Financial Planning Corner: Start the year with a Financial Planning Review

“No one has ever achieved financial fitness with a January resolution that’s abandoned by February” – Suzie Orman

At the start of the new year, typically many people make resolutions related to their physical health and fitness. Similar to an annual check-up with your trusted physician, the new year is always a good time to also conduct a financial check-up and take stock of where things stand in relation to your financial goals. Below are some steps that you can take to make sure that your year is off to a great start financially.

• Review Budget: The first place to start when trying to save money is to assess your current spending habits. A budget is always about choices. To many people, a budget is similar to a child’s coloring book, while there is structure, it is too difficult staying within the lines. The fact that you have a budget means you keep track of how you spend your money and can potentially make decisions around whether this spending is consistent with your values and long-term goals.
• Review Tax Withholdings: You’ve likely heard people excitedly talk about receiving a refund when they file their tax return. A tax refund means that you have overpaid your taxes to the government (federal and/or state) throughout the year, and they are giving you your money back. It’s essentially an interest-free loan to the government. You can adjust your tax withholding through your payroll in the future if you want less money coming out of your check.
• Review Savings and Cash Management Strategies: It is recommended to have at least three to six months’ worth of living expenses earmarked in case of emergencies. Rising interest rates due to inflation are forcing many to be more strategic when managing their finances. The good news is that for the first time in over a decade, consumers can now earn more attractive rates. For those who have high cash reserve balances, they may want to consider other opportunities (e.g. money market, CDs, bonds) for their excess reserves to earn more interest given inflation and the current rate environment.
• Review Retirement Plan: Consider increasing your contributions to your retirement plan as well as explore other savings options that may be available through your employer (e.g., employee stock purchase plan, options, deferred compensation) which could allow you to take advantage of additional employer matching contributions as well as potential tax deferral opportunities.
• Review Investment Performance, Risk Tolerance & Allocation: During times of market volatility, an investor’s true risk tolerance is often revealed. Investing is typically a long-term endeavor that always includes some element of risk. Instead of following investment trends used by novice investors (e.g. meme stocks), focus on an overall asset allocation strategy that is aligned with both your tolerance for market volatility and your long-term financial goals.
• Review Insurance (Disability, Life, LTC): An insurance review is a thorough look at your insurance coverage in the event that you experience a disability, premature death, or a long-term care health event. It’s important to have your policies reviewed regularly, especially when you have what’s considered a “life-changing event” (i.e., birth of a child, marriage, divorce, new home, etc.)
• Estate Documents (e.g. Will; POA; Advanced Medical Directive; Guardianship; etc.): It is important to have your estate plan reviewed on a regular basis. Similar to an insurance review, its also important to review and update your estate documents whenever there is a “life-changing event” or a change in your goals.

The financial and economic landscape changed dramatically in the past year, with inflation and interest rates reaching multi-year highs, equity and fixed income markets experiencing their first bear market since the Great Financial Crisis, and the year-end passing of major retirement legislation, SECURE Act 2.0. Taking the time to reevaluate your financial situation on a regular basis, no matter what stage you are in life, can help you reach your goals and help provide financial security for you and your family.

Jarrett E. Hindrew, CFP®, ChFC®, Financial Advisor, Creative Financial Group