Attaining wealth is hard and requires real effort. Below are ten tips to help you develop a wealth mindset based on our client and personal experiences:

1. Wealth is Fleeting

As they say, “easy come, easy go”. Too often we have seen people lose wealth just as quickly as they earned it. Look at those that invested in GameStop (GME) at its highs or other investing fads to see this. Those that typically attain wealth do this over time with great consistency and purpose. Rarely is wealth attained overnight and even more so is it kept if it comes quickly. An interesting study on Lottery winners has shown that it is far harder to keep wealth than it is to earn it.

2.  Aim to Have Just Enough

It can be very frustrating trying to earn a specific number before you feel comfortable about retiring. Working with a financial planner can instead help you quantify the “just enough” amount so you can retire. There is so much more to life than just chasing wealth and do not lose sight of other priorities in life.

3. Develop Wisdom and Knowledge

Many wealthy individuals have several common traits. Studies have shown that most millionaires are lifelong learners and voracious readers. They constantly are committed to learning new things, growing, and improving themselves through reading and experience.

4. Have Active Hands

One of my favorite quotes growing up was from my grandfather who said, “Idle hands accomplish nothing”. The meaning of this phrase was to encourage me to find hobbies and pursue passions. According to a study by A.C. Nielsen the average American watches 4 hours of TV a day. This means most people work and then go home to watch TV. Watching TV is not inherently wrong, but those four hours can be spent to increase your health or wealth. Many individuals that have accumulated wealth often have hobbies where they create something. This could be in music, creating art, writing, or fixing cars. But there is a strong correlation between having wealth and having hobbies that stimulate creativity.

5. Don’t Be Fake

In today’s society, it is heartbreaking to see how many people pretend or try to portray that they have wealth.  Just go to Instagram and you can see the fake pics taken next to cars they do not own or pretending to be on private jets. Do not be discouraged by the fake perception others have. Remember that life is like a book and do not compare yourself to someone else in chapter 20 when you are on chapter 5. Take time to unplug from social media and remember to take care of yourself. 

6. Be Thoughtful About Debt

It is important to try and have as little debt as possible because not having debt provides tremendous freedom and joy. Having debt is like being a prisoner until that debt is paid off. We are not saying that all debt is bad, but just be smart in how you handle your debt and have an emergency fund for those unexpected expenses.

7. Save Constantly

You cannot build wealth unless you are saving. The earlier you save and the larger amount you save the faster you will build wealth. It should go without saying as it is impossible to attain wealth without saving.

8. Change Your Mindset

Most people work similarly with money. They spend first, save second and give (if at all) last. Many wealthy individuals I have worked with have the exact opposite mindset. For them, the mindset is either save first and then spend or often it is giving, saving, and then spending. Develop that mindset by creating healthy financial habits and instill good financial habits into your kids at a young age.

9. Be Generous

The most charitable people I know are also the wealthiest. Psychologically this does not seem to make sense. You would think of the rich being like Scrooge McDuck and only thinking of themselves first. While there are certainly some wealthy people that have this mindset, the majority of people that we work with are generous people and love to share knowledge, time, and resources for the greater good.

10.  Be Satisfied

If we do not take for granted what we have and enjoy the small things in life, then life becomes more enjoyable. Being satisfied also helps us to keep things in perspective and not lose sight of what is important. Remember happiness is a choice as we learned.

While none of these tips on their own will make you wealthy, hopefully, they can help you to adopt a wealthy mindset, and this will be a valuable resource for you in life.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

As we enter April, we are still seeing the markets reach new highs. Below is a summary of the important economic data over the last month:

Sources:

1. Sources: J.P. Morgan Asset Management – Economic Update; Bureau of Economic Analysis (www.bea.gov); Bureau of Labor Statistics (www.bls.gov); Federal Open Market Committee (www.federalreserve.gov)
2. Indices:
   • The Barclays Aggregate Bond Index is a broad-based index used as a proxy for the U.S. bond market. Total return quoted.
   • The S&P 500 is designed to be a leading indicator of U.S. equities and is commonly used as a proxy for the U.S. stock market. Price return quoted.
   • The MSCI ACWI ex-US Index captures large and mid-cap representation across 22 of 23 developed market countries (excluding the U.S.) and 27 emerging market countries.  The index covers approximately 85% of the global equity opportunity set outside the U.S. Price return quoted.
   • The MSCI Emerging Markets Index captures large and mid-cap segments in 26 emerging markets. Price return quoted (USD).

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

This is one of our favorite times of the year. We are approaching spring, so the days are longer, air is warmer, and the final snow is melting away. This is also the time of year people begin spring cleaning and getting their house or other affairs in order. Since finances are on people’s minds since we are in tax season, we thought it would be a good time to do some spring cleaning for your finances as well. Below should be a helpful checklist to help with some spring cleaning:

Taxes

• Prepare and file your taxes (*note the new deadline of May 17^th)
• Review withholding if you owe or receive large refund. Use this IRS tool.
• Discuss tax strategies for this year with your tax advisor or financial planner
  • Charitable gifting strategies
  • Strategies for business owners
  • Strategies for those with executive benefits
  • Roth conversions

Personal

• Develop and/or review your budget
  • Contact insurance providers to try and reduce rates
  • Contact internet, cable and cell phone providers to make sure you are getting the best rates
• Review you credit reports from Experian, Equifax and Transunion. Click here to do it for free.
  • Dispute any wrong information
• Review your credit score. This can be done with any credit card provider for free or use a site like CreditKarma.com.
• Develop a plan to pay off your debt

Other Important Items

• Review your financial plan if you have not done so in last couple of years and/or if any major life changes have occurred
• Review your estate plan if not done in last five years due to recent changes in the law
• Review your investment allocation
• Rebalance your investments if not done in last twelve months

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

It is readily apparent that the Federal Reserve (the “Fed”) is more focused on employment rather than inflation. Last year the Fed released a new policy framework (1) that included a shift away from its traditional practice of raising interest rates based on the headline unemployment rate (U-3). It used to be that the market was trained to expect rate increases being triggered by the achievement of full or maximum employment, a level below which economists generally think inflation bubbles up in true Phillips Curve fashion. (2)

In Fed Chairman Jerome Powell’s appearance before the Senate Finance Committee last week he expanded on the Fed’s employment objective to what he called a “broad-based and inclusive goal,” where officials consider the unemployment rate of minorities as well as workers who are more marginally attached to the labor market. (3)

So, investors should no longer be focused on the “official” rate of unemployment, the U-3 rate. Instead, the Fed appears to be more concerned with the U-6 rate, which stands at 11.1% (versus a 6.2% U-3 rate). The African American unemployment rate, meanwhile, is 9.9%, while the Hispanic unemployment rate is 8.5%.(4) How the Fed is weighing these measures and where it wants them to be is unclear, as discussions have been qualitative not quantitative.

But it does dovetail with the Fed’s “patient” attitude towards inflation. The U-6 unemployment rate is historically “sticky” on the downside as skills training for marginal and disadvantaged workers takes time before meaningful employment occurs (see the chart above). It remains a huge policy question whether “structural” unemployment can be remedied by monetary policy. We have our doubts and keeps us very uneasy about the Fed’s response to cyclical inflation with their reaction function geared to the U-6.

1. See Federal Open Market Committee (2020b, 2020e, 2020f).
2. The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. Read more here about the relevance of the Phillips curve to modern economies.
3. The Bureau of Labor Statistics (BLS) defines marginally attached workers as persons who are not in the labor force, want and are available for work, and had looked for a job sometime in the prior 12 months. They are not counted as unemployed because they had not searched for work in the prior 4 weeks, for any reason whatsoever. The marginally attached are a group that includes discouraged workers.
4. Source: BLS, Civilian Unemployment Rate (https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm#)

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

With a new president often comes new agendas and philosophical changes. This is especially true with the Democrats controlling the House and picking up important seats in the Senate. President Biden is expected to pitch his “Build Back Better” infrastructure plan on Thursday and how to fund the estimated $3 trillion price tag.

Democrats will be forced to choose between budget reconciliation, which requires only a simple majority in each chamber for passage or securing at least 10 GOP votes in the 50-50 Senate.

Below are four potential changes to taxes that we are watching closely:

1. Increase in Income Tax for the Affluent

For those in the highest tax bracket (currently 37%) there is chatter in DC to raise it back up to the previous level of 39.5% or higher. The tradeoff they are considering is removing the State and Local Tax (SALT) deduction limit of $10,000 or more likely raising the SALT limit. This would be a great benefit for homeowners in high-tax states like California.

2. Increase in Corporate Tax

The corporate tax rate was lowered from 35% to 21% under the Tax Cuts & Jobs Act (TCJA) law in 2017. Many of the individual tax provisions of the TCJA sunset and revert to pre-existing law after 2025, however, the corporate tax rates provision was made permanent. Biden has previously voiced support for raising the corporate tax rate to 28%.

3. Changes to Estate Taxes

There is some concern that the new Congress may want to make significant changes to estate taxes.

Some of the proposed changes could include:

• Reducing the lifetime exemption back to $5 million (adjusted for inflation). Currently, the limit is $11.7 million per person but sunsets in 2025 (see the discussion above about the TCJA). Lowering this exemption would also impact gifting and those subject to generations skipping taxes (GST).

• Removing the ability of heirs to get a step up on a cost basis. For example, under current rules assume a $1 million after-tax investment has a cost basis of $300,000. Currently, the heir gets a new cost basis of $1 million and would not pay capital gains on the inheritance. There is talk of this being changed so the cost basis for the heir stays at $300,000 so they would have to pay capital gains taxes on the $700,000 in gains where under current law they do not have to.

4. Raise Social Security Tax Limits

Under current law, individuals pay 6.2% taxes for Social Security on the first $142,800 in earnings for 2021. Earnings over this amount are not subject to Social Security taxes.  There is speculation that this number could be raised to help meet the social security shortfall. There is also speculation about adding a new tier for payroll tax contributions for incomes over $400,000. There could be additional changes to the Medicare taxes as well. Read here about other possible changes to Social Security and Medicare.

5. Other Potential Changes        

There has been some discussion on making changes to popular planning strategies as well. There has been speculation but nothing concrete as of yet. Aside from federal changes, we may see more changes at the state level as many states are struggling with budgets in light of the pandemic and they will be searching for additional sources of revenue (read more taxes). This could lead to higher property or income taxes, or other potential changes like developing estate taxes or taxing Social Security. For example, California recently passed Prop 19 possibly triggering higher property taxes for inherited property.

Again, this is a tough item to predict but certainly something we are watching closely.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.