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Your Financial Capability: The Key to Independence and Legacy Building

As you rise in your career, become a homeowner, save, and invest, you’re gaining not just wealth but also knowledge and capability. The question is, are you harnessing this power to reach your personal goals?

Financial capability and independence are two sides of the same coin. For many of us, financial independence is about having the freedom to make choices for ourselves and our families. It could mean retiring early, becoming "work optional," providing for our children, or ensuring our parents age comfortably. But achieving these goals on our own terms requires strategic planning.

Tackling Lifestyle Creep and Boosting Your Budget

Budgeting is a fundamental aspect of financial capability. However, if you're merely covering your bills each month and contributing to a retirement plan, you might be missing out on maximizing your financial potential.

The "leftover" money from your paycheck could be your ticket to increased investments. But be wary of 'lifestyle creep.' As our income grows, it's tempting to upgrade our lifestyle. However, unchecked indulgence now can limit our financial flexibility in the future.

How can we curb lifestyle creep? It's all about mindset:

  • Set clear, long-term goals with specific dollar amounts, and track your progress. These could be significant milestones like purchasing a second home, saving for education, etc.

  • Review and increase your emergency fund annually in line with your salary increases.

  • Balance your spending between short-term rewards and long-term benefits. You might find it easier to skip that extra dinner out if it means getting closer to a significant purchase or an exciting trip.

Maximizing Benefits: Are You Leaving Money on the Table?

Saving the maximum into a 401(k) each year is the easiest way to lower your taxes while you are working and take advantage of compounding to build generational wealth. If you can’t save the maximum, at least save enough to get the employer match if your company offers it.

What else can you do?

Health Savings Accounts (HSAs) are offered by companies that also offer a high-deductible health insurance plan. HSAs allow you to contribute money before taxes, it grows tax-free, and when you take it out to spend on qualified expenses, no taxes are due. While you can use funds in these triple-tax-advantaged accounts anytime, allowing them to grow while you are working and using them as a source of funds for increased healthcare spending in retirement can make sense.

Does your firm offer disability insurance or life insurance? These are often offered at competitive rates, and enrollment may be simple. Protecting your income is a big part of growing wealth, and life insurance can provide for your family if you aren’t able to.

Flexible Spending Accounts/Transit Accounts – these accounts let you put aside before-tax dollars in an account for specific types of expenses. It can add up to hundreds or thousands of dollars a year in savings.

Investing Beyond Your Retirement Account

While retirement accounts are essential, investing through a taxable brokerage account can put more of your money to work over time. It also provides an opportunity to diversify your assets and manage your risk profile better.

If you have company stock, remember that it increases your risk since your income and investments are tied to the same company's fortunes. It's crucial to create a plan for company stock purchases and sales that aligns with your financial goals.

Do You Have a Strategic Tax Plan?

You have more control over your taxes than you think, and it’s a source of hidden income for many people. Keeping more of what you make is the goal, and thinking a few years in advance makes a difference. If you’re still working:

  • Are you maximizing tax-advantaged retirement savings?

  • Are you taking advantage of tax breaks on education savings?

  • If you or a spouse is self-employed, are you optimizing tax deductions and credits?

  • Are you being thoughtful about the timing of asset sales?

  • If you are out of work for any reason, are you taking advantage of lower income to convert to Roth accounts?

If you’re retired:

  • Are you paying careful attention to tax brackets?

  • Are you timing your Roth conversion to hit the sweet spot before taking social security?

  • Are you planning to maximize social security for you and your spouse?

Seizing the Day: Financial Capability Month

Financial Capability Month is an opportune time to assess your wealth-building strategies. And since it coincides with tax time, it’s an excellent opportunity to delve deep into your financial situation and make strategic adjustments. This April, let's take a giant step forward in our journey towards financial independence and legacy building.


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


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