Getting control of your financial life is one of the top New Year’s resolutions. We’ve compiled a checklist of suggestions to help you get started on this goal. For more information, be sure to follow us on LinkedIn as we take you on a weekly journey of financial fitness.
- Understand Your Assets and Liabilities (aka, Net Worth)
Make a list of what you own (bank, investment and retirement accounts, real estate, business interests, automobiles, personal valuables) and what you owe (mortgages, credit card debt, student loans, auto and business loans). Subtract what you owe from what you own and you get your net worth. Keeping track of this on an annual basis is a good benchmark to understand your baseline financial health.
- Set Goals
Establish goals for the short-term (current year), medium-term (3-5 years) and long-term (10 years and beyond). Goals should be SMART (specific, measurable, attainable, relevant and time-bound). Write these down and post them where you can see them. Goals such as paying off credit card debt in “x” amount of time, starting a college fund for my child with “y” in savings each month, or having “z” amount saved in my 401(k) plan for retirement are excellent SMART goals. We believe in “buckets” at Sandy Cove. Place money into separate accounts or “buckets” for specific goals. That will provide a visual representation of your progress and limit temptation to spend outside your plan.
- Review Investment Strategy
Review your taxable and retirement portfolios quarterly to ensure the asset allocations are consistent with your age and risk tolerance. As markets move, make sure you are checking in to ensure you are maximizing opportunities for investment and rebalancing your allocations regularly. We have recently encouraged clients to invest cash in money market funds, which are currently earning above 4%, versus leaving them in bank checking or savings accounts at 0.25%-0.4% interest rates.
- Stay on Top of Taxes
Understand your income tax bracket and what affects the amount you will owe. Ensure that you have enough cash available well before the federal filing deadline on April 18, 2023. If you are required to make quarterly tax payments or are self-employed, check in with your accountant at the beginning of the year and again in the fall to confirm the amount you have paid in quarterly taxes or have set aside is correct.
- Check Your Social Security Statement and Your Credit Report
You should check your Social Security statement for earnings accuracy in late January after your employer has reported prior year’s earnings. Visit ssa.gov to set up your account. The Social Security Administration no longer mails estimated benefit information to participants, so this is the best way to keep tabs on contributions and future benefits. In addition, you are entitled to one free credit report annually from each of the three credit reporting agencies. Click here for link. You should check your credit report annually for accuracy.
- Retirement Savings
The new year has brought increases to the amount you can save in tax-advantaged retirement accounts (see table below). At minimum, meet the matching contribution on your employer-sponsored plans. In addition, review beneficiary information each year to make sure it is current.
Traditional and Roth IRA Contributions:
- Review Insurance Policies
With inflation at record high levels, it is important to review your homeowner’s policy which is often tied to replacement costs. You should check that any new valuables which might need special coverage (jewelry/artwork) are included on your policy. If you have dependents, you might want to think about life insurance, which in the event of death, would provide them with cash to replace your lost income. Ensure any life insurance beneficiary information is correct. Disability insurance is often overlooked but critical for those in their prime earning years. Disability is much more common than death, and this insurance will protect you in the event you become ill or are injured and unable to work.
- Estate Plans
Having basic estate planning documents, such as a will, power of attorney and health care proxy, is an important part of anyone’s financial health. These are living documents, which generally need to be reviewed every five years or updated upon major life events such as marriages and deaths. Know where these documents are and whether it is time for an update. Depending on net worth, a living or revocable trust might be recommended to avoid probate and make things easier for heirs. Ensure that you have taken the final step of moving your assets into your revocable trust. This is an often-overlooked step.
We hope this checklist provides you with some structure to take control of your financial health in 2023. We are always happy to discuss these topics with you. Here’s to a fiscally fit year!