The most recent data released by the Labor Department revealed the largest quarterly drop in productivity since 1947, decreasing at an annualized rate of 7.5%. The drop in productivity was concurrent with the largest rise (11.6%) in labor costs since 1982. Both of these measures are also indicators of inflationary pressures for both companies and consumers. Many companies have been passing along higher costs to consumers, raising prices across the country faster than they have in the last 40 years. Eventually prices will be forced to level out because of competition between companies which will hold prices steady which will require these companies to absorb the higher costs. This could lead to decreased levels of hiring and lower wages as companies struggle to maintain profitability levels.

Data surrounding labor during the pandemic has been considered unreliable and inconsistent by many economists, meaning that the true effects of the COVID-19 pandemic and worker retention are still not certain. An essential data set is labor productivity, which is a measure of how efficiently companies are utilizing workers to produce products and services. This year, the largest four-quarter drop in labor productivity was observed since the fourth quarter of 1993 according to the Bureau of Labor Statistics, marking a historic decline in productivity. Another Labor Department report showed that jobless claims increased to 200,000 at the end of April, the overall number falling to 1.38 million, the lowest level since January of 1970.

Federal Reserve survey results, reported in the Fed’s Beige Book, have identified that a growing number of manufacturers and industrial companies are

increasingly moving towards automation, replacing previously desired workers with robotic gear. Rising wages and a dwindling labor pool have forced some companies to resort to machines instead of hiring workers.

When managing your personal finances, we’ve talked about how important it is to pay yourself first-to put money into savings and then budget and spend what is left over. This creates a stable financial foundation to build from and rely on. When running a business, it’s important to follow the same principle and put your profit first. To have a successful business you need to make a profit. The strength and longevity of your business only lasts while it’s profitable. When you put your profit first you are determining to stay in business.

What does it mean to put your profit first? Traditional accounting says, expenses are deducted from sales and what is left over is considered your profit.

[Sales – Expenses = Profit]

But, just like paying yourself first, you take a percentage from each sale as profit and then use the remainder to pay for expenses.

[Sales – Profit = Expenses]

The overall goal is to develop a system that will build your business in a sustainable way in order to create long term success. Big picture, you would be grouping portions of the business sales and putting them into separate accounts. These will be comprised of profit, taxes, operating expenses, and owner’s pay. To make this system work you will put predetermined percentages of your sales into the various bank accounts starting with the profit account. How much you put into each account is determined by your Target Allocation Percentages (TAPs). This will be a shift from the Current Allocation Percentages (CAPs).

At first this may be a difficult thing to do, as it goes against the traditional model, but making the shift mentally and committing to the future of your business will make all the difference. When you consciously put money into your separate accounts it makes you more aware of how you are spending your money and helps you to spend more wisely. All of the accounts together can help give you a visual map of where your company is at and help you see how to get to where you want your company to go.

Perhaps the hardest part of this process is managing your expenses. Initially, you may need to cut back on your unnecessary expenses. This is a hard thing to do, but remember it’s a lot easier to cut expenses than it is to conjure up new sales. When making purchases or analyzing expenses the key thing is asking yourself, “do I (or my business) really need this?” If you’re able to determine that it isn’t necessary, or could potentially hurt your profits, cut it from your spending. It could take a few months to pay down debts, but by whittling down your expenses and being more conscientious you will start to build your cash reserves.

Eventually the goal is to learn how to enjoy saving your money as much, if not more, than spending it. When something makes you happy, you’ll keep doing it. Celebrate the moments when you opt out of spending unnecessary money, make it a big deal. Over time, you’ll build momentum and you will enjoy those moments and establish good, healthy money management.

When pandemic assistance funds were first issued, a lot of people thought it was great to have the extra money. Unfortunately, there’s no such thing as free money. Now that those extra funds have been spent, and many people are making less or are unemployed, consumers are turning to savings and credit to pay for essentials. For those consumers that managed to save their stimulus funds, they’re finding the need to tap into those savings in order to keep up with inflation. Now many consumers have exhausted their cash reserves and turning to easy credit as the answer. This lead to consumer credit usage that escalated by $38 billion in April, bringing credit card debit to record levels.

Even though overall wages have risen roughly 6% over the past year according to Labor Department data, the increase is still not enough to keep up with an even higher inflation running at over 9.1%, the highest we’ve seen in America in 40 years. As households start to experience shortfalls, many resort to credit to meet their month-to-month expenses paying for things like bills, gasoline, and food.

Auto loans and credit card debt have seen the largest usage increases as tracked by the Federal Reserve over the past few months.

Mortgage debt has also risen, but mostly at the upper end of the credit score scale. Credit scores on newly originated mortgages remain relatively high, reflecting continuing high lending standards by lenders. The median credit score of newly originated mortgages was 776 during the first quarter of 2022. Analysts also believe that median credit scores may possibly begin to fall as consumers exhaust their cash savings and tap credit cards.

Image by Jaleigh Morris

Proactive tax planning throughout the year is a smart way to help manage your tax burden. When planning ahead, you’re able to take full advantage of available tax credits and deductions. Don’t wait until the end of the year, or worse April 15th when taxes are due, to figure out what you can qualify for, or could have qualified for!

First, it’s important to know which tax bracket you’re in. There are seven federal income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your tax bracket is in part, based on how much money you make. The tax rates or brackets are progressive, the more taxable income the higher the bracket. There is another element to consider, and that is the kind of income. Earned income is taxed differently than investment income or capital gains, or retirement income.

There is a difference between tax deductions and tax credits. Deductions are specific expenses you have incurred throughout the year that can be subtract from your total income, netting the taxable income. Credits give you a dollar-for-dollar reduction in how much you owe in taxes. Both will reduce your tax bill and provide some great tax strategy options.

A common strategy is to utilize charitable donations. This one not only helps you, but can help others who are served by the non-profit you chose. Some common ways to make contributions may use specific legal structures, which include donor-advised funds, private foundations, charitable remainder trusts, stock donations, and IRA donations. There are multiple types of donations you can make, the type of asset being donated, (cash, goods, like-kind, appreciated stock, IRA funds, etc.) and the timing of the gift (present or future gifts) are all factors to consider when tax planning.

Having a health savings account (H.S.A.) is wise, not just for the savings aspect, but because your contributions go into your account pre-tax. It lowers your taxable income. When H.S.A. funds are used to pay for qualified medical expenses, there is no income tax paid on those funds. This can save a family lots of tax dollars. Why pay for medical expenses with after tax money when you can pay for it with tax free money?

Don’t confuse an HSA with a flexible spending account. Both are good, but they are used to pay for different expenses. Yes, some of the expenses do overlap, but if done right you can get twice the tax benefit.

Hopefully, everyone, no matter the age, is planning for retirement. You can structure retirement contributions in a way that helps in the long run known as tax optimization. Paying a little more now rather than a lot more later during retirement. There are so many retirement plan options; we’ll have to save that for another time.

Assets that are held for less than one year and sold, are subject to short-term capital gains, and taxed at the ordinary tax rate. Assets held longer than a year and sold, are taxed at long-term capital gain rates, which is different depending on your modified adjusted gross income. All unearned income, basically all investment income that is not W-2 income, over a certain income threshold is now subject to a 3.8% Medicare tax.

Tax laws/regulations (regs) are so complex it’s hard to get a clear picture of how different types of income interacts with the many regs. Earned income (W-2) is straight forward; when another type of income gets injected into tax return for a year or worse during retirement as a required minimum distribution (RMD). That may throw everything out of whack. Causing tax brackets to change, even to the point that the tax on the next dollar of income is taxed well above 50%. This is one reason why I use a tax map when working through issues with clients. It brings income and taxes together in a way that other strategies can be tested before making a potentially irreversible financial decision.

Image by Recha Oktaviani

We all know that chronic stress can have some pretty severe effects on our health, from migraines, stomach aches, ulcers, and insomnia to more severe things including weight gain, depression, strokes, and heart attacks.

Back in December of 2020 CreditWise released a survey showing 73% of participants said worries about finances were their number one cause for stress. This beat out politics, work, and family stressors. In other words, the majority of people agree that money can be stressful! Losing a job, unexpected health problems, emergencies , or compounding debt can all lead to an increase in stress that can affect nearly every aspect of life. If left unchecked, the associated health problems have the potential to lead to high-cost medical bills, which then leads to even more financial stress.

So where does the cycle end? How can we overcome the stress associated with money? The best solution is to avoid unnecessary debt and stick to your budget or spending plan…but things don’t always go according to plan.

If you have encountered money problems, there’s a few things you can do to help alleviate some of your stress and start to work your way out of your financial woes. The first thing is to focus on the things that are within your control, such as sticking to a budget. If you spend your time focusing on the things outside of your control, you’ll only feel more overwhelmed and will lose the power you DO have.

Prioritize your bills and make sure you are paying the essentials first. Often you can talk to creditors and see if they are open to offering temporary solutions such as repayment freezes or not reporting missed payments to credit bureaus.

As soon as you are able, start saving money and then track your money-saving or debt payment progress. Having a visual reference can help keep you positive and focusing on your accomplishments.

If you have taken these steps and still feel like you’re losing ground, don’t be afraid to reach out to a financial advisor. Their experience and insight can help take some of the extra weight off your shoulders as well as developing a plan focused on your specific needs and goals.

It’s important to make your health a priority during times of stress. Stay active and keep your body moving. Exercise is one of the best ways to burn off stress and anxiety. Aim for exercising 3-5 times a week. Eat healthy meals with plenty of vegetables so your body is getting the needed nutrients. Above all, get adequate sleep. Let the worries go for the night and start fresh in the morning. Experts say sleep is the number one key to improving your health. When you get enough sleep, you’re able to think with a clear mind and keep much of the anxiety away.

Money stress doesn’t have to control your life or ruin your health. If you feel yourself becoming overwhelmed with worries about money and finances reflect on the things you can do, both with your money and your health, empower yourself and take action.

It’s no secret, times are tough. We have seen prices on gas, groceries, utilities, and other products go up, and, up, and up. Money is tight. Families are having to change, not just their spending plans, but their travel and family plans. People are having to say no to things on their wish lists. This certainly isn’t bringing smiles to the masses. In fact, all this may seem depressing and bring on feelings of uncertainty and even fear. It brings to question if the old adage, “Money can’t buy happiness” is wrong. But this isn’t the first time our country has seen tough times, nor is it even close, worldwide. And yet, happiness has prevailed throughout history. So how do those two ideas converge?

If simply acquiring money is your sole ambition, then you will inevitably be disappointed and enjoy little happiness. If you consider money (or the acquisition of it) to be evil or vain, you will be unable to find success in your monetary pursuits. But, if you consider the good things money can do, when you change your focus to what money can be used for, then you will start to see beyond the cold hard cash and find joy in the pursuit of happiness. It is when you become aware of the worthwhile causes and the enriching experiences that we are able to see how money can truly be associated with happiness.

You must be cautions, if you tell yourself you are pursing money and ambition for the sake of others, but you become prideful in that pursuit, you may discover that that path is empty and void of satisfaction. It’s all in your mindset.

So, what is your reason for pursuing or acquiring more money? What do you value? What is the end purpose for your money? If it’s simply to have more money, happiness may elude you, simply because money can only be a means to an end.

Ask yourself what are the most vital things you can acquire; are they temporal, or of a more lasting nature? What lasting value do your possessions have?

Our greatest happiness and fulfillment comes, not from our possessions, but from the relationships we form, the knowledge we gain, and the growth we experience as people. Are you investing as much into your relationships and yourself as you are your 401k?

In 2008 a study was done with a group of college students. Some were given money with instructions to spend it on themselves, others were given money to spend on someone else. They were asked in the beginning which group they thought would increase their levels of happiness more. Most thought it would be the group spending the money on something they wanted. However, they were dead wrong. The study found that, “people experienced happier moods, when they gave more money away-but only if they had a choice about how much to give.” And “thinking about money may propel individuals toward using their financial resources to benefit themselves, but spending money on others can provide a more effective route in increasing one’s own happiness.”

Similar studies have shown that when people give to charities, they tend to be more careful in their own spending, becoming more conscientious of frivolous spending. Givers tend to be more financially successful. Giving to others awakens our emotional connection to those around us and has physiological effects that make us happier and healthier.

If you find yourself feeling down and despaired over our current economy, instead of dwelling on those uncertainties, look outward and find a way to help someone. The results will be compounding. Eventually, we discover that it isn’t how much money we have acquired that brings happiness, but our attitude towards it and what we did with that money to benefit the lives of the people we love; it’s our gratitude, our challenges, and the service we gave.

Picture by Szilvia Basso

A prudent and effective tax strategy during your employment years will most likely need to be modified once you retire. When earned income ceases and income from retirement plans, investments, and Social Security commences, tax liabilities change. The impact of the changes is primarily driven by the assets that we have little tax control over once we reach 72 (70 ½ if you reach 70 ½ before January 1, 2020) which include IRAs, 401k plans, and pensions, which triggers RMDs (Required Minimum Distributions).

Distributions from tax deferred retirement accounts such as an IRA or a 401k are generally taxed at the ordinary tax rate. Distributions from a Roth IRA or Roth 401k are income tax free as long as the account has been opened for at least five years and the account holder is 59.5.

Investment income such as stock dividends and bond interest are taxed differently, especially when they are held outside of a retirement account. Realizing gains on stocks that have been held for one year or more can be taxed at a more favorable rate than the conventional rate. Interest on bonds and gains realized on short-term positions less than one year are taxed at the ordinary rate.

Retirement also introduces us to Social Security which, contrary to popular belief, can be taxed. Eligibility for Social Security benefit payments begins at age 62, but can be postponed until age 70. A key determinant as to when to start receiving Social Security may be contingent on the amount of retirement assets in retirement accounts subject to RMDs. This is where tax strategies can vary dramatically.

Retirees with excessive assets in retirement accounts subject to RMDs and with non-retirement investment income may want to confer with a tax professional to help determine when to take Social Security. Conversely, retirees with minimal assets in retirement accounts and investments may have little concern about paying taxes on their Social Security benefits.

The IRS determines if and how taxes are owed on Social Security by the “provisional income” measure. Provisional income includes gross income, tax-free interest, and 50% of Social Security benefits. If the provisional income is above a certain amount, then a portion of the Social Security income becomes taxable.

One way to potentially lower taxes in retirement is to start taking distributions from tax-deferred accounts before it’s required. Again, once you reach age 59½, you can withdraw funds from those accounts without paying the 10% early withdrawal penalty. The withdrawals are still taxed as ordinary income, but over time they reduce the size of tax deferred accounts, and thus the size of your RMDs. Another reason to access those funds before 72 is that it could help you delay taking your Social Security benefit, which increases in size the later you take it, up to age 70.

Another strategy for reducing the potential tax consequences of RMDs is converting a traditional IRA or 401(k) plan into a Roth IRA before the age of 72. A Roth conversion may make sense when you’re certain you’ll be in a higher bracket when you eventually withdraw the money, which is often the case once RMDs and Social Security are factored in.

Many people may find Social Security IRAs complex and maybe even boring subject to look through, but it is definitely worth your while to study the details and information available and consult with a professional because it will make a big difference in how your income is preserved for your later years.

Photo by Kelly Sikkema

Most adults have some stream of revenue, which is necessary to cover all those adult expenses like mortgages, cars, and groceries. But do you really know how much money you’re spending? Sometimes spending money becomes mindless spending just like mindless eating. Before you know it, you’ve snacked over your daily calorie allotment, and you haven’t even had a real meal. Mindless spending on all the extra little things could put a budget over your total monies coming in before paying the necessary bills. The best way to avoid “over snacking” our money away, is to create a spending plan that maps out where your money should go.

Creating a spending plan starts with income, how much money is coming into your account. Next list the all the money going out, including savings and other financial goals. If you don’t know where your money is going it’s pretty hard to keep track of it. Listing out the places money goes helps prioritize how to allocate your money.

After doing a little math, adding up the money coming in, and subtracting all the money going out, you’ll know if you are living within your means. I had an old college professor say there are only two things you can do with the budget, increase income, or reduce expenses. Simple right? Rarely!

As spending is prioritized, separate the fixed expenses and the variable expenses. Things that will reoccur every month and generally don’t change like a mortgage/rent, car payments or other loans, insurance, and subscriptions are fixed expenses. Items that are flexible or variable expenses are things like utilities, food, gas, and fun items.

Another thing to consider are the needs vs. luxuries. It’s important to know the difference between the necessities and the things we simply want. Having this understanding will allow you to prioritize correctly and spend responsibly. This does not mean you can’t have the luxuries or wants; they just need to be planned for in the spending plan.

The most successful spending plans are created by people who pay themselves first. Once all the expenses are accounted for on paper, it’s important to list yourself first. Then follow through and pay yourself first. Set the money aside in a separate savings account that is a little harder to get to, maybe a different financial institution. Know that the only money that will be in your future, is what you send there now.

Another line item in a spending plan is the TIF. When I was 18 and in college, I worked for a building contractor. One day he taught me a little about biding a job. The last item on the bid was TIF … 10%. I asked what that was, he said, “Oh, that’s ‘Things I Forgot!’ And 10% usually covered it!” If every spending plan had a TIF for 10% of spending, there would likely be fewer people in debt! The TIF should go into another separate account.

Using a spending plan teaches financial self-discipline, which is the fundamental core of financial success. When followed, it is a wonderful tool to help individuals and families get out of debt, prepare for emergencies, plan for bigger purchases, and grow your savings. All of these things contribute to a healthy financial situation, relieving the stress and anxiety that occurs when over-spending is common. Try it out, create, then follow a spending plan for the next three months and see what happens, you’ll be glad you did!

Photo 1 by Nico Smit

Photo 2 by Sharon McCutcheon