Financial Staples

According to data from the Federal Reserve Bank of New York, total household debt rose by $109 billion to reach $17.80 trillion in the second quarter of 2024. This includes mortgages, home equity revolving debt, auto loans, credit cards, student loans and other consumer lending such as retail cards.

As your income increases, it’s easy to spend more and upgrade your lifestyle. While it’s okay to enjoy your raise or bonus, you don’t want to get in the habit of not saving some portion of it. In addition, when it comes to taking on debt, always focus on the total cost instead of the monthly payments. What seems like affordable monthly payments add up over time. Before you know it your fixed expenses consume almost all of your take home pay and there’s not much room for error.

In addition to cost, when you want to splurge on a purchase, think about items that may make your life more convenient or happier. Make sure you’re not just spending more because you can. The more you align your spending with your values and goals, the less likely you are to have buyer’s remorse.

Need help with adjusting your finances after a raise or bonus? Check out this article where I explain smart things to consider: https://buff.ly/3zNZpfk

The stock market has shown some volatility recently and the uncertainty can be stressful. One of the best things you can do when it feels so many things are out of your control is to focus on things you can control. Before we get into the specifics of investing, I always make sure my clients have the following things in place:

🦺 Emergency Fund
I generally recommend at least 6 months of living expenses or take-home pay. For clients who are fearful of layoffs, we’ve increased this amount to 12 months or the amount that – with severance – would get them to 12 months.

🏦 Short-Term Expenses
I recommend keeping any money you anticipate needing in the next few years in cash or a cash equivalent. This could be recurring expenses like insurance premiums, property taxes, annual travel, or tuition payments. It could also be future purchases or reserves like home maintenance and improvements or a car fund.

💳 No Consumer or High-Interest Debt
High-interest debt such as credit cards or personal loans can be a drain on your budget. Paying this debt off should be a top priority and can provide a guaranteed rate of return that is equal to the interest rate on the debt.

We also discuss the importance of diversification and how early in their investing journey their ability to invest consistently will have a greater impact on the growth of their investment portfolio than what happens in the market in the short term. Finally, they understand that they should not need to access any money we’re investing for retirement for at least a decade (often two decades or more).

If you understand these foundational concepts and you maintain a long-term perspective, it’s much easier to stay calm and tune out the noise. Otherwise, fear and worry can drive you to make decisions you might regret.

As Carl Richards, author of The Behavior Gap, says: “Investment success is not about skill – it is about behavior.” Not everyone has the patience and discipline to be a successful long-term DIY investor. A financial advisor can help you stay focused and develop a cohesive investment strategy that helps you reach your long-term goals.

5 Rules for your Emergency Fund

1. Understand what’s considered an emergency.
2. Calculate how much you need based on your situation.
3. Keep your emergency fund in a high-yield savings account – Do NOT invest!
4. Make plans to save for overlooked expenses separately.
5. Start small, if necessary, and be consistent.

Building an emergency fund should be a top priority. Your emergency fund is there to cover unforeseen expenses or a job loss. Having one protects you from blowing up your budget or getting into debt.

❓What’s considered an emergency?

It’s imperative to understand the difference between unexpected and overlooked expenses. A true unexpected cost is unpredictable. A few examples include medical emergencies, major home repairs from a natural disaster, and last-minute travel for a funeral. There’s no way to avoid these types of expenses and you have no way of knowing how much these expenses will cost. Overlooked expenses are predictable. Some are paid at irregular intervals, like quarterly water/sewer bills, semi-annual insurance premiums, or annual property tax payments. Other costs may catch you off guard, but they’re certainly not unexpected. Examples include regular home or car maintenance, routine medical expenses, and holiday expenses. These are not emergencies and should be planned for separately.

❓How much do you need?

Generally, you should save at least six months of living expenses or take home pay. If you have variable income, own a business, or own a house, you should save more. If you’re worried about layoffs and it could take some time to find another position, consider the standard severance package your company would provide and make sure you have enough savings on top of that to cover your living expenses for twelve months.

Don’t worry if you’re just getting started or behind on saving. Start with one month of living expenses and build from there. To make the process easier, automate transfers from your paycheck or checking account to your savings account. You can also save lump sums that your receive, like bonuses or tax refunds.

Finally, be sure to balance your emergency fund savings with paying off existing debt.

Tech companies are often considered some of the best companies to work for, and for many good reasons. In addition to generous salaries, cash bonuses, and equity, the various benefits they might offer can add up to thousands of dollars in savings. In addition to your typical health insurance, retirement, and medical savings account offerings, be sure to take advantage of other valuable benefits. Here are a few common benefits I've seen with clients:

Understanding your benefits helps you make better decisions – and saves you money! Need help choosing the benefits that are best for you? Let’s chat!