How to Build Your Financial House From the Foundation Up
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If you’re a fan of home improvement shows, you know how this goes: The clients, usually a couple hoping to build, buy or renovate a home, are mostly focused on the aesthetics — the kitchen countertops, the bathroom tile, the light fixtures, the wainscoting.
But, of course, there’s more to designing a home than picking the flooring or the fixtures. Without a strong foundation, sturdy walls and a dependable roof, the couple’s beautiful house won’t hold up well against the elements, age and other risk factors during the years their family lives there. Their real estate agent or contractor often has to remind them about what’s really important as they move forward.
But, of course, there’s more to designing a home than picking the flooring or the fixtures. Without a strong foundation, sturdy walls and a dependable roof, the couple’s beautiful house won’t hold up well against the elements, age and other risk factors during the years their family lives there. Their real estate agent or contractor often has to remind them about what’s really important as they move forward.
And I have to say, I get where those pros are coming from every time — because the same holds true for building a family’s financial house. (Though I’ve yet to see an entire television network devoted to designing a financial portfolio.)
If you’re working with a financial adviser, you may have heard him or her refer to drawing up a “blueprint” for reaching your financial goals. And that’s an apt description. When you’re building your fiscal house, you’ll want to be sure you have a detailed plan that includes every aspect of your financial future and the methods and materials you’ll be using to help get you to your objectives.
Your financial portfolio — the collection of assets you’ll use to create a safe and comfortable future — should be allocated and managed in a way that helps you weather economic downturns, market volatility, fluctuating interest rates, rising inflation, risks that come with aging and other changes in your life.
Creating the blueprint for your financial house
What should your financial blueprint look like? It will be different for everyone. But a secure fiscal house will have the same basic characteristics as a well-built home.
A strong foundation
Your most stable assets typically will form the foundation of your financial portfolio. Although no investment is without risk, these are generally assets you can count on to stay solid — and provide a reliable income — when the economy or your personal finances take a hit or feel shaky. Some examples include:
Savings and certificates of deposit (CDs), which are protected by the Federal Deposit Insurance Corp. (FDIC)
Government bonds, which are backed by the U.S. Department of the Treasury
Fixed and fixed index annuities that are protected by a reputable insurance company.
Sturdy walls
The “walls” of your fiscal house should be sturdy — but because they can be repaired or rebuilt more easily than the foundation, these assets don’t have to be quite as invulnerable. Investments at this level can add value to your portfolio (by providing income, income protection and diversification), but they also may be exposed to moderate risk, so there’s some potential for growth. A few examples include:
Corporate and municipal bonds
Conservative dividend investments
Private real estate investment trusts (REITs)
A dependable roof
Of course, you want your roof to hold up against whatever the elements might throw at it. But if it is damaged, you likely can fix or replace it without the whole house falling in — as long as the lower levels are built to last. The roof of your fiscal house represents the investments that carry the highest risk you can tolerate (both financially and emotionally). And they can help you grow your money for the future. These assets might include:
Stocks
Mutual funds
Exchange-traded funds (ETFs)
Variable annuities
Where to start
Of course, every individual and family has different needs — and every financial plan will (or should, at least) be a little bit different to accommodate those needs. But if you’re looking for a good starting point, you may want to use the “Rule of 100” to determine how your assets should be allocated when building your fiscal house. That means taking the number 100, subtracting your age and using the difference to determine the percentage of your money you want to invest in riskier assets to maximize growth.
If, for instance, you’re 45 and in no rush to retire, you might feel comfortable investing 55% of your portfolio in stocks or ETFs. You’ll get the growth you’re looking for, but should you lose money in a market downturn, you’ll still have several years to recover.
But if you’re closer to retirement — let’s say 65 — you may want to limit the risk in your portfolio to 35% or less. You still can benefit from some growth, but with less time to recover from a market decline, you may choose to play it a bit safer.
Don’t forget ongoing maintenance
Making occasional upgrades and repairs can be an important part of maintaining your home’s value. And the same holds true for your portfolio. It can be helpful to reevaluate your investments and investing strategies at least once a year to be sure your plan stays aligned with your goals.
Over time, asset allocations may shift based on market performance, and you may need to rebalance your portfolio. You also may find that your tolerance for risk has changed, and a little remodeling is necessary. Or, if you realize your original design just isn’t functional for your family, you may want to seek a second opinion or go for a complete renovation.
You don’t have to look hard to find an example of why it’s so critical to design and maintain your fiscal house for the long haul.
Just a few short years ago, pretty much everyone’s financial portfolio was doing well thanks to an 11-year bull market. Then in March 2020, the COVID crisis rolled in and caught everyone off guard. And we all got a good reminder of how important it is to build a fiscal house that holds up against the storms we can predict — and those we can’t.
Is your fiscal house move-in ready?
One thing we’ve all learned from watching home improvement shows is that doing it yourself isn’t always the best way to go.
Similarly, some parts of investing may be doable on your own — and even fun. And you should have plenty of input into what you want from your plan.
But you’ll likely find it makes sense to work with a pro when you’re drawing up your overall financial blueprint — or making any big choices or changes. Mistakes and oversights can be costly, especially when you’re closing in on retirement. You’ll need a portfolio that’s carefully planned to keep you secure for the many years ahead.
Kim Franke-Folstad contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Kurt Supe, John Culpepper and Brian Quick offer securities through cfd Investments, Inc., Registered Broker/Dealer, Member FINRA &SIPC, 2704 South Goyer Road, Kokomo, IN 46902, 765-453-9600. Kurt Supe, Andrew Drufke and Brian Quick offer advisory services through Creative Financial Designs, Inc., Registered Investment Adviser. Creative Financial Group is a separate and unaffiliated company. The CFD Companies do not provide legal or tax advice.
Credit: ANDREW DRUFKE
If you could not complete your 2024 tax return by April 15, 2025, and are now on extension, that extension expires on October 15, 2025. Failure to file before the extension period runs out can subject you to late-filing penalties. There are no additional extensions (except in designated disaster areas), so if you still do not or will not have all the information needed to complete your return by the extended due date, please call this office so that we can explore your options for meeting your October 15 filing deadline. If you are waiting for a K-1 from a partnership, S-corporation, or fiduciary (trust) return, the extended deadline for those returns is September 15 (September 30 for fiduciary returns). So, you should probably make inquiries if you have not yet received that information. Late-filed individual federal returns are subject to a penalty of 5% of the tax due for each month, or part of a month, for which a return is not filed, up to a maximum of 25% of the tax due. If you are required to file a state return and do not do so, the state will also charge a late-file penalty. The filing extension deadline for individual returns is also October 15 for most states. In addition, interest continues to accrue on any balance due, currently at the rate of just over .5% per month. If this office is waiting for some missing information to complete your return, we will need that information at least a week before the October 15 due date. Please call this office immediately if you anticipate complications related to providing the needed information, so that a course of action may be determined to avoid the potential penalties. Additional October 15, 2025, Deadlines – In addition to being the final deadline to timely file 2024 individual returns on extension, October 15 is also the deadline for the following actions: - FBAR Filings - Taxpayers with foreign financial accounts, the aggregate value of which exceeded $10,000 at any time during 2024, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). The original due date for the 2024 report was April 15, 2025, but individuals have been granted an automatic extension to file until October 15, 2025. SEP-IRAs – October 15, 2025, is the deadline for a self-employed individual to set up and contribute to a SEP-IRA for 2024. The deadline for contributions to traditional and Roth IRAs for 2024 was April 15, 2025. Special Note – Disaster Victims – If you reside in a Presidentially declared disaster area, the IRS provides additional time to file various returns, make payments and contribute to IRAs. Check this website for disaster-related filing and paying postponements. Please call this office for extended due dates of other types of filings and payments and for extended filing dates in disaster areas. Please don’t procrastinate until the last week before the due date to file your extended returns. Final note: if for whatever reason you miss the October 15 deadline, you should still file your return as soon thereafter as possible. If you need a professional to assist you with your taxes or need tax information, get started with Steve Brewer CPA & Company.
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Many taxpayers don’t feel the need to keep home improvement records, thinking the potential gain when they sell their home will never exceed the amount of the tax code’s exclusion for home gains explained as follows. Under the current version of the tax code, you are allowed to exclude from your income up to $250,000 ($500,000 for married couples) of gain from the sale of your primary residence if you owned and lived in it for at least 2 years (24 months) of the 5 years before the sale. You also cannot have previously taken a home-sale exclusion within the 2 years immediately preceding the sale. There is no limit on the number of times you can use the exclusion if you meet these time requirements; however, extenuating circumstances can reduce the amount of the exclusion. The home-sale gain exclusion only applies to your main home, not to a second home or a rental property. As noted above, you must have used and owned the home for 2 out of the 5 years immediately preceding the sale. The years don’t have to be consecutive or the closest to the sale date. Vacations, short absences, and short rental periods do not reduce the use period. If you are married, to qualify for the $500,000 exclusion, both you and your spouse must have used the home for 2 out of the 5 years prior to the sale, but only one of you needs to meet the ownership requirement. When only one spouse in a married couple qualifies, the maximum exclusion is limited to $250,000 instead of $500,000. If you don’t meet the ownership and use requirements, there are some situations in which a prorated exclusion amount may be possible. An example of this situation would be if you were required to sell the home because of extenuating circumstances, such as a job-related move, a health crisis or other unforeseen events. Another rule extends the 5-year period to account for the deployment of military members and certain other government employees. Please call this office if you have not met the 2 out of 5 rule to see if you qualify for a reduced exclusion. But what if your home sale gain is more than the home sale exclusion? Then it is in your best interests to have kept home improvement records, since the costs of improvements can be added to your purchase price of the home to be used in determining the gain. So keeping the receipts for the improvements, even if only in a folder or a shoe box, may be useful in the future when you sell your home. Here are some situations when having home improvement records could save taxes: The home is owned for a long period of time, and the combination of appreciation in value due to inflation and improvements exceeds the exclusion amount. The home is converted to a rental property, and the cost and improvements of the home are needed to establish the depreciable basis of the property. The home is converted to a second residence, and the exclusion might not apply to the sale. You suffer a casualty loss and retain the home after making repairs. The home is sold before meeting the 2-year use and ownership requirements. The home only qualifies for a reduced exclusion because the home is sold before meeting the 2-year use and ownership requirements. One spouse retains the home after a divorce and is only entitled to a $250,000 exclusion instead of the $500,000 exclusion available to married couples. There are future tax law changes that could affect the exclusion amounts. Everyone hates to keep records but consider the consequences if you have a gain and a portion of it cannot be excluded. You will be hit with capital gains (CG), and there is a good chance the CG tax rate will be higher than normal simply because the gain pushed you into a higher CG tax bracket. Before deciding not to keep records, carefully consider the potential of having a gain more than the exclusion amount. Home improvements include just about anything that will increase the value of the home, from big ticket items like remodeling a kitchen, adding another room or a swimming pool, and landscaping to smaller items like ceiling fans. But there are some home improvements that cannot be included in the cost of home improvements, or may be only partly included. Examples are items which qualify for tax credits such as home solar, home energy efficient improvements or those that qualify for a tax deduction such as handicap improvements. In addition, the costs of general maintenance or repairs, such as fixing leaks, painting (interior or exterior), and replacing broken hardware do not count as improvements. If you have questions related to the home gain exclusion or questions about how keeping home improvement records might directly affect you, please give this office a call.