Ep. 12 Key Items to Review When Year-End Planning
The Financial Commute

Ep. 12 Key Items to Review When Year-End Planning

Ep. 12 Key Items to Review When Year-End Planning

The Financial Commute

On this week’s episode of The Financial Commute, host Chris Galeski welcomes Wealth Advisor Priscilla Brehm. They discuss important questions we should ask ourselves as the yearends: Do I feel better off now than last year? Do I feel more or less secure? Why?

Priscilla says it would be completely normal for investors to feel an increasing sense of apprehension with the volatile state of the markets this year. She advises listeners to talk with an advisor about their individual financial plans and how they might be able to increase their financial security with options like tax-loss harvesting.

Chris and Priscilla also discuss charitable gifting around the holidays. Priscilla talks about how a great way to contribute to a charity is through donating appreciated stock in lieu of cash. But Priscilla also encourages listeners to not only think about giving to nonprofit organizations, but to think about gifting to family as another means of charitable gifting.

Sentimental items, photos, and their attached stories should be transferred to one’s kids and grandchildren to help ensure that family wealth, beyond the financial aspect, is passed on.

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Hello, everybody, and thank you for joining me for another episode of The Financial Commute, I’m Chris Galeski, your host joined by Priscilla Brehm, Wealth Advisor here at Morton Wealth. Priscilla, thanks for joining us.

My pleasure.

You know, this year has been fascinating, one of the worst years on record when it comes to investing in safe assets like bonds, stocks have been volatile. We've had headline news with inflation and raising interest rates. Lots of things to sort of unpack when we're giving clients advice. And now we're heading towards the end of the year. And there's a number of things that people should potentially be doing, like as a year end checklist to prepare for next year and kind of wrap things up for 2022.


You've been advising clients through many different market cycles, times of volatility, you know, times of, you know, just exuberance and excitement. You know, in context of this year, what are some of the things that you think clients should bethinking about as this year comes to a close and they're sort of wrapping up their finances for 2022?

Great question. You know, there are I think there are so many things to think about at this time of year. And, you know, the challenge is how do you balance that with all of the to do list, you know? Right. You know, okay. We've got the holidays coming up. We have, you know, all of the things that we thought we were going to get done during the year, but maybe didn't quite get done. And so it's just natural to reflect on those things. But in terms of thinking about financial and investment issues, one of the things I always like to suggest at this time of year is you say to yourself, Do I feel better off now than I did last year at this time? Am I more worried? Am I less worried? Do I feel more secure or do I feel less secure? And really reflect on why you feel that way. And it would be completely natural to feel a little less secure because you've got double digit losses in the stock market. We have historical losses in the bond market. Gold hasn't been the traditional safe haven. You know, it's been it's been a very tough year financially and emotionally for a lot of people.

But the question then is, well, if I'm feeling less secure because of how the things I can't control did right, what do I do? Right. Right. And so I think there are a number of things that you can do. One is, if you're feeling less secure, talk to someone you trust who you know, a trusted advisor, and see if there are things that you should be doing. This is an opportunity to maybe do some tax loss harvesting. Mm hmm.

So tax loss harvesting is when you when you take an investment that is currently at a loss. Yeah. You sell it, and you really just put that loss in your pocket.

Yeah, you bank it. Right?

So you bank it in your pocket and you then take the proceeds and buy a similar or like investment. So things turn around, you can, you can benefit from that growth. Right. But then you've got that loss in your pocket. So that way you can use it in the future, right? Yeah. Yeah.

And you know, some people are saying, well, gosh, I have this piece of real estate property, you know, maybe a rental property, something. And I've had it forever and I don't really know that it's going to do much over the next few years. You know, a lot of people think that real estate will be kind of flat for a little while here.

And I might like to sell it because I'm tired of managing it. So if you can get some losses harvested and then sell your property, then you, you know, you reduce the tax, right? Right. So it's not just looking at one part of your financial life, but the whole of your financial life that really makes sense at this time of year.

You know, it's interesting because I know we'll talk about a number of other topics people can consider thinking about as year end. But it's amazing. Oftentimes people that aren’t working with an advisor, they don't like to sell something that's at a loss. Their gut tells them, no, I got to hold on to until I get back to even. Right. But that in some cases can be a bad tax move or a financial move, right?

Yeah, absolutely. No one likes to be wrong. Yeah. Right. But, you know, the fact that something that you bought went down doesn't mean you were wrong about buying it. Maybe the timing just wasn't there. Right. And so I think it's important not to get too personally attached to money or to things that represent money, you know, investments, real estate. Try to be a little bit objective about them.

It's so hard, don't you think?

Oh, it’s incredibly difficult. That's part of the challenge of our job is to listen and say, but, you know, let's look. You're looking at this one aspect of the problem. Let's step back for a minute and look at all of the aspects of it. Right. Right. And if you don't have an advisor, I don't know how you have that conversation.

You can't have that conversation with yourself.

Not going to happen.

It's hard to take a step back. I mean, you know, when we look at money, it means something to us. It helps us in our mind think of all the things that we can use it to accomplish what makes us happy, go on trips, help out family members, live a secure lifestyle. I love the fact that you said now's a good time to reflect and challenge yourself on whether or not you feel more secure or less secure because then you can make some strategic decisions or adjust your investments so that way, going forward, you can you can feel more secure. Tax loss harvesting is a way to kind of put some money in your pocket to help offset future gain. So you're thinking long term about your entire life, not just one piece of your investments and ways that you can minimize it. What are some other things that that you think are important to reflect on this time of year as it relates to finances and things that people can do before year end?

Well, one of the things that, you know, people who use credit cards, not everyone pays off their balance in full every month. And sometimes what will happen is you'll get what I call credit card creep and meaning that, oh, well, you know, I want to do this. And so I'm going to make a smaller payment on my credit card. You get through a few months of that, and then suddenly you've got a balance that's more significant. And so this is a good time to go into the new year debt free when it comes to your credit cards. So just I think that's one practical thing that you can do. Check your credit card balances. Make sure they're paid off in full.

Second thing is, you know, we are in an interest rate environment now that many people haven't seen for 10or 15 years. Right. I've been there. I've done this. But so if you have a home mortgage loan, that's I'm going to say below three and a half percent interest on the you know, in terms of the interest on it, I would say don't make extra payments on that right now.


You know, that's an asset that you're not going to be able to replace in your lifetime, those low interest loans.

Well, it's been so long since we got to earn anything on safe money. So, yeah, I mean, just conceptually, if you're paying three and a half percent interest on your debt, but instead of paying down the debt faster, you can invest it in like a three month Treasury bill, for example, earn 4%, you're actually much better off saving versus paying off. That's interesting.

Yeah. Yeah. So obviously that decision about whether you make extra payments on your mortgage is a decision that should only be made in light of what's your philosophy about debt. You know, if you're going into retirement and you really, really, really don't want debt, that's a whole other thing. But I think for someone who's a young boy, that's an asset. Hang on to that thing.

Right. So we've got obviously debt management, but also taking a look at does it make sense to payoff your home off sooner or put the money to work somewhere else? You got tax loss harvesting. What about charitable giving? This is the time of year where often ,you know, people look at the end of the year and say, okay, now it's time for me to do my end of year charitable giving. Yeah, they do it to institutions and causes that are near and dear to their hearts. When you think about charitable giving, that's something that's on the list?

Well, it's hard not to have that on the list, because if you have a mailbox I don't know about your mailbox. Mine is absolutely stuffed with solicitations from charities reminding me that not everybody is as fortunate as I am and asking for help. And I think part of the challenge with charitable giving is figuring out, do you give a little to a lot of different charities or do you give a lot to charities that mean really something special to you? Mm hmm. So that, I think, is a conversation that's good to have. You can have it with your financial advisor, but that's really, you know, maybe with your spiritual counselor or with loved ones that that are part, you know, an important part of your life. And think about do you want to do impact giving, which is, you know, a lot to a few, ordo you kind of spread it out?

So that's a more of a philosophical thing. But if you're if you want to hang onto your cash, you know, you can do things like donating appreciated stock in lieu of donating cash. And for example, if, you know, if you bought Apple ten years ago, right, it's gone up a lot in value. So you could carve off a few of shares of Apple and donate those to a charity. The charity can then sell those and get the cash. They don't pay tax on the gain because it's a charitable institution.

And you avoid the tax by donating them the stock.

Yeah, yeah. There's no income tax and you get the deduction.

And then you've got a choice on what to do with the cash. You can either repurchase that investment and get a higher cost basis because you're buying something that's worth more today than it was ten years ago. So it maybe helps you from a tax perspective later on if you have to sell it now or you can hold on to that cash and do something else with it.

Well, you know, I think that's one of the practical things that people can do to help themselves feel better. If they're feeling nervous about what's happened in the last year financially, it's fine to go ahead and increase your cash reserves. I think especially if we're going into a recession and if you're worried about your job, you and I aren’t worried about our jobs.

But, you know, there are many, many people who, you know, Amazon is laying people off. You see headlines all the time, save now and, you know, and feel better because you have those larger cash reserves. That’s another practical thing you can do.

I like that in terms of, you know, we're not we don't have a crystal ball. We don't know what's coming down the road. But there are a number of signs that are pointing towards, you know, a little bit more pain in the in the market and the economy and potentially some layoffs or a recession. You've seen just over the last couple of weeks a lot of tech companies planning layoffs or hiring freezes.

So it's definitely out there. Yeah. And then also on the list, I think I think you also mentioned from time to time, this is the time of the year that if we do, we do help out family members or loved ones with annual gifting. I think the annual gift limit is $16,000 a year. This is the time of year...Per person.

Per donee.

Yeah. So if I’m married my wife and I can give somebody $32,000 each year. Well, thank you. Yeah, you're welcome. But this is the time of year that clients look at doing things like that.

Yeah. Yeah. And one of the conversations that I have with clients who are thinking about making a gift, whether it's a cash gift or a gift stock, is, I think that the best gifts are ones where you give the gift freely, without expectations, without attachments to the gift. In other words, if you give someone, yeah, you know, I'm going to give you this gift, but I want you to pay off your credit cards.

Is that really a gift? Right, or is that just kind of a way of controlling someone's behavior? And so I think establishing a philosophy about family gifts is really important in terms of feeling good about the gift and letting go of the consequences. It frees you as the giver and it frees the recipient as the receiver. You know, there are others who have a different philosophy about gifting, but that's the one that I think is the best philosophy in my opinion.

I'm glad that you brought it up because it's not uncommon for our country to not talk about money with their family. But then, as I've noticed with working with clients that are getting older in life, it's very important for them to pass around, pass down good values to the next generation, their kids and grandkids, and they want to pass along their beliefs and philosophy around money and giving and making an impact.

And so right now is a good time to have those family conversations and to reflect back on kind of where you are and what you're hoping that money can do for them or the impact that it could potentially make. But then also sometimes being willing to take a step back and not putting rules around or restrictions around some of this.

Exactly. Exactly. You know, it's passing on family legacy has so many facets and this time of year is one of those times when a lot of times we'll think back on what's our family history, holiday celebrations in the past. And you know, I remember when grandma used to do this or that or the other thing.

And so along with passing on the legacy of financial values, this is a great time of year to pass on the legacy of family history and family stories. And, you know, taking that dish out of the cupboard and saying, do you know where this dish came from? You know, I have a white bowl, that’s sort of this footed white bowl, right.

And that's a bowl that was on my family table every celebration for as far back as I can remember. No kidding. Oh, yeah. And now that same bowl is on mine, on my family's table, it was filled with my mother's Jell-O salad recipe.

You still put it in there?

I don't think of Jell-O salad as, you know, high on my gourmet list, but I use the bowl. Yeah. And it triggers conversations.

It's funny that you said that you even use the word footed. Yeah. Every year on Thanksgiving, my favorite thing is pumpkin pie, and my family knows it. So oftentimes I get my own pumpkin pie. I was too young to remember it now, but I hear the story every Thanksgiving. Apparently I was a little three, four year old kid with penny loafers, and I kicked my penny loafer at my uncle and it flew across the room and landed right in the pumpkin pie.

And every year I hear about it. Priscilla, look, thank you for joining us today. I feel like we could talk for hours about some of this stuff, but really good advice in terms of being able to be patient. Take a step back and reflect on how you're feeling this year. Look for opportunities when it comes to tax loss harvesting, charitable giving and the impact that you'd like to make and even family conversations around money or potentially even gifting.

Thank you. Thank you so much.

My pleasure. Yeah.

Disclosure: Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.