Tom Fridrich, JD, CLU, ChFC®, Senior Wealth Planner
Thinking about making some New Year’s resolutions? Add financial wellbeing to your list. It’s a terrific time to identify goals and opportunities that may put you in a better financial position — not only in the upcoming year, but in the years going forward. Here’s how:
Identify Financial Goals
The idea here is to build a plan around a specific goal. For example, if you have a two-year goal of saving money for a down payment on a house, make a list of relevant factors like home prices in your desired neighborhoods and what a 20% down payment would look like, assuming you don’t qualify for special mortgage products. Next, figure out the mechanics of how you are going to reach that goal. Will you set aside savings weekly or monthly? And where will you deposit the savings?
Setting goals and creating an infrastructure around them is an important exercise that can deliver not only clarity but the outcome you’re aiming for.
Create a Budget
A budget is an excellent way to help you stay on track in real time with your expenses. There are plenty of fees and charges that are easy to miss: streaming services, ATM surcharges, fees at financial institutions if you fail to maintain a certain balance, your kids’ gaming sites. These are fees that can add up to big money. Another suggestion is to contact vendors like your phone, newspaper and cable companies to inquire about any promotions that could lower your costs.
Two budgeting apps I like: Mint, which is free and great for tracking and categorizing expenses; and YNAB (You Need a Budget), which costs $100 a year but is ad-free.
Pay Down Debt
This is important for all kinds of reasons — including the fact that it will help elevate your credit score. It’s a number that lenders take a hard look at when you apply for a mortgage or another personal loan. Certain employers may also order a credit report during the hiring process to understand more about you. Your credit score may play a part in your insurance premiums on your home and auto policy, so having a strong score can either help you save money or cost you money depending on how good or poor it is.
A good rule of thumb is to pay down accounts with higher interest rates first like credit cards and other personal loans. Rates have increased recently, so make sure you understand how that may be affecting your current loans. If you have multiple credit cards, investigate offers to transfer the balances to a single card. Often, there’s an attractive introductory rate for a year that bumps up later, so make sure you know when that will occur. It’s a window that could help buy time to pay the debt off quicker.
Calculate Personal Net Worth
Understanding your personal net worth will give you a clearer picture of where you stand financially. Are you getting closer to the number you need to retire, for example, or to pay for college for your kids?
The formula is simple. Add up all of your assets and subtract your debt. Debt is what you owe to any creditor, and assets include the value of all of your bank, brokerage, investment and crypto accounts, real estate holdings, and high-ticket vehicles like jets, boats and luxury cars.
Revisit Your Estate Plan
It’s always a good idea to take a fresh look at your estate plan on an annual basis. Do most people do that? No, but they should. Relationships change, circumstances change, and any number of life events could create a need for an update or a modification.
For starters, you want to have an estate plan which would include a will and/or trust, powers of attorney and a living will. If you have one, good for you. Dust it off and review it to make sure it still aligns with where you are today. Then, review beneficiary designations because those assets will pass outside of your estate plan so you can’t just ignore them thinking your will or trust will supersede anything in those designations. One item that is becoming more important is to make sure the administrator of your estate — whether it’s a spouse or a trustee — has a complete list of your online financial accounts and other digital assets, along with their passwords, to ensure that nothing falls through the cracks. Your financial advisor and attorney can help guide you through this process.
Create a Contingency Fund
If you know you have a big-ticket item looming — like a luxury vacation for your family or a new roof — and that there’s a high level of certainty that you’ll need to pay for it in the next six to 12 months, consider setting aside funds in a money market account or in short-term investments built for liquidity, such as Treasury bills. Many people also create a contingency or emergency fund to support unexpected expenses. Essentially, it’s a way to save money that you can access quickly. This fund can help you avoid charging larger, unplanned expenses on a credit card that will end up costing you more if you cannot pay off the balance before interest charges start accruing.
Review Your Portfolio
A lot of decision-making is involved in crafting an investment portfolio. Are the decisions you made the last time you reviewed your portfolio still valid today? For example, is your risk tolerance the same? If you’re closer to retirement, maybe you want to take less risk. Also, do you have a clear understanding of the fees associated with your portfolio? This is a good discussion to have with your financial advisor on a yearly basis.
Need Help? Talk to a Personal Financial Advisor
A fiduciary financial advisor will put your needs before theirs. Talk to one today to get professional advice on how you can pursue your financial goals. Let’s talk!
Tom Fridrich is not affiliated with Cetera Advisor Networks, LLC.