This feature was written by Studio MSP writers. While some of our advertisers were sourced, no advertiser paid to be included.
Illustration by CSA Images/Getty
Milestones
Everyone benefits from planning for the future. And the time to look ahead is right now, financial pros say. “This time of year is great to say, ‘OK, did I have any major milestones last year?’” says Sarah Kostial, senior vice president at Associated Bank. “Did I lose a loved one? Did I have a baby? Was there a divorce or marriage?”
We sat down with Twin Cities financial experts to outline some of the best ways to plan for the future.
First Full-Time Job
While financial advisors certainly help set young adults up for success, 84 percent of Gen Zers look to their family to learn financial literacy.
“One of the biggest pieces of advice that I ever got was when I was fresh out of college," Kostial recalls. I started working for my grandfather’s bank. My grandfather and my uncle took me out for dinner and started Finance 101 and the power of compounding. So that night, I invested $2,500 in the market that ultimately grew and allowed me to buy my first home.”
The power of compounding, Kostial says, is what she calls the latte effect: If you give up your daily $5 latte once a week for a year (a total of 52 weeks), you would save $260 every year. “We don’t want to cheat ourselves out of things that do make us happy,” she says, “but maybe it’s done more in moderation.”
A common benchmark for young adults is that by the time they reach their late 20s, they should have saved the equivalent of their annual salary, financial experts say. But they also recommend that you don’t compare your financial situation to others.
“My colleagues at JNBA and I will often hear people ask, ‘How am I doing compared to my peers?’” says Elise Huston, advisory services manager at JNBA. “What works for you might not work for your neighbor. If you have a good sense of what you value and what your goals are, you can better align your resources with those goals and values to bring a sense of confidence and success.”
The ABCs of ESG
Environmental, social, and governance investing is another way of describing socially conscious investment decisions intended to make a positive impact in the world. It simply means investing in companies that share your values—whether that’s human rights, the environment, gender diversity, or other factors. Many of our clients in their 20s and 30s tend to be very values-focused. They’re living their values in every other aspect of their life, so it makes sense they’re working to live their values through their investments, too. And more and more people are moving in that direction.
—Elise Huston / advisory services manager at JNBA
Buying Your First Home
House Illustration
If you want to buy the average-priced Minnesota home, you’re looking at a house that costs about $310,000, according to Zillow. Even if you have enough money saved, finding the right home can be even tougher, with fierce home-buying competition.
“With interest rates on a 30-year fixed mortgage around 6.5 percent when they were closer to 3.5 percent a little over a year ago, and housing prices still at higher levels, many home buyers and clients we work with are waiting to see if housing prices or interest rates come back down,” Huston says.
DYK?
1/3 of millennials often or exclusively use investments that take ESG factors into account, according to a CNBC poll.
Getting Married
Weddings are more expensive than ever, with the average ceremony and reception racking up a price tag of almost $30,000. Financial experts can offer critical advice to newlyweds to help them start marriage off on the right financial foot and can also offer advice to parents on how to save for this once-in-a-lifetime event. “The best piece of advice that I would give is [saying,] ‘We need to talk about it,’” says Angie O’Leary, the head of Wealth Planning at RBC Wealth Management–U.S. “That whole idea of having more money conversations is super important.”
Some recommend taking out a credit card specifically dedicated to the wedding. Look for credit cards that offer a lot of special rewards, including miles for flights, which can come in clutch for the honeymoon. Put everything wedding-related on the card, but be sure that you have that cash ready to pay off the bill as soon as you get it. The benefit of using a card over cash comes with those perks you amass.
Photo courtesy of JNBA
Elise Huston
“What works for you might not work for your neighbor. If you have a good sense of what you value and what your goals are, you can better align your resources with those goals and values to bring a sense of confidence and success.” –Elise Huston, advisory services manager / JNBA
Having Children
Having a baby is an emotional decision, but it’s also a hugely financial one, especially when you consider that the average cost of raising a child from birth through age 17, now adjusted for inflation, is about $300,000, or more than $16,600 per year. Finances come into play for families of any kind, whether you’re a foster parent, an adoptive parent, or starting IVF treatment.
“It’s important to update beneficiaries, contribution amounts, allocations, et cetera, as your family grows or your situation changes,” Huston says. “If you ‘set it and forget it’ and do not change things to be reflective of your current life, it could mean you’re missing opportunities to optimize your financial assets.”
Lesser-Known Financial Tips
Sharon Calhoun, senior wealth advisor at Vector Wealth Management, shares some industry secrets.
- Many people think that the federal exclusion amount for 2023 is $17,000, and that’s all any one person can gift—not true! You can gift more than that. You need to simply record it on your tax return using gift tax Form 709.
- Back-door Roth conversions are a type of conversion that allows people with high incomes to fund a Roth IRA despite IRS income limits. Basically, you put money you’ve already paid taxes on in a traditional IRA, then convert your contributed funds into a Roth IRA.
- Qualified charitable distributions allow individuals who are 70½ years old or older to donate up to $100,000 total to one or more charities directly from a taxable IRA, and it can be counted toward satisfying your required minimum distribution. As a result, donors may avoid being pushed into higher income tax brackets and prevent phaseouts of other tax deductions.
- Many people are not aware that if you are a participant in a 401(k), you can convert before-tax 401(k) money into a Roth 401(k). It’s done through an in-plan Roth conversion, sometimes referred to as an in-plan Roth rollover.
Retirement
“I’ve never been a fan of the word retirement,” admits Sharon Calhoun, managing director and senior wealth advisor at Vector Wealth Management. “But I believe it’s a word that resonates with most people. I’d much prefer that it’s considered a transition away from W-2 or 1099 wages.… It can be hard to transition to the wealth distribution stage of your life. Instead, consider living your life as if it is part of your retirement and enjoy all those things that are meaningful to you along the way.”
Financial experts stress the importance of planning for retirement—evaluating your savings, your estate, your health, and your legacy. It can be more stressful than you think! “Many individuals who plan to retire are excited to escape the stress and schedule of their working lives,” Huston says. “They believe there will be a huge sense of relief to be out of the daily grind. But we have frequently seen clients struggle more with their sense of purpose or identity once they are retired and long for the days when people relied on them and they had that feeling of accomplishment.”
Finances 101: Three Books Financial Experts Recommend You Read
Smart Women Finish Rich by David Bach
The Little Book of Safe Money by Jason Zweig
From Here to Financial Happiness by Jonathan Clements
Legacy Planning
Retirement is a great time to consider legacy planning, and financial experts stress the importance of including your spouse and family in your financial affairs at this stage. If anything happens to your health, your loved ones need to be able to step in to help. “Over the past few years, there has been a lot of conversation around possible changes to the federal estate tax exemption limits,” Huston says. “In anticipation of potential changes, many individuals and families are working to get their ducks in a row now and exploring the best way to transfer wealth to their heirs under current limits.”
Photo courtesy of Vector Wealth Management
Sharon Calhoun
“I’ve never been a fan of the word retirement. But I believe it’s a word that resonates with most people. I’d much prefer that it’s considered a transition away from W-2 or 1099 wages.... Consider living your life as if it is part of your retirement and enjoy all those things that are meaningful to you along the way.” –Sharon Calhoun, senior wealth advisor / Vector wealth management
Sources and Resources
Vector Wealth Management, Mpls., vectorwealth.com
Voyage Wealth Architects, Mpls., voyagewa.com
This article originally appeared in the April 2023 issue of Mpls.St.Paul Magazine.
