We love January. It’s a time for fresh starts, which makes it a perfect opportunity to do a financial planning check-up so you can achieve your savings and retirement goals for 2019 and beyond.
Many people start the new year with the intention of doing a better job at managing their money. Unfortunately, a 2018 survey by personal finance website NerdWallet found that 47 percent of the respondents did not achieve their New Year’s resolutions tied to financial goals.
Successful financial planning is the result of having the discipline to follow through on several important steps. With tax season just around the corner – and all the work needed to collect and organize your W-2s, 1095 health insurance forms and 1099 dividend income forms – why not use this time to get your financial house in order?
Here are four financial planning tips to get you started:
Step 1: Create a budget
If you haven’t already, make 2019 the year you commit to creating (and sticking to) a budget. Most everyone knows the benefits of having a budget, yet the simple truth is most people don’t have one. Creating a written budget helps you visualize – and hopefully attain – your financial goals and prioritize your saving and spending.
There are plenty of free online budgeting tools and retirement calculators that can help, but it all starts with reviewing what you earn and what you spend. Gather up your 2018 bank and credit card statements and your W-2s and make a detailed list of your income and expenses.
The goal is to find out what your cash flow really is and look for areas to cut back expenses where warranted. You have the most control over discretionary spending (dining out, travel, buying extra clothes), so look at those closely. You’ll be surprised at how much you spend each week on coffee and lunch. Reviewing each expense – no matter how small – is the key to effective budgeting.
Step 2: Review your investments
Saving for or managing your retirement should be a priority for everyone. The time spent setting up a budget will guide you toward changes that may be needed to achieve your savings goal.
We recommend taking full advantage of your employer’s retirement plan – if one is offered – so you can maximize your contributions. Now’s a great time to consider boosting your contributions, which could have the added benefit of possibly lowering your taxable income. In 2019, the maximum contribution to a 401(k) increased by $500 so now is a perfect opportunity for you to save even more. If you do not have access to a company retirement plan, then open your own IRA so you can begin saving for retirement. Remember, you can make 2018 contributions to an IRA and Roth IRA until April 15, 2019, but not a 401(k) or similar plan.
Another important area to review is your investment portfolio. Over the course of a year, the market value of every security within your portfolio will change. A financial planner can provide you with recommendations on how to rebalance your portfolio so your investments are in line with your retirement goals and risk profile.
If you’re more than 70 ½ years old and have retirement accounts, you will need to take your required minimum distribution (RMD) by the end of 2019. If not, you may face a tax penalty of 50 percent of your RMD. Your RMD is determined by your age and the year-end values in eligible retirement accounts, so make sure you are taking the correct amount each year. For those of you charitably inclined consider making a qualified charitable distribution to satisfy the RMD requirement for tax efficient gifting.
Step 3: Update your estate
You’ve created a budget and reviewed your retirement savings. Now it’s time to turn your attention to your estate (or to put a plan in place if you don’t have one).
When updating your estate planning documents, review not only the titling of your investments (stocks, bonds, mutual funds, real estate and other assets), but also the people who will manage your estate. This includes, for example, the executor of your will, who holds the power of attorney and who is serving as a trustee if you have a trust. Also review the beneficiaries in your estate documents.
Over the past year your circumstances may have changed in a way that may directly affect your estate plan, such as the birth of a child or grandchild; a marriage, divorce or death in the family; or a change in a charity, foundation or nonprofit designated in your will. Having a current plan in place will spare your family and loved ones the stress of having to make difficult decisions about your estate if something unfortunate happens to you.
Step 4: Check your credit report
This is a pretty simple, yet important step in getting your financial house in order. In addition to being a primary factor in being approved for a mortgage or other loan, your credit score is used by insurance companies and, in some instances, employers.
It’s smart to review your credit report every year to make sure it’s accurate. If you find problems, contact the appropriate parties to resolve any mistakes or disputes.
It’s never too late to work on your personal finances. While it will take a little hard work to build the right plan, the earlier you start, the sooner you’ll achieve your goals. Here’s to a great start in 2019!