On the Road to Financial Fluidity

Slow Down and Pay Attention

We all have hectic lives. From caring for young children, to helping our aging parents, along with balancing a busy career and community commitments, it seems that there is never enough time. However, when it comes to your financial security, it is important to slow down and think about what is important to you.

Financial fluidity is the ability to be financially comfortable based on your values, lifestyle, and goals. As its name suggests, the meaning of financial fluidity will likely vary from person to person, and to that same note, what a person defines as financially comfortable will change over time. To determine what financial fluidity means for you, reflect on your personal, professional, and lifestyle goals. Carve out some time, perhaps an hour or two, and really focus on what you hope to accomplish financially this year, in the next 3-5 years, and long-term. This year, you may want to travel somewhere new. In a few years, you could be sending your first child off to college. Long-term, you might like to buy a vacation home for your family to make memories in the years to come.

Once you have established your goals, the next step is to determine if you have the proper resources, budget, and plan in place to achieve those goals. This is where paying attention comes in!

On the road to achieving financial fluidity, it is important to develop a solid financial plan and make it a priority to follow it closely. Doing so will allow you to take advantage of strategies that maximize your savings, save on taxes, and make more meaningful progress towards your goals.

Financial Plan Strategies

The following strategies, when tailored to your values, beliefs and lifestyle, can have a meaningful impact on your financial future.

Budgeting and Spending

Develop a budget and monitor your spending. By writing down your expenses the old-fashioned way, reviewing credit card and bank statements, or using a budgeting app (such as Mint, Quicken, or YNAB) you can determine how you spend your money. Review your cash flow history over several months and make sure to include one-time or annual expenses (such as real estate taxes) in your budget. Does your spending match what is important to you? Are there areas where you could cut back in order to save more for future goals?

Emergency Savings

Build up a fund for rainy day or unexpected expenses. It is recommended to set aside six months of living expenses for a single-income family, and three months of living expenses for a dual-income family. An emergency fund can help you avoid debt or dipping into retirement savings (often with penalties) when unexpected unemployment, medical expenses, or home repairs occur.

Retirement Savings

Are you participating in your employer’s retirement plan and contributing enough to receive the full employer match? If you are self-employed, are you taking advantage of retirement plan savings options for business owners?

College Savings

If you have children or grandchildren, chances are you’d like to help cover the cost of college. Contributing to a tax-advantaged 529 college savings plan can save you tax dollars on earnings and contributions (Illinois residents can deduct up to $10,000 in contributions per year to an Illinois plan, $20,000 per year for married couples). Many states offer tax benefits for contributions made by residents to their state’s plan.

Charitable Contributions and Gifting

If charitable giving is important to you, explore tax-efficient charitable gifting strategies like donor advised funds, gifting appreciated securities, and Qualified Charitable Distributions (if you are over 70-½ ). These strategies not only support your desired charity but also save you tax dollars along the way.

Financial Fluidity Takeaways

While “financial fluidity” can mean different things to different people, nearly everyone can benefit from slowing down and paying attention to their finances. Define your goals, pay attention to your current financial situation and develop a plan to work toward what is important to you. A trusted financial advisor can provide valuable advice and support along the way.

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Originally published in The Voice, a publication by the Rockford Chamber of Commerce, November 2019.