Start with the Basics
- Create a Budget – Track your spending and use the information to establish a budget. Money is easy to spend and through tracking, you can see where it’s going.
- Emergency Fund – Create an emergency fund. Having six months of expenses set aside can reduce financial stress if something unforeseen occurs.
- Inventory your Assets – This will include items like your retirement accounts, other investment accounts, 529 college savings accounts and real estate equity.
- Inventory your Debt – This will include mortgages, student loans and credit cards. Make a plan to eliminate the high interest cost part.
Set Some Achievable Goals
If you’re young and have not built up your savings accounts:
- Life Insurance – Make sure you have the right amount of life insurance – use low cost term insurance.
- Disability Insurance – Make sure you have disability insurance. For most people, you’ll want to cover 60% of your earnings.
- 529 Plans – If you have children, establish and contribute to a college savings plan. In some states, including Connecticut, you can get a state tax deduction.
If you’re in your middle earning years:
- Life Insurance – If you have built up a good nest egg, review your life insurance. You may be over insured.
- Documents I – If you do not have a will, trust and healthcare proxy, strongly consider having appropriate documents drafted.
- Documents II – Check your wills, trusts and retirement accounts for beneficiaries. Events in life may alter your decisions. IRA and 401(k) beneficiary decisions supersede anything in your will.
If you’re retired:
- Gifting – 529 College Savings Plans are a great way to gift. They are also an effective estate planning tool.
- Documents I – Review your documents for beneficiaries and special bequests. Verify that your “Estate” is not the beneficiary of your IRA assets.
- Documents II – Establish or update health care proxies and consider adding one of your children, if appropriate.
Look to the Long Term – Save
- If you have an employer retirement plan, such as a 401(k) or 403(b), contribute at least enough to get the match. If you received a salary increase, consider investing some of it in a higher contribution rate.
- If you are self-employed, create and contribute to a Solo 401(k), SEP IRA or Simple IRA. (see self-employed retirement plans)
- If you have old 401(k) accounts from previous employers, consider rolling them over into an IRA and create a unified strategy.
- If you already have a retirement account, try to maximize your annual contribution.
If You Have a Financial Advisor, Set up an Annual Review
- Verify that your advisor is a fiduciary for ALL of your accounts. Your advisor should confirm this in writing upon request.
- Update your financial plan and see how your plan is tracking. Check assumptions such as investment returns and life expectancy and make sure they are realistic.
- Review the performance of your accounts. Make sure you are being measured against an appropriate benchmark.
- Review the fees you’re paying. This can be an opaque area. Many “investment products”, such as variable annuities can have fees between 2.5% and 4%. Total fees should be no more than 1.5%. Your advisor should be able to provide this in writing.
Have a happy and healthy 2018. Remember, if you set goals for yourself, you are more likely to achieve them.