Financial Statement Analysis

Change and control go hand in hand. Some changes fall easily into your scope of control, whereas others remain just outside it. You can’t control the weather no matter how much you wish that sunny January morning was actually sparkling snow. But there are other times when it doesn’t feel like you have control over a situation when you really do — and your personal financial health (and money mindset) is certainly one of them. People often fixate on the money aspects they can’t control, like the market or returns, instead of focusing on what they can control like savings, spending, investing, goal-setting, and more.  When it comes to personal finance, whether or not you feel in control has everything to do with perspective. Your financial perspective is also known as your money mindset. What is a money mindset and do you have the power to change it? Let’s find out.  What’s a Money Mindset? Similar to a money script, a money mindset is the unique attitude, perspective,  and narrative you weave using your thoughts, actions, and beliefs toward money. Your money mindset extends beyond the bounds of your personal life and enters into your general feelings toward finances.  Your money mindset informs the way you manage, save, spend, and invest your money. When you better understand your perspective toward your money, you begin to see where your financial habits come from. A money mindset influences your thoughts and actions, which can have both positive and negative consequences. Someone with a healthy money mindset likely feels confident, secure, knowledgeable, and energized about their financial life. Someone with a negative money mindset might feel anxious, guarded, or uncomfortable about their financial situation. Not sure where you fall? Ask yourself some questions to help shed light on your money mindset:  How does your financial situation make you feel? Are you comfortable talking with your spouse, parents, friends, etc. about money matters? Do you like your financial habits? Are you secure in your financial future? Do you often compare your financial situation to others? Are you confident you can achieve your financial goals? These questions help reveal how you view money. It illustrates how you see your debt, whether you make healthy financial choices, how confident you are in your financial future, and so much more.  How is Your Money Mindset Formed? Your money mindset is formed from your distinct lived experiences. Everyone has a different story and relationship with money because everyone has had different experiences with it throughout their lives. Someone who worked during high school and college might have a different perspective on saving than someone whose first job was well into their 20s.  Along with your personal experiences, your mindset is also formed by how money impacted the people closest to you.  Was money a taboo topic in your house?  Were your parents or loved ones constantly stressed about money?  Did your family prioritize charitable giving?  Was financial literacy a core topic of conversation in your house? All of these past experiences likely influence your attitude and approach toward money today. Someone who grew up in an environment where money was a sore spot might not like managing their finances (or might always worry about having enough money to support themselves and their family). Your attitudes and perspectives are shaped by the people around you, and those closest to you tend to profoundly influence your thoughts and beliefs. As the saying goes, you are who you spend time with,  Why Care About Your Money Mindset? As noted earlier, your money mindset is directly connected to your current financial habits. It affects how you approach money, the way you view and use debt, how you think about your future, and how you view the financial habits of others.  When you know how you approach money, you’ll be more equipped to make intentional decisions that push you in a positive direction. After reflecting on this concept, you may realize you lean on your credit cards too often for purchases you don’t need and that don’t further your goals. You may also discover your propensity for giving comes from a long line of generous role models.  Your money mindset also reveals both your positive and negative traits regarding financial management. This concept isn’t inherently intuitive. It’s critical to spend some time thinking through these questions and being honest with yourself about your attitude toward your money. The best thing about a money mindset? Like perspectives, they can shift. Here’s a few ways you can change your mindset to improve your financial outlook.  5 Steps to Change Your Money Mindset for the Better. Personal finance fluctuates and changes, which always leaves room for improvement. Remember, your money mindset is something you can control. Here are some ways you can evolve and make progress:  1. Believe You are Destined and Deserve Success Too often, a negative mindset leads people to give up on their financial goals. It’s important to approach your money from a place of openness, curiosity, and excitement. Believing that you can reach your goals and find success is the first step. Once you have that foundation, you’ll be able to construct habits that support those beliefs.  This doesn’t mean your entire financial road will be paved with rainbows and sunshine, but it does mean you’ll allow yourself to find success. How can you shift this perspective? Spend some time setting new financial goals. Your goals are the foundation of your financial plan. Once you have your goals, set some key milestones to celebrate as you work toward them.  Starting from a positive headspace will help you make choices that are aligned with those productive thoughts.  2. Picture Your Future Self Sometimes it’s crucial to flip this tough interview question back on yourself. Where do you see yourself in 5, 10, 20, even 30 years? Where have you grown? What have you accomplished? What do you want for your future self? Picturing your future can be a telling exercise as it can

It’s easy to get ahead of yourself. When spotting an issue, you might jump into problem-solving mode without even thinking. Say someone is renovating an old house and decides their first step is to paint the front door. This plan doesn’t make sense and is not smart because it’s not prudent to do the finishing touches without addressing the larger structural issues first. You can apply the same idea to your finances. There may be many changes you want to make with your money. Maybe you want to invest more, or double down on your retirement savings, or ensure next year you get that dream vacation. But before you buy non-refundable airline tickets or dump a hefty chunk into your portfolio, you need to see how these changes fit into your existing plan and how to accommodate them. The starting point? Your goals. Many people struggle with goal setting, so we’re going to walk you through a technique that helps you create more intentional goals today:  SMART goals. What Are SMART Goals? The SMART acronym dominates the business landscape and can be applied to nearly any type of goal you set – from personal to financial and more.  S (specific) M (measurable) A (attainable) R (relevant) T (time-bound) The SMART strategy brings clarity, purpose, vision, and intention into your goal regime. Instead of simply stating a goal, SMART goals ask you to dig deeper and make a plan for achieving it. What do each of these items mean and how do they work in practice? Glad you asked.  1. Specific Specific goals cut through vague notions and provide tangible, concrete conclusions. The more specific the goal, the more actionable it can be. Specific goals clarify your true objective, which enhances the rest of your plan’s construction.  For example, instead of saying you want to invest, say you want to invest at least $50 a month in your brokerage account for the rest of this year.  2. Measurable  Not only should you make your goals specific, you should also have a plan to gauge their success. Measurable goals help you set milestones and track your progress along the way.  If you’re investing at least $50 a month, you will clearly be able to see if you’re following through. A solid way to ensure your savings stay on track is to automate them. That way, you’ll meet your benchmarks and can always add more as needed.  3. Attainable If you’re juggling a full-time job, mortgage bills, raising children, etc. it’s important to set goals you can actually accomplish. Money might be tight right now, especially during the pandemic, so you might not be able to add an extra $200 to your portfolio each month. But you might reasonably be able to do $50!  You want to accomplish the goals you set for yourself, but you can’t do it with an unrealistic vision. Know where you are and set goals that push you but don’t impose on other aspects of your life. 4. Relevant Your goals should have purpose. Goals without purpose lack meaning and don’t get done. If you aren’t setting goals that will expand your life, it’s time to change your process.  Relevant goals also help you prioritize short-term, more annual goals. While it’s always wise to apply consistency to long-term goals, you don’t want to ignore short-term ones.  Perhaps you have a goal to replenish your emergency fund. That’s incredibly relevant and can support you should something unexpected happen. You might commit to funneling $50 into a highly liquid, safe account until the number is where you need it.  5. Time-bound Time-bound goals provide a deadline for your goals. So if you invest $50 a month for 6 months then increase your contributions by another $50 for 6 months (and so on), the time frame helps keep you accountable and encourage progress.  As you can see, all of these ideas play off each other. Even though each is separate, they come together to create a more well-rounded solution.  SMART Examples Let’s compare a traditional goal example and a SMART one. Take a retirement savings goal from an early-career professional:  Example #1: Increase retirement savings. Example #2: Increase 401(k) contributions to 10% and supplement savings by opening an IRA with automating contributions (about 5%) for the rest of the year.  It’s probably easy to see why the second example is the SMART goal. It’s specific by designating which accounts to target and what salary percentage to contribute. It’s measurable by taking advantage of compound savings and automating contributions. It’s attainable because this person received a salary increase and can proportionally allocate their resources. It’s relevant to their retirement savings journey and time-bound for the year they set.   This exercise encourages you to think critically about what you want and the work it takes to achieve it. SMART goals don’t just show you the reward, they also build the path. Should Your Goals Come First? While there are different schools of thought, our team believes your financial goals should come before creating the plan.  Your goals can then chart the course for structuring your finances in a way that’s unique to you. Someone who wants to retire early, for example, will need a different savings plan than someone who wants to wait until they’re 70.  Once you know what you’re working toward, you can take it step-by-step. So before changing your financial plan, check on your goals and ask yourself: Will this change bring you closer to achieving one or more of your goals? Will the action harm or hinder your progress? Do you need to change your plan to best meet your needs? Make Your Goals SMART-er While SMART goals prioritize detail, it doesn’t mean you should ignore the big picture. Your biggest dreams, goals, and aspirations are important and can set the stage for creating more focused SMART goals.  Want to buy a vacation house? That is an amazing  goal, but you must know the actionable steps to reach

In our last post, we kicked off our two part series of addressing the money tasks you’re avoiding and the steps you can take to make progress. Today, we’re covering four additional areas that you can make headway in your financial life.  4. Open an IRA How many times have you sat down at the dinner table and said to your spouse, “After we eat, let’s open an IRA.” Yeah, probably never. When you actively contribute to your workplace retirement account, invest in a separate portfolio, and funnel money into your savings account, it can be difficult to open – let alone manage – another account.  IRAs are a great addition to your retirement savings journey. They afford more flexibility and control over your investment options, fees, and providers making it an excellent complement to an existing 401(k).  Traditional IRAs operate similarly to your workplace plan. Contributions are pre-tax, investments grow tax-free, and distributions are taxed as ordinary income. To add more tax-efficiency into your retirement planning, it’s also good to consider investing in a Roth IRA.  You fund a Roth IRA with after-tax dollars, the money grows tax-free, and qualified distributions remain tax-free in retirement. This tax-advantage is hugely beneficial for retirees to keep their tax bill at bay. While that might not be your top priority right now, it will pay off later on. You will probably make more money as you advance in your career, which increases your tax liability. By paying taxes in a lower tax bracket now, you end up saving money in the long run by not paying them later.  Roth IRAs do carry income thresholds. In 2020, those making over $139,000 (if filing single) or $206,000 (if married filing jointly) aren’t eligible to make direct contributions. If you want to fund a Roth, it must be done with a conversion from your traditional 401(k) account. Conversions have important tax responsibilities, so consult your tax advisor before initiating.  5. Establish a 529 Plan When it comes to saving for your child’s education, the earlier the better. A 529 plan can be the impetus of your savings journey. 529 plans are tax-advantaged savings plans for education costs. While contributions are after-tax, gains grow tax-free and remain tax-free for qualified educational expenses like tuition, fees, books, and supplies.  529 plans differ from state to state, and many allow non-residents to establish an account. Be sure to shop around for plans with reasonable fees, investment options, and contribution limits. Many families use this vehicle to plan for college costs, but 529 plans can also be used for K-12 expenses. The SECURE Act also instituted a provision letting account holders withdraw up to $10,000 tax-free dollars for student loan repayment.  Adding another investment account to your arsenal requires careful planning and attention. Think about the following: How much can you reasonably expect to save now? Do you plan on using the funds for K-12, college, or both? Are you sacrificing your retirement savings to fund the 529? Knowing how much you can save and how you intend to spend the money can help you make a reasonable plan. Remember, there is no loan for retirement. Saving for education is a wonderful gift, but it should only be done after your retirement accounts are funded.  6. Ask for the Raise You Deserve There are few conversations more uncomfortable than asking your boss for a raise. A raise can help you accelerate your financial plan, giving you additional resources to pay down debt, save for retirement, and fund long-term (or short-term) savings goals. Before knocking on your boss’s door (or sending a Zoom invite), be sure you have prepared the following:  Comparable salary for your position and experience at your company and its competitors.  Concrete accomplishments you’ve made while in your role. Positive feedback from team members, stakeholders, or supporting business units. Your desired salary increase. Our tip is to start a little higher to give room for negotiation.  It’s also wise to alert your boss to the nature of your conversation before the meeting, that way you’ll both be ready to discuss your request. Send an email saying you’d like to set up a meeting to discuss your compensation, for example. 7. Revisit Your Goals Financial planning is too often seen as a one and done task. But financial wellness takes time, engagement, and sometimes even revisions to get right and progress forward. We encourage you to look at your financial goals today. Notice how they may have changed, especially this year, and also how they haven’t. Ask yourself: What progress has been made on each of your goals? Celebrate your accomplishments – even small milestones – to help boost motivation and inspire progress.  Are there any intentional changes you need to make? Perhaps extending the timeline on short-term goals to accommodate any losses and fluctuations this year? Let your goals inspire the progress you wish to see in your financial life. Returning to your goals can be enlightening and provide the motivation you need to stay the course.  We discussed many financial housekeeping items today. If you have any questions or need help moving forward on any of these, please reach out to our team. We love helping people prioritize and take control of their financial life.

Financial wellness is like eating healthy – it’s hard work and no fun but you know it’s good for you. Think about it, you always feel better after a healthy meal instead of a highly-processed one. But building a balanced meal plan takes more time and effort to accomplish. The same is true for a healthy financial plan. Not every financial planning task is exciting and groundbreaking, but each step secures your goals and vision for the future.  So let’s dust off your to-do list and explore actionable resources to help you accomplish some healthy financial tasks.  1. Increase (or Get) Life Insurance Life insurance is one of the easiest tasks to forget, yet it’s crucial if you carry significant debt or have dependents who rely on your income. The truth is, everyone who buys life insurance hopes their loved ones never need to use it, but it’s a true safety net for your family.  Life insurance comes in many shapes and sizes; the two broadest categories are: Permanent life insurance Term life insurance Permanent policies can offer good benefits but aren’t right for everyone. Due to the comprehensive nature of these plans, premiums are nearly four times higher than term policies and often don’t offer enough benefits to justify the sky-high rates. While these policies can accumulate a cash balance and investment opportunities, you can usually see more substantial returns through regular portfolio contributions. Term insurance lets you buy a policy for a set time, anywhere from 10 to 30 years. The coverage lasts for that specific time and stops when the term ends. Term coverage is much more affordable than permanent coverage, which makes the monthly commitment much easier to stomach. Your coverage cost usually depends on: The provider (you can get a better price depending on the company you buy a policy from, so shop around and understand any fees before signing on the dotted line).  The amount of coverage (a $1 million policy will be cheaper than a $2 million). Your age (younger people tend to have lower premiums). Your health (healthy people (i.e non-smoker, physically fit, etc.) tend to pay less). Gender (men typically pay more than women)  One of the most common questions about life insurance is how much coverage you’ll need. Your coverage level is unique to you and your situation. Here are a few things to consider: Your income Family size and additional income Existing insurance coverage Net worth Current portfolio and retirement assets Did you just start a family, buy your first or second home, or start your own business? All of these should spark review to potentially increase coverage that meets your changing needs. Keep in mind, not everyone needs life insurance. Someone with no debt or dependents doesn’t need the added monthly expense. 2. Prepare Your Estate Planning Documents People have a laundry list of reasons to avoid estate planning. But it’s not as painful as it’s made out to be.  In fact, in the wake of the pandemic, many are re-evaluating their documents to ensure everything’s up to date. From video conferencing with their attorney to digitally updating or drafting a new will, people have been creative in how they approach this financial chore. Not sure where to get started? Let’s look at some key estate planning documents: Will A will outlines your wishes for your estate. One of the most common reasons people put off creating one is a perceived lack of assets. Do you own a car or house? Are you an entrepreneur who owns their own business? What about valuable jewelry or collectibles? Maybe even a coffee can full of cash? Once you start looking, you’ll find you have several assets to plan for. A will gives you a dedicated space to help ensure your estate gets divided according to your wishes. Guardian/Trustee In their will, parents either need to add or update guardians for their children. A guardian is someone who will care for your children should you be unable to. While a guardian cares for the children’s wellbeing, a trustee handles the finances like taxes and inheritance.  Trust For those planning to leave significant assets to family and loved ones, a trust is an excellent vehicle to consider. Trusts are private and secure, giving you the freedom to select one that will work best for you. For example, if you want your legacy to have a charitable-focus, you might consider a charitable remainder trust which funnels a certain amount to your chosen charity and the remainder to your beneficiary.  Financial Power of Attorney This gives someone the ability to handle financial matters on your behalf like settling debts, paying taxes, and more.  Medical Directive This gives the person of your choice the ability to make medical decisions on your behalf should you become incapacitated. It’s best to choose someone like-minded who will respect your wishes.  All these tasks can’t be completed at the same time. Sit down and see where you’re at and make a detailed plan from there. If you’re starting from scratch, maybe start with drafting a will. If you haven’t updated your plan in years, see if your beneficiaries are still aligned or if you need to change a guardian or power of attorney.  Estate planning is meant to bring confidence, clarity, and peace of mind to your financial plan. Taking the time to update your documents ensures your life is in order to create a seamless financial transition to children, family, or charitable organizations.  3. Set Up or Rebalance Your 401(k) Your 401(k) is a tax-efficient way to save for retirement. Pre-tax contributions lower your taxable income and boost future savings. But to maximize the plan, you first have to set it up. Creating a new account can seem daunting (which is probably why you put it off in the first place), but it doesn’t have to be stressful. When creating your account, you’ll have to make a few decisions: Choosing which account to fund Traditional, Roth, or even

Much of our daily behavior relies on habits. Take your morning routine. Do you jump right out of bed or do you snooze a few cycles? Are you a brush-your-teeth-before-breakfast or after- breakfast type of person? Do you tie your shoes with a single or double loop? Some of these things you might not even notice unless pointed out to you. They are learned behaviors and preferences that move you through the world, and they greatly impact your life. Researchers found this same principle applies to money.Your views, attitudes, and belief system about money shape the way you approach, discuss, and further your financial vision. The unwritten rules dictating your financial life are known as a money script. Money scripts demonstrate your belief system about money and can illuminate both good and bad financial habits you’ve developed over the years. Knowing your money script can empower you to make actual, tactical changes to your financial life.  What Are Money Scripts? In 2011, financial psychologist Brad Klontz and his research team published a study in the Journal of Financial Therapy about people’s reactions to money-related statements like “It’s not polite to talk about money,” or “Things would be better if only I had more money.”  These statements were meant to gauge people’s views and biases about money and how it operates in their lives. What Klontz and his team found was that people held four different systems of belief, which he called money scripts. He notes these beliefs are typically unconscious and likely learned during childhood and adolescence.  Think back to the way your parents or guardians talked about money:  Did they pinch pennies and maintain a frugal lifestyle? Were they stressed about money? How did they approach the topic of money with you, if at all? Did they have disdain for people with either a lot of or very little money? These questions help you think critically about money beliefs you’ve been internalizing for decades, and are correlated with your behavior and financial wellness. Let’s look at Klontz’s four money scripts and how they can help you understand your financial actions. 1. Money Avoidance Does thinking about, talking about, or managing your money cause stress and anxiety? Do you envy people with more money? If so, you may fall into the money avoidance category.  Money avoidance, Klontz found, is a fascinating paradox: someone can assume money is bad or tainted but still believe money will solve their problems. Money avoidance suggests that living without money elevates your moral status, which often leads to self-sabotage, doubt, and unhappiness with your wealth.  Money avoidance may lead to giving away more money than you have (whether to family, friends, or charities) in an unconscious effort to decrease your worth.  Sticking to this script can also lead to not thinking about money, ignoring financial statements, and struggling to create and stick with a budget. Actionable Resources to Fix Avoidance Just because you fall into one of these scripts doesn’t mean the rest of your life is defined by them. Understanding your money script can help challenge you to make intentional improvements in your financial life. By employing healthy actions, you can assume a new outlook on how money affects your well being.  Money avoiders benefit from: Checking-in on your money. Instead of saving your statements for another day, make today the day you look at your credit card bill.  Throw away the budget not working for you and start from scratch. Use a digital platform or app to track your spending habits. Set regular check-in intervals, (i.e. weekly, monthly, or quarterly) to bring added structure to your plan.  Re-defining the role money plays in your life. Right now you see money as a negative element. Re-think that space and list ways money can positively impact your life and others, like reaching your goals, eliminating debt, charitable giving, etc.  2. Money Worship Let’s start with a few money statements: Money is the key to happiness. Money can solve any problem. There will never be enough money.  Do any of these statements ring true for you? If so, you may fall into the category Klontz calls money worship.  This mindset leads people to believe that money is the end-goal. In the quest for accumulating wealth as rapidly as possible, people are left with an empty void since there will never be “enough” money to meet their ever-changing wants. People may prioritize work over family and other relationships and tend to overspend to maintain their prized status.  Money worship takes retail therapy to heart by seeking to buy new things to bring a sense of happiness, purpose, and meaning. The problem is money can’t buy happiness, and this habit ends up leaving people miserable and in debt.  Tips to Make Money a Means, Not the End.  Money is a tool to help achieve your goals. But when money takes center stage, goals and dreams fall to the wayside. Here’s how you can redefine where money falls on your priority list: Bring your goals into focus. Money is a vehicle to help reach your goals. When this gets blurry in the chase for more money, stop and think about your truest life goals. What’s at the top of the list? What do you value? How can your money bring about those values and goals? When money goes out of focus, your goals can take center stage. Give with intention. Building charitable contributions into your plan can structure your finances in support of personally meaningful causes and organizations that also help others. Giving shifts your gaze from chasing money to seeing it work in other’s lives.  Curb impulse spending. Let’s face it: shopping can be a thrill. It’s great to jump into a cozy new sweater or enjoy that new car smell, but the novelty wears off and can lead to buyer’s remorse. Before you purchase something new, take time to think about how that purchase fits with your goals. Does it further them or detract from them? Why do

The government is about to take an unprecedented step toward meeting its financing needs on Thursday by using a single auction to sell a record $100 billion of Treasury bills that mature in four weeks.