving to another department or similar company if you feel you may be happier in another setting.  On the other hand, if you are convinced that you are destined for something else, keep reading…

2.   Start volunteering or working part time in your new career choice before leaving your full time job to make sure you actually like it.  After gaining some experience, you may realize that being a dog walker or personal chef is not all it is cracked up to be.   Or, you may love it and confirm that you are making the right choice. 

3.   Price re-education and / or internship costs.  Estimate how long it will take for you to start earning money.  Start researching this information so you and your financial planner can create a meaningful exit plan.  Be realistic and conservative.  Include the extra cost for babysitters if you will be attending school nights or weekends.

4.   Begin networking and making contacts.  While living in Pensacola, Florida with my husband, I decided to make a career change to become a financial planner.  I researched the CFP® designation and contacted every CFP® in Pensacola, asking if I could meet with them or help them around the office for free.  Only one person responded.  He didn’t have any work for me, but he became a great mentor.  He sent me books to read and helped shape my future path in the field.  I am so thankful for that experience and always encourage others to reach out.

5.  Start building up a transition fund.  It is unlikely that you will go without any gap in earnings unless you do all the training for the new job at night and are able to land another job before quitting.  Start automatically saving to a taxable account, and leave it liquid so you will have access when you need it.  Besides money for basic living expenses, assess whether your cars are in good shape and if your house needs any major upgrades. 

As with everything, you can do it with or without a plan.  Have a plan, and increase your chances of success.  Good luck! 

10 Things to do Before Leaving your Job

Thinking of leaving your job to stay home with your child?  Make sure you follow these steps before making the move.

  1. Obtain references from your current employer.  When you re-enter the workforce, you most likely will be required to provide references.  Ask for references now while you are fresh in their mind.
  2. Collect your Annual Employee Reviews.  Hopefully you have been saving your Annual Reviews all these years!  File and save them for future employers.
  3. Track your spending for one month.  Save your receipts, use Mint, or any other method that works for you.
  4. Once you know how much you spend, try living on one salary.  This will give you confidence that it can be done.  If it is tight, you can start making adjustments now or begin exploring reduced time versus quitting altogether.
  5. Have an emergency fund.  Save an amount equal to 6 months worth of your monthly expenses in a liquid account.
  6. Assess your home situation.  First of all, don't assume you need to upgrade to a bigger house or apartment as soon as you find out your expecting.  Save money by staying in your current place until the kids get bigger and actually need more space.
  7. Assess your car situation.  Do you have old cars that need to be replaced?  Make sure you have enough for a new car purchase or down payment before leaving.
  8. Meet with a Financial Planner.  Have someone who is qualified review your financial picture and help make sure you are on track for the future.
  9. Make sure both of your names are on the credit cards, mortgage and other loans so that non-working partner can maintain a credit history.
  10. Commit to equal participation in all financial matters and decisions even though one of you will no longer bringing home a salary.