Coming off a whirlwind of a year in 2020, as we faced unprecedented circumstances, there were certainly a number of hard lessons learned as we sailed through unchartered territory. For many individuals, the biggest lesson was perhaps the realization that they simply were not prepared for the changes they now had to face. Although grudgingly learned, these lessons have brought rise to an overwhelming emphasis on having a positive outlook to live a simple and more enjoyable life.

So what if we ignored conventional wisdom and started sweating the small stuff?

In his book, An Astronauts Guide to Life on Earth, Col. Chris Hadfield states, “An astronaut who doesn’t sweat the small stuff is a dead astronaut.” We may not all face the same intense decision making required of an astronaut but the point is a good one. Paying attention to the granular details made a substantial difference in Hadfield’s life and career. If we had focused on the more granular details of our lives, building a good and balanced life, perhaps our finances, jobs, and personal relationships would have been better insulated against the hardships of a turbulent time like we all just experienced.

We cannot always control what happens in life. We can control how prepared we are. No matter what life event you are experiencing, be it retirement, career change, or starting a family, planning for success is crucial. Depending on your level of preparation, you will have passed or failed before you began. Hadfield even argues we should visualize failure and not success to better prepare. Break down each situation, look at every angle and then formulate your plan.

And, of course, even after all that preparation, things can go wrong. C’est la vie. Oui? The best thing one can do for themselves, their family or their team, is to hold on to that sense of calm being prepared can bring. By sweating the small stuff (without letting anyone see you sweat of course!), you will be better positioned to navigate gracefully through almost any situation.

Things usually go right when we follow a recipe. Things quickly turn into a disaster when we improvise or add in things that don’t belong. Let’s add a little more of this and let’s forget this…unless its bacon which makes everything better.  2020 has been a year with lots of distractions with many reasons to add a little more of this and forget about that.

With the New Year coming It’s a good time to review the basics of a sound financial plan and see how we did this year. We call these basics the Five Fundamentals of Fiscal Fitness. They are so basic that most people completely ignore them.

20 years old. A new adult. The first few years of adulthood, independence and individuality. So many new concepts and so many unknown paths beckoning the young adults to follow. In the age of internet and “infinite knowledge”, there is a large amount of bad advice out there mixed with the good. It is important to ID the good behaviors and advice before any patterns are formed during young adulthood, as these patterns – either good or bad, can embed themselves in financial life for years to come. Whether you are a parent of a 20-something year old (or will be soon) or you are somewhere in your 20’s, this is advice for you.

• Budget your Cash Flow – No matter your position and income, you cannot start the financial journey until you budget your Cash Flow. The word “budget” has negative connotations – a 20 page spreadsheet with ancient formulas. It does not have to be like that at all. A successful budget needs only a few numbers identified, and your understanding. Once you ID your monthly (or bi-weekly) income, you need to ID your expenses – what you need to spend your money on, and what you want to spend your money on – note which is written first. Whether you are working part-time during college, or have your 1^st/2^ndadult job after-college, planning out where your money goes every month is a great first step towards controlling it –you cannot harness something you are unaware of.
• Get Insured – Even if you have really financially savvy parents or friends that assist you with other forms of advice here, this is one that is often skipped. Insurance covers many types products.
  • Health/Life -You are young. For personal health insurance, most young adults are not expensive to insure. Unless you are a smoker, the fact that you are in your 20’s typically places you at the top of the preferred tier for health and life insurance. If you are working at a firm that offers health and life insurance, you should seldom refuse. Even if your employer does not cover 100% of it, you can have (even if basic) coverage for your health care & life insurance for pennies of what your parents would pay.
    • If you are on your parent’s health insurance, you likely will not be offered a better plan, so ride that out until 26 (if you are nice to your parents). But at 25, you should know everything you need to know about your next plan and jump on it right away so as not to have a gap in your coverage.
  • Renter’s / Homeowner’s – Likely earlier in your 20’s you will be renting – especially if near a college campus. Later in your 20’s some of you will opt to stop renting and buy a house – preferably once you have work stability. You need both types of insurance, because well, the younger you are, the less money you have to “self-insure.” All that this means is that if you have any issues within the apartment or house, you are not hit with a significant financial burden. The younger and less financially stable you are, the more these types of insurance make sense.
  • Car – Even if you are on your parent’s insurance for now, it does not mean you can be a reckless driver racking up points on your license from traffic and accident tickets. The more of each of those you get, the more expensive it will be to stay insured.
• Live within your means – This is one of the most important pieces of advice and my favorite. This cannot be stressed enough, and applies to people in their 20’s universally. No matter how much income you make yourself, or how much your parents assist you, identifying your means and living under that line is crucial. “Live within your means” sounds like an archaic line of advice boomers give to younger folks on TV, but this particular piece actually makes sense. After following the steps from “Budget your Cash Flow” above, and you have a clear picture of what you can spend, you make the choices on what to spend it on. A popular example that was very tempting for me in my younger 20’s, and especially when I started earning my own money, was to not curb unnecessary spending. If you have $750/month to spend on a car/month, or your parents are offering you this amount, there is no need for you to lease a new series BMW. Why not get something more reliable, frugal and financially sound? Use $250/month on the lease or financing payments and the rest for the next point.
• Save, Save, Save! – Again, you are young. I don’t mean save the money under your mattress – absolutely the opposite actually. First step is to develop an Emergency Savings – most effective account type for this is the “High-Yield-Savings-Account (HYSA)”, but a cushion of ~500-$1,000 in your checking account that you don’t touch is a great start. A sign of great financial health is not having to ask your parents for money for a blown tire or a broken house appliance. That is true adulting. The next step is investing. You always hear “saving for your retirement now will take years off the time you have to work”. But you do not have to hide away all of your money until you are 59 ½. If you do not mind, it is best to take advantage of Roth IRA’s – the less money you make a year, the better. If you do mind locking up your money for a while, start with a Brokerage account. There are more Millennial / Gen. Z alternatives that fill this demands as well – Acorns and Robinhood being the most prominent. Robinhood actually gives you a free stock share just for signing up. Whatever you do choose, most important part is to be aggressive. 100% equities (stocks, mutual funds) should be the norm in your accounts – no cash, as it earns practically nothing.

There are plenty more points to discuss, from building your credit score to avoiding financial money pits. However, this is a compact outline of where to start and what to do as you are getting out there into the unknown and trying to make a name for yourself. The internet is chock full of bad advice – make sure to do your research (fact check everything) and don’t get disheartened when faced with some truths of financial adulthood. It will all click into place eventually. Step by step.

Sources:

https://www.kiplinger.com/article/saving/t063-c006-s001-10-financial-commandments-for-your-20s.html

https://www.ellevest.com/magazine/personal-finance/money-in-20s

https://jarredbunch.com/10-critical-things-to-do-with-your-money-in-your-20s/

https://www.thebalance.com/money-steps-in-twenties-2385840

https://www.cnbc.com/2019/08/06/4-money-choices-to-make-in-your-20s-if-you-want-to-be-rich-in-your-30s.html

https://www.nerdwallet.com/article/finance/manage-money-20s

 Financial security in retirement doesn’t just happen.

It takes planning, commitment and, yes, money.

FACTS:

• Only 40 percent of Americans have calculated how much they need to save for retirement.
• 30 percent of private industry workers with access to a defined contribution plan (such as a 401(k) plan) does not participate.
• The average American spends roughly 20 years in retirement.

Putting money away for retirement is a habit we can and should all live with.

1. Saving Matters – Start saving, keep saving, and stick to your goals

If you are already saving, whether for retirement or another goal, keep going! You know that saving is a rewarding habit. If you’re not saving, it’s time to get started. Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time your money has to grow. Make saving for retirement a priority. Devise a plan, stick to it, and set goals. Remember, it’s never too early or too late to start saving.

2. Know your retirement needs

Retirement is expensive. Experts estimate that you will need 70 to 90 percent of your pre-retirement income to maintain your standard of living when you stop working. Take charge of your financial future. The key to a secure retirement is to plan ahead.

3. Contribute to your employer’s retirement savings plan

If your employer offers a retirement savings plan, such as a 401(k) plan, sign up and contribute all you can. Your taxes will be lower, your company may kick in, and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate. Find out about your company’s plan. For example, how much would you need to contribute to get a possible employer contribution and how long would you need to stay in the plan to get that money.

4. Learn about any employer’s pension plans

If your employer has a traditional pension plan, check to see if you are covered by the plan and understand how it works. Ask for an individual benefit statement to see what your benefit is worth. Before you change jobs, find out what will happen to your pension benefit. Learn what benefits you may have from a previous employer. Find out if you will be entitled to benefits from your spouse’s plan.

5. Consider basic investment principles

How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you’ll have saved at retirement. Know how your savings or pension plan is invested. Learn about your plan’s investment options and ask questions. Put your savings in different types of investments. By diversifying this way, you are more likely to reduce risk and improve return. Your investment mix may change over time depending on a number of factors such as your age, goals, and financial circumstances. Financial security and knowledge go hand in hand.

6. Don’t touch your retirement savings

If you withdraw your retirement savings now, you’ll lose principal and interest and you may lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings invested in your current retirement plan, or roll them over to an IRA or your new employer’s plan.

7. Ask your employer to start a plan

If your employer doesn’t offer a retirement plan, suggest that it starts one. There are a number of retirement saving plan options available. Your employer may be able to set up a simplified plan that can help both you and your employer.

8. Put money into an Individual Retirement Account

You can put up to $6,000 a year into an Individual Retirement Account (IRA); you can contribute even more if you are 50 or older. You can also start with much less. IRAs also provide tax advantages. When you open an IRA, you have two options – a traditional IRA or a Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select. Also, the after-tax value of your withdrawal will depend on inflation and the type of IRA you choose. IRAs can provide an easy way to save. You can set it up so that an amount is automatically deducted from your checking or savings account and deposited in the IRA.

9. Find out about your Social Security benefits

Social Security retirement benefits replace about 40 percent of a median wage earner’s income after retiring. You may be able to estimate your benefit by using the retirement estimator on the Social Security Administration’s Website. For more information, visit their Website, www.ssa.gov

10. Ask Questions

While these tips are meant to point you in the right direction, you’ll need more information. Talk to your employer, your bank, your union, or your financial advisor. Ask questions and make sure you understand the answers. Get practical advice and act now.

2020 has been a year like no other with Covid-19 having derailed all of our plans and expectations. Unfortunately, the United States is officially in a recession, ending the longest economic expansion in history. More than 40 million Americans have filed for unemployment since the pandemic began and uncertainty seems higher than ever. The word recession often triggers negative thoughts, feelings, and fear of the unknown. The question is, when do we get back to how life used to be? Below are several ways to help navigate through a recession and these uncertain times.

1. Building your emergency reserve.
   1. What is your “sleep at night money”, what is your comfortable minimum cash balance to have at all times for large expenses, emergencies, etc.? If possible, adding additional funds to your reserves will help ensure that you will continue to pay all of your necessities. Recommend using an online high yield saving such as “Marcus by Goldman Sachs” or “American Express” to earn the highest interest possible.
2. Paying down debts if possible
   1. Priority is to eliminate existing debt such as credit cards which may involve high rates of interest. Auto loans and mortgages can be refinanced at lower interest rates due to the Federal Reserve cutting rates. Federal student loans offer deferred payments interest free to help for several months.
3. Think with the end in mind
   1. This expression by Franklin Covey means to think with a clear vision and destination, then proactively incorporate a plan to achieve success. The path forward may be uncertain, but your long-term vision should never change. Making drastic short-term changes will severely impact long term financial security.
4. Identify your risk tolerance and stay the course
   1. Understanding your risk tolerance is a major factor when building a financial plan. At Lighthouse, we believe that allocation should focus around a spending plan. Someone who may depend on their portfolio with a short-term mindset would often focus on CD’s, money markets, and bonds. An investor focused on needing income from their portfolio several years down the road would rely on equities to maximize their potential return. Although thinks can be shaky in the current markets, stick to your plan and identify your objective.
5. Identify your budget and cash flow
   1. What makes you happy, what is essential? Only you know that answer. It is helpful to take a look at current income and expenses to see where you stand. Identify possible ways to cut back to make sure you are living within your means.
6. Focus on your health
   1. This is the most important of this list. Having strong mental & physical health during tough times is what will help you achieve success. Whether it’s going for a walk, going for a drive, playing a video game, etc., do what makes you feel good. Options may be limited, but take advantage of what makes you thrive. Take advantage of spending time with your family and friends. They are your most invaluable assets.

There is no specific timetable as to when a recession will end, but we can at least navigate these unprecedented waters a little easier together. Think of all you have, especially your family and friends. We often look back in life wondering how we ever got through various life challenges. Covid 19 may be disruptive, but in the end this too shall pass. In the future we will look back and learn from this experience together and be better for it.