Happy New Year! Many of us make resolutions only to lose interest quickly or forget about them. What if instead of swearing off chocolate or vowing to lose a few pounds, you resolve to focus on your finances? Start with small, short-term, attainable goals. Work on bigger projects by breaking them down into achievable steps.
Read on to learn about a few areas to review this and every year.
IDENTIFY/REVIEW GOALS
Start with listing your short-term financial goals. For example, do you want to start saving a certain amount of your paycheck every month? What are some longer term goals, such as putting aside money for your child(ren)’s college education, maxing out your employer’s savings plan this year, or saving enough to pay off your car loan by the end of the year? Write your goals down and identify which ones are short versus long term. Do you have any unfinished goals from last year? Give yourself deadlines and smaller milestones to meet along the path to your larger financial goals.
MONITOR YOUR INVESTMENTS/REBALANCE PORTFOLIO
Pay attention to your accounts and investments. Set up a recurring time, such as once a month or once a quarter, to review so you rebalance your portfolio as needed in a timely manner. Your portfolio should be diversified to help reduce risks and concentrations in any one area. Periodically reconfirm or update objectives and your risk tolerance, time horizon, liquidity needs and tax considerations.
INCREASE RETIREMENT PLAN CONTRIBUTIONS/AUTOMATE SAVINGS
If you don’t see your money, you won’t spend it. Set up and maximize direct, automated contributions to employer sponsored plans, savings accounts, and/or a 529 college savings plan. Choose realistic amounts based on your spending habits.
REVIEW INSURANCE NEEDS AND COVERAGES
Many people don’t realize they need insurance until it’s too late, especially disability and life insurance. Auto and health are usually updated, but other types, such as homeowners, umbrella, life, disability and long-term care insurance, are often forgotten. These different types of insurances can safeguard against financial catastrophe. Review your situation and the options available for you with an insurance agent.
REVIEW ESTATE PLANNING DECISIONS
This is an area no one wants to address, but having current documents in place ensures that the best people of your choosing are in the right roles and your wishes are known. Update your beneficiary designations (retirement and non-retirement accounts, annuities, life insurance, etc.) when you update your estate planning documents, or at life changes (i.e. divorce, marriage, birth of a child or death of a spouse).
GET A PULSE ON YOUR SPENDING/CREATE AND FOLLOW BUDGET/PAYOFF DEBTS
If you make a budget, track it frequently so you can make adjustments. You’re not going to be able to stick with a budget if you don’t track your expenses. You’ll be surprised to realize how much money you spend on certain things, such as eating out and trips to the coffee shop; little expenses add up quickly. If you have credit card debt, figure out a way to pay that debt off as quickly as possible and then pay off your balance every month. If you have multiple areas of debt (i.e. credit cards, college loans, etc.) the general rule is to pay off the loans with the highest interest rates first. The average person only needs 1-2 credit cards.
CHECK YOUR CREDIT REPORT
A good way to start off the new year is to check your credit report. You can order one free credit report every year from the three credit bureaus, Equifax, Experian and TransUnion. Review your report and address any inconsistencies so you do not have any issues later.
HAVE DISCUSSIONS WITH FAMILY MEMBERS ABOUT THE REST OF YOUR LIFE
Family conversations about health, financial, legal and end-of-life issues are hard topics to broach, but open conversations provide the opportunity to inform and set realistic expectations, and ultimately, your wishes are more likely to be followed.
WORK WITH PROFESSIONALS
Many people take the do it yourself approach to financial planning, taxes, and estate planning. However, while it may be saving you some money now, lack of knowledge and expertise could cost you a lot more in the long run. I have run into too many situations where a person is close to retirement or in retirement and realizes their financial situation does not match their needs and wants. They should have hired that accountant a few years ago who would have been able to utilize tax strategies or the estate planning attorney who could have drafted a much needed trust. A financial planner can proactively help so you retire knowing your financial situation is secure.
If you feel overwhelmed because you have too many New Year resolutions, make a list and prioritize. Take one project at a time. The important part is to make your finances a priority all year round.
We Wish You a Safe, Healthy and Happy New Year!
Michael Fuhr, CFP®
Evergreen Wealth Services