Bonus to Balance, Money Priorities, Diversification

Welcome to this week's edition of The Trail Report, where we share,

1 Story, where real stories of architects and engineers meet tailored financial strategies,

1 Actionable Tip, to provide actionable insights and guide you towards financial success,

1 Financial Term, to demystify key concepts and empower your decisions.

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1. Story: Guiding Tom from Bonus to Balance

Meet Tom, a talented architect who just received a sizable bonus. Normally something to celebrate, Tom was struggling with what to do with this unexpected money. He knew he had ambitious and wide ranging goals and wasn’t sure how to best approach the situation.

"How can I best use this money towards my goals?" he asked me.

Tom's situation required a thorough analysis. At the top of his list were – paying down credit card debt, taking an upcoming international trip, saving for a house, and securing an early retirement.

The bonus was $15,000 and after taxes he had $10,000 left to allocate.

$2,000: His emergency fund, though substantial, needed fortification. “You’ve got three months covered,” I pointed out, “but we are aiming for six. Let’s take some of this money to help move towards that goal to solidify your safety net.”

$4,000: Next on our list was the looming credit card debt. It weighed heavily on Tom’s mind. “Let’s clear this,” I suggested, “it's like lifting a weight off your shoulders, providing you room to breathe and plan for the future.”

His 401(k) contributions and Health Savings Account were on track, but there was more to address.?

$1,000: “Your upcoming Europe trip is a dream. You deserve to enjoy it without financial stress,” I assured him. We allocated additional funds to ensure he could indulge in extra activities.

With a portion of the bonus designated for the trip, we assessed what remained.?

$1,500: “Half of what's left can go towards your house fund,” I suggested.

$1,500: “And the other half?” he asked. “Let’s fuel your early retirement goal,” I said, nodding towards his IRA, “to build a robust foundation for your future self.”

Our session concluded with a profound transformation. The once uncertain architect now radiated confidence: he had a clear plan now.

Tom's journey underscores the transformative power of strategic financial planning. It's not just about managing money; it's about empowering individuals to sculpt their dreams into reality.

As an advisor, witnessing this transformation is a testament to the profound impact thoughtful financial guidance can have on someone's life.

2. Actionable Tip: Money Priorities

Tom’s story shows that it can be overwhelming to decide what to do with that extra money.?

Everyone’s situation is different, but here is a general framework you can use to make sure you’re allocating money into all the necessary places.

In order of priority:

1. Emergency Fund? 3-months minimum? 6-months ideally
2. High Interest Debt? Credit Cards? Personal Loans? Anything over 10% interest
3. 401k Match? At a minimum contribute up to your employer match
4. HSA (Health Savings Account)? Max this out if you can
5. General Savings? You don’t have to know what you are saving for, something will come up
6. Additional Investments? IRAs? Brokerage Account? Real Estate? Digital Assets

3. Financial Term: Diversification

Diversification is a risk management strategy that involves reducing your overall risk by not having all your eggs in one basket.

Diversification can apply to a single account, portfolio, or your overall wealth management strategy.

By diversifying across different types of accounts with different objectives, you are well balanced to handle different circumstances.

For Example:

1. Emergency Fund for Unexpected Expenses
2. 401k for Retirement
3. HSA for Health Expenses
4. General Savings for Fun and Larger Expenses
5. Additional Investments for Additional Wealth Growth

Happy Trails,

Ryan

Disclaimer: We employ fictional characters to illustrate financial concepts faced by individuals in the architecture and engineering industry. Any resemblance to real persons, living or dead, is coincidental. While the stories are inspired by our experiences, the specific details, circumstances, and outcomes mentioned are entirely fictional and created for educational purposes only. Real client information is strictly confidential and never disclosed without explicit consent. Our aim is to provide relatable examples for educational purposes, respecting the privacy and confidentiality of our clients.