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Start the New Year with a Financial Review

Start the New Year with a Financial Review

| January 03, 2021
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It's time to make those New Year resolutions. Lose weight, stop smoking, start exercising, go to college, change jobs, and more.

Is getting your finances in order on your list of resolutions? Should it be? Is now the time to get serious about your finances? You are not getting any younger.

At least once a year, we meet with clients to review what has happened in their life since the last time we met.

  • Did their income or expenses increase or decrease?
  • Did they have any unexpected expenses that reduced their emergency funds?
  • Has their health changed?
  • Did their goals change?

We also review their portfolio's performance to determine how it will affect their short and long-term goals and make changes if necessary.

Taking time for a detailed financial review may help you progress toward your short and long-term goals. Consider the following items as part of your checkup:

  1. Calculate your net worth.

This is key to assessing your financial health and reaching your goals. Reviewing your assets and liabilities will help give you a clear understanding of where you are today and what changes need to be made to reach your goals. The formula to determine your net worth: Assets – Liabilities = Net Worth.

If you are young, it may not be a positive number, especially if you have a large mortgage and little savings. If you are older and your net worth is negative, you may want to take a closer look at your debt and savings plan.

  1. Review your debt.

Living without debt is incredible and stress-free. Figure out how you can accomplish it and do it. Enough said.

  1. Review your insurances.

As you move through life, your insurance needs will change. Give some thought to how much life insurance you need. If someone is dependent on you for support, you may need life insurance to continue that support if you were to die expectantly. Review your life insurance to determine if you need more or less and have the right type of policy.

Every year I review my auto, home, and umbrella policies to see if I can reduce my premium. Last year I reduced my annual premium by $600.

Review your health insurance so you fully understand your coverage.

  1. Review your credit report.

Review your credit report to make sure there are no errors. If you find any errors, take the necessary steps to correct them.

  1. Rebalance your investment portfolio.

By rebalancing your portfolio, you can take steps to sell the investments that have performed and buy investments that have under-performed, using the concept sell high and buy low. By selling high, you will be taking your gains and possibly taking a taxable event. By buying low, you will be purchasing investments that are on sale. Who doesn't like a sale? You should contact your tax advisor about your specific situation.

  1. Take a retirement reality check.

Are you on track to retire when you want to retire? Are you saving enough? Is your portfolio invested to reach your goals? Recently we met with a couple to assist them with their retirement planning to determine if they were on track to retire at age 67. They were maxing out their retirement contributions and taking advantage of their employer's match, but they had all their money invested in their retirement plans' cash option.

Based on their goals and risk tolerance, we recommended that they consider a portfolio invested in stocks, bonds, and cash for the potential of a higher return.

They could continue to maintain a cash portfolio, but they would have to save a lot more to reach their goals. By changing their portfolio, they can earn more on their money and maintain their current saving plans.

  1. Plan your required minimum distribution.

For those of you who will be turning 72,  you will need to begin planning for your required minimum distributions taken from your employer retirement plans and traditional IRAs.

RMD's are not required from Roth IRA's. Understanding the rules can ensure that you take these distributions in a manner that is best suited for your situation. Ensure you take your distribution; if not, the IRS will assess a 50 percent penalty on the amount you were supposed to take.

There is a good chance your New Year's resolution won't stick. I know I still have those 20 pounds I meant to lose last year. Getting your financial house in order shouldn't be a resolution but something you do every year, like your annual physical or teeth cleaning. If you need help, schedule an appointment with us today.

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