The CCPA: Fall Financial Cleanup
Fall Financial Cleanup
As the vibrant colors of autumn unfold and the holiday season approaches, not just our homes may need a seasonal spruce-up; our finances deserve the same attention. So this month we’ve crafted a Top 10 list of "Fall Financial Cleanup" items to help you close the year with your financial house in order.
1. Cash Management: Secure and Grow Your Savings
Opportunity: With the dramatic rise in interest rates this year, we have a generational opportunity to make sure our savings are working for us. Savings accounts should pay more than 4% right now. Certificates of Deposit are paying 5-6%.
Recommendation: Don’t assume your bank is paying you what you deserve. Do the legwork to review the current yield on all of your accounts - if you’re not being paid enough, consider opening new high yield savings accounts and investing excess savings in CDs to lock in these rates for longer periods. Make sure your accounts are FDIC-insured.
Top Picks: Local banks like Sandy Spring, online options such as Discover Bank, or even convenient apps like PayPal, tend to pay better rates than the mega banks. Your current bank will often have options available if you ask, as well, so it may be as easy as just moving money around within your existing financial institution.
2. Credit Card Habits: Smart Spending and Payment Strategies
Opportunity: Credit card interest rates are soaring to over 30% annually, so it is imperative to avoid carrying a balance and paying interest.
Recommendations: Consider paying off your credit card in full weekly (I do it every Saturday morning) to keep payments reasonable, ensure no interest is paid, and to cultivate the healthy financial habit of regularly reviewing your spending levels. Not able to pay it off in full? Watch for low or no-interest balance transfer offers for your credit cards.
3. Retirement Review: Maximizing Employer Contributions
Opportunity: Employer matches are free money! No matter what you decide to do with the rest of your money, make sure to defer enough salary into your retirement account to max out your employer retirement match. It is a 100% return on investment in the first year.
Recommendation: Review your employer’s retirement plans, make sure you are contributing enough to max out your Company match, and if you’re falling short, contact your employer’s HR department to identify next steps to correct this moving forward.
4. Personal Financial Statements: Annual Updates for Clarity
Why It's Essential: Keeping your personal financial statement (PFS) current gives you a clear picture of your financial health.
Recommendation: We recommend preparing and updating a personal financial statement every year, ideally at the beginning of the year, right when you do your tax return. If you haven’t updated yours this year, take the time to update it now.
5. Harmony Tax Return Portal Access: Stay Connected
What’s Important: Your Harmony portal has all of the financial documents you need at the click
Reminder: Verify your ability to log in to your Harmony portal well before tax season.
6. Estate Planning: Securing Your Legacy
Is Your Will Updated? If not, it's time to prioritize this.
Our Recommendation: Consult trusted estate attorneys like Sinclair Prosser for comprehensive estate planning.
7. Investment Plans: Crafting a Long-Term Financial Gameplan
Opportunity: Reach out to Harmony Wealth Advisors for a comprehensive Financial Planning engagement.
Recommendation: Develop and adhere to a cohesive financial strategy. Click here to read HWA’s one-pager on what they can do for you.
8. Maximize Your HSA Contributions
Opportunity: Health Savings Accounts (HSAs) offer a unique opportunity for high net worth individuals to optimize their wealth management and tax planning strategies. HSAs are tax-advantaged medical savings accounts available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). HSAs provide a triple tax advantage: contributions are tax-deductible, the account's growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. This can offer both immediate and long-term financial advantages.
Recommendation: Start an HSA if you don’t already have one and maximize your contributions.
9. Business Mileage Log: Keep Track for Deductions
For Business Vehicle Users: Ensure your mileage log is up-to-date for accurate tax deductions. Re-read our October Commonsense CPA for more information about vehicle deductions.
10. Charitable Contributions: Strategic Grouping
Opportunity: Grouping your donations in one year can have tax benefits if you itemize your deductions.
Recommendation: Explore with Harmony the strategy of grouping, or "bunching," charitable contributions which can be an effective tax planning technique, particularly beneficial for individuals who itemize their deductions. This approach involves consolidating multiple years' worth of charitable donations into a single tax year. The aim is to surpass the standard deduction threshold, thereby maximizing the tax benefits of charitable giving.
11. Tax Loss Harvesting: Consult Your Financial Advisor
Opportunity: Explore tax loss harvesting under the guidance of your financial advisor.
Strategy: Tax loss harvesting is a strategic financial move where investors sell off investments that have experienced a loss in order to offset capital gains taxes. This technique is particularly useful in managing tax liabilities, as it allows investors to reduce their taxable income by using the losses from underperforming investments to counterbalance the gains from more successful ones. The key to effective tax loss harvesting lies in timely identification and sale of these loss-bearing assets, often at the end of the fiscal year. However, it's crucial to approach this strategy with careful consideration with your Harmony tax team to ensure it aligns with your overall financial goals and tax circumstances. Not only does this strategy provide immediate tax relief, but it can also contribute to a more refined and adaptive investment strategy.
As the year winds down, it's the perfect opportunity to reflect on and realign your financial strategies, and your team at Harmony Group is committed to helping you navigate these tasks with expertise and ease. Should you have any questions or need assistance in any of these areas, including direct introductions to recommended advisors and financial professionals, please don't hesitate to reach out!
Here's to a productive and rewarding Fall Financial Cleanup!
Journal Entries
October 2023
Looking to Move - Yield Signs Ahead
In an effort to fight inflation the Fed has been aggressively hiking rates although inflation cooling and higher long term interest rates mean that the pause of the last two months is likely to continue. The Federal Funds Rate currently sits at 5.33% the highest it's been since 2000.
Higher interest rates historically mean 1) lower returns on equity and other non-interest bearing assets, 2) opportunities for risk-free yield and 3) rising mortgage rates. Mortgage rates track both the Federal Funds rate and investor demand and expectations for the performance of mortgage backed securities. Cooling demand and increased uncertainty has widened the traditional spread between the Funds rate and mortgage rates meaning you can expect 30-year mortgage rates to get more expensive until the Fed actively starts cutting interest rates. Given the supply crisis keeping housing prices high, if you're looking to buy it might be sensible to investigate an adjustable rate mortgage or ask whether the house you buy has an assumable mortgage – a feature of some government backed loans.