There is no better opportunity to improve your wealth management strategy than at the beginning of a year, and with 2022 underway now is the optimal time to evaluate your financial goals for this year and beyond. Of course, resolutions in January are often abandoned quickly by the well-meaning — but with vision and a little discipline, New Year’s resolutions don’t have to fall by the wayside.
With that positivity in mind, here are four resolutions to improve your wealth management and ensure your 2022 financial plans are off to a sound start:
1| Create a budget and update your personal balance sheet
This is one of the most important financial steps for any individual or family to take. Taking inventory of how much money is coming in and how much is going out will give you a real idea of your personal cash flow. Budgeting is a concept that is more theory than practice for many individuals, but that doesn’t have to be true for you.
Make 2022 the year when you get serious about creating or updating your personal balance sheet, reviewing your 2021 spending and creating a budget. It’s also especially important to include any planned large asset sales or purchases so you can anticipate where the proceeds would be deployed or how expenses, including taxes, would be absorbed — and informing your advisor before a significant purchase or sell helps them do their best work for you.
In addition, be sure to check your credit report. This can be a good way to make sure that there aren’t any irregularities, erroneous information or fraud that needs to be addressed with the nationwide credit reporting companies.
2| Seek out a financial advisor to set investment and retirement strategies for the year
The beginning of the year is also a great time to review how your investments did in the past year and determine whether it’s prudent to stick with or abandon them for better performers. In addition, consider in what sectors your money is invested. If your investments were in underperforming sectors in 2021 perhaps they’re primed for a cyclical comeback. If they performed well, can the momentum be sustained or is it time to take the gains? A wealth advisor can provide guidance for the upcoming year to determine the best strategies to take advantage of where the market might be trending. You want to be sure you are well positioned to take advantage in buying opportunities and also ensure you are not overly invested in one area.
Maximizing a retirement plan to benefit from an employer match is also a must. Make sure that you know what your employer match is and set contributions to realize the full match. If you can contribute more this year, it can be a powerful force multiplier, using compound interest to add money to your future retirement.
In addition, consider that for those 50 years of age and up, catch-up contributions are allowed. Anyone turning 50 in a calendar year is eligible to take advantage of the increase, with a 2022 maximum limit for a traditional or Roth 401(k) set at $27,000 for those aged 50 and up and $20,500 for individuals under 50.
For traditional and Roth IRAs, the maximum contribution limit for individuals aged 50 and up in 2022 is $7,000. For those under 50, the maximum limit contribution is set at $6,000.
Once you’ve evaluated your investments and contributions, it’s smart to have a standing date with your financial advisor to review performance and strategy for both short and long-term goals. The objective should be to make sure your investment policy statement and estate plans are in line with the goals that you’re trying to achieve.
December or January can be the most advantageous time to meet with an advisor since it’s always a conclusion to the just completed year or the beginning of a new one, allowing you to see which previous set goals have been achieved and which have not.
It’s a great time to have your advisor develop a financial plan for you. Are you saving appropriate amounts for education, weddings, retirement or a vacation home? Is your insurance coverage appropriate for your family? When can I retire at this rate? What is the best year to sell my business? These are all great topics to cover as we turn to a new calendar year.
3| Update your estate plan
This is another important resolution about which to consult with an advisor. In accordance with your goals, make sure your estate plan is up to date. Were there any unexpected life changes in the last twelve months that need to be addressed? Circumstances in the past 12 months may have changed with the birth of a child or grandchild, a marriage or divorce, or a death in the family. Evaluating your estate plan on a regular schedule by reacting to life changes, and anticipating future changes, can be a healthy habit to create.
Reviewing your estate plan includes documents such as a will, trust documents, healthcare and financial power of attorneys. Confirm your beneficiary designations are correct and that the structure of your plan is still in line with changing tax law and other developments that take place from year to year.
4| Pay attention to proposed tax changes
Perhaps the most difficult area to predict in 2022 will be proposed legislation by lawmakers that would substantially affect taxes on high-net-worth individuals. While it’s difficult to predict if current proposed bills will ultimately pass, it is wise to prepare for how these potential changes in the tax code could affect you.
Reuters has a recent synopsis of the proposed tax changes that are still under negotiation by lawmakers. In summary, individuals that are making more than $400,000 annually and/or have a net worth between $10 and $25 million are most likely to be affected. But the status of the proposed legislation is often being updated and the provisions are complicated. This is an area where consulting with a fiduciary who has your best interests in mind is paramount.
In the end, setting resolutions can be a great way to start the New Year. The earlier you begin the process of evaluating and reviewing strategies for 2022, the better chance you’ll have of sticking with them. But the best work toward better wealth management always happens before the big life events occur. Reach out to a Heritage wealth manager for assistance on the varieties of options available to improve your wealth management, grow your money and protect your financial future.