The majority of Americans are setting financial resolutions now. According to a survey by Fidelity Investments, the most popular resolutions are saving more money (53 percent of respondents), paying down debt (51 percent) and spending less (35 percent). Whether you take New Year’s Resolutions seriously or deem them as folly, here are some ways to review and refresh your personal finances along with some lessons I’ve learned over time.
5 Planning Areas
Your financial goals are unique. However, there are general planning areas that apply to most people. Here are five that were outlined in a recent planning article called “New Year’s Financial Resolutions: Get Your Finances in Shape for 2020” and some specific planning implications for you to explore with your family and advisors.
1. Creating a budget for life
Set a budget and create a balance sheet annually to hold yourself accountable. Also, establish cash reserves for big expenses that happen infrequently throughout the year (property taxes and car insurance), planned expenditures (vacations or home improvements) and emergency funds (car repairs or a broken arm).
Implication: How will your budget change as you move through various life cycles or patterns of saving and spending?
2. Managing your debt
Maintain an appropriate and affordable level of debt, and develop the right debt reduction plan.
Implication: Is debt consolidation right for you? Use caution with “consolidating” a five-year car loan and a new refrigerator into a 30-year home refinance or using adjustable rate loans in a rising interest rate market.
3. Optimizing investment portfolios
Have a prudent investment strategy and rebalance investment accounts periodically.
Implication: How to use tools available to you in your 401(k) plan (e.g. savings calculators, “off-the-shelf” target date or life cycle funds, and automatic rebalancing versus customized strategies)?
4. Being prepared for the unexpected
Maintain the right insurance protection including health, life and disability, and casualty coverage.
Implication: Are you reviewing your coverage for adequacy and price competitiveness? How does your income protection change (life and disability) over time? Should you get umbrella liability coverage?
5. Protecting your estate
Update beneficiary designations for retirement accounts and insurance; and review your will, powers of attorney, trusts and titling of assets.
Implication: Planning for death is one thing. How are you planning for living with dignity and independence as you age?
And finally, some lessons I have learned over time:
- You’ve got to be the most serious person on the planet about your personal finances.
- Run your personal finances like a business.
- Time and health are infinitely more valuable than money.
- Don’t be afraid of saying “I don’t know” and stay within your circle of competence.
- Diversification protects us from the inability to predict the future.
- Learn to love what you do (versus doing what you love).
- Be humble or life will find a way to humble you.
And I’ll close with one of my favorite quotes from Denis Waitley: “Expect the best, plan for the worst and prepare to be surprised.”
May the new year be a turning point for you. Secure your future wisely.