Establishing a Budget

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Establishing a Budget

Do you ever wonder where your money goes each month? Does it seem like you're never able to get ahead? If so, you may want to establish a budget to help you keep track of how you spend your money and help you reach your financial goals.

Examine your financial goals

Before you establish a budget, you should examine your financial goals. Start by making a list of your short-term goals (e.g., new car, vacation) and your long-term goals (e.g., your child's college education, retirement). Next, ask yourself: How important is it for me to achieve this goal? How much will I need to save? Armed with a clear picture of your goals, you can work toward establishing a budget that can help you reach them.

Identify your current monthly income and expenses

To develop a budget that is appropriate for your lifestyle, you'll need to identify your current monthly income and expenses. You can jot the information down with a pen and paper, or you can use one of the many software programs available that are designed specifically for this purpose.

Start by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support. Next, add up all of your expenses. To see where you have a choice in your spending, it helps to divide them into two categories: fixed expenses (e.g., housing, food, clothing, transportation) and discretionary expenses (e.g., entertainment, vacations, hobbies). You'll also want to make sure that you have identified any out-of-pattern expenses, such as holiday gifts, car maintenance, home repair, and so on. To make sure that you're not forgetting anything, it may help to look through canceled checks, credit card bills, and other receipts from the past year. Finally, as you list your expenses, it is important to remember your financial goals. Whenever possible, treat your goals as expenses and contribute toward them regularly.

Evaluate your budget

Once you've added up all of your income and expenses, compare the two totals. To get ahead, you should be spending less than you earn. If this is the case, you're on the right track, and you need to look at how well you use your extra income. If you find yourself spending more than you earn, you'll need to make some adjustments. Look at your expenses closely and cut down on your discretionary spending. And remember, if you do find yourself coming up short, don't worry! All it will take is some determination and a little self-discipline, and you'll eventually get it right.

Monitor your budget

You'll need to monitor your budget periodically and make changes when necessary. But keep in mind that you don't have to keep track of every penny that you spend. In fact, the less record keeping you have to do, the easier it will be to stick to your budget. Above all, be flexible. Any budget that is too rigid is likely to fail. So be prepared for the unexpected (e.g., leaky roof, failed car transmission).

Tips to help you stay on track

  • Involve the entire family: Agree on a budget up front and meet regularly to check your progress
  • Stay disciplined: Try to make budgeting a part of your daily routine
  • Start your new budget at a time when it will be easy to follow and stick with the plan (e.g., the beginning of the year, as opposed to right before the holidays)
  • Find a budgeting system that fits your needs (e.g., budgeting software)
  • Distinguish between expenses that are "wants" (e.g., designer shoes) and expenses that are "needs" (e.g., groceries)
  • Build rewards into your budget (e.g., eat out every other week)
  • Avoid using credit cards to pay for everyday expenses: It may seem like you're spending less, but your credit card debt will continue to increase


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Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. 

Top Tax Planning Strategies in Retirement

Reaching retirement is a financial milestone, but it isn’t the end of the road. Yes. You have saved and invested your money with care over the past few decades (maybe longer). You probably also adopted a few tax planning strategies to maximize your take-home earnings over the years – why stop now?

It is just as important to plan for your taxes in your golden years as it was when you were working, perhaps even more so the older you get. Here are our top tax planning strategies to get you started.

Image via Flickr by ota_photos

Image via Flickr by ota_photos

Timing is Everything

First off, make sure you are taking your required minimum distributions. If you have a traditional 401(k) or IRA, you are going to have to take minimum distributions once you reach age 70 1/2, whether you need to or not. It may seem wasteful, but the penalty for missing a minimum distribution is 50 percent of the amount you would have withdrawn. Also, keep in mind that the timing of your distributions can make a big difference in your tax bill. For some people, taking distributions earlier instead of later means that you can spread out your retirement income over a longer timespan. Lower income means less taxes. Remember – you don’t have to spend it, just take the distributions.

In addition, understand that the required minimum distributions are payable before April 1 of the tax year after you turn 70 1/2. After that, you have a distribution deadline of December 31. As such, if you wait until April to take your first distribution, you’ll have to take a second minimum distribution before December 31. The extra income from the second distribution could push you into a higher tax bracket for that year.

Understand Exceptions

There is almost always an exception to the rule, especially in finance. For instance, let’s say you are still working at age 70 1/2 and if you own a stake in your company, it is less than 5 percent. In this scenario, you could delay taking 401(k) withdrawals until you officially stop working. There are important exceptions outside of required distributions as well. For instance, you could consider moving to a state without income tax or taking out a mortgage so that you can use your mortgage interest as a deduction. 

Many people like to go with traditional retirement investments because they pay taxes on their distributions after retirement, when their tax brackets are likely lower. However, some people may experience a higher tax bracket after retirement. If you know this in advance, you could put your money in a Roth IRA so that you lock in a lower tax rate and avoid paying more taxes later. The goal is to pay taxes on your capital gains when your income is lowest, taking distributions up to the threshold for the next tax bracket. Ideally, you want to start planning your taxes in retirement between the date you retire and the year you turn 70.

Eggs in One Basket

Consider the types of investments you hold as well. It can be tempting to wrap your portfolio into a single account when you take the plunge into retirement, but what is easy for monitoring your finances may not be easiest for managing your taxes. Most notably, investment profits that qualify as long-term capital gains, such as long-held stocks, have a lower tax rate than many other investments.

Partial is an Option

Your tax situation may see some benefit from partial Roth IRA conversions. While many people think these investment vehicles are an all-or-nothing venture, the reality is that partial conversions are possible – and potentially beneficial. “IRAs is a stonking [sic] great deal during our working years, in retirement these plans get thrown into reverse,” explains Forbes. “IRAs become unstoppable doomsday machines spewing out ever-larger taxable distributions every year, ratcheting up the mandatory payout according to a tune called by the IRS… The suave move is to make a series of partial Roth conversions, which also exempt these payouts from future taxation.” Plus, your forced distribution schedule would be applied against your now-reduced IRA balance so you end up playing less taxes all around.

Planning for taxes in retirement requires forecasting and knowledgeable advice. Expected returns, upcoming changes to the tax code, and predicted inflation levels all make an impact, and these variables are compounded every year. In the end, creating a plan that best satisfies your financial needs after you stop working is best accomplished with the help of a trusted advisor. 

Not all of the tax strategies listed within this article may apply to your situation. To be sure, schedule a call with a Berson+Corrado representative.



When Interest Rates Climb, Bond Prices Decline

A fundamental law of finance is that when interest rates rise, all other things being equal, the price of interest bearing securities decline. Of course, all other things are never equal and that’s when it gets complicated.

Income strategies generally underperform when the threat of higher interest rates is a concern. In 2014 and part of 2015 the negative impact on income strategies was intensified when the price of commodities, primarily oil, declined sharply. Since many yield investments are ultimately based on the price performance of energy and other commodities, this presented a perfect storm for some yield investors.

It turned out that the Fed only raised rates once in 2015 and have been on hold in 2016. This led to better performance in yield securities in 2016 until recently, when we are once again seeing pressure on these stocks. Leading up to the election, the backdrop was the likelihood that the Federal Reserve would raise rates at its December meeting. Since the election the narrative is that Trump will be good for growth by promoting fiscal stimulus and that there will be some inflation. The 10-year Treasury is up substantially since the election.

Every style of investing and every investment strategy passes in and out of favor. While periods during which a strategy is out of favor can seem like a long cold hard winter, unless investors want to try to time these shifts, the best approach is to stay the course. We acknowledge it is easier said than done. That’s where we attempt to help.

We make an effort to lower the emotional gain, or amplification factor, of the uncertainties that we live with. We try to separate the signal from the noise. To do so we communicate with you and remain responsive to your unique situation and concerns. We review your financial plans, recommit to them, and/or make adjustments when necessary. 

As for investments, we are long term long only investors. We do not try to time markets. However, we raise cash if investment ideas seem scarce, valuations stretched, or there are clearly heightened risks. Cash can help dampen the painful impact of increased volatility or temporary declines in investment values, so that volatility does not become a permanent loss of capital as one is forced to, or feels compelled to, sell out of positions at the wrong time. That is, cash is a practical and emotional bulwark against making rash decisions. In addition, cash provides optionality. Cash allows us to take advantage of downward volatility by buying attractively priced investments. 

There are times when some of the “all other things” that impact investments are positive. The Federal Reserve is signaling that it will raise rates in December, the second time in twelve months, the only time in 2016. But it is fair to say that the increase would be driven by a decent, if not strong, economy—passable GDP growth, good employment numbers, and the best wage growth since the Great Recession. Don’t get us wrong, things are far from rosy. However, the Fed is looking for the opportunity to begin to normalize interest rates and this data seems to support an increase. In general, an increase in interest rates is positive for savers.

Because we don’t time markets the trick for us is to manage cash, correctly size the position of each investment we make, avoid unintended risks, and to invest in companies whose business can benefit from an increase in interest rates and those that can prosper from the improvement in the underlying economy. With regard to yield, we look for companies that can not only maintain dividends, but potentially raise them, either because the economy is positively impacting the business or because a rise in rates does not exert a negative impact on business prospects.


Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Berson & Corrado Investment Advisors, LLC), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Berson & Corrado Investment Advisors, LLC.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Berson & Corrado Investment Advisors, LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Berson & Corrado Investment Advisors, LLC’s current written disclosure statement discussing our advisory services and fees is available upon request. If you are an Berson & Corrado Investment Advisors, LLC client, please remember to contact Berson & Corrado Investment Advisors, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services.