The holiday season is a time when individuals concentrate on spending time with family and friends and focus on their values and what is important to them, maybe donating money or something even more valuable, such as their time, to charities they care about. For most of us, this is followed by a period of personal internal reflection as the holidays turn into the New Year and the time for resolutions.
People start to think of themselves, their physical and mental well-being and the changes they will make in the upcoming year, such as working less, eating less or exercising more.
Unfortunately, most people fail to address something equally important: their financial well-being. And most don’t realize that meeting certain financial goals can be vital to achieving their personal goals, and eliminating a major source of stress. For example, one might want to spend more time with their family, but find when they are home they are spending too much time dealing with their personal finances. Simply by organizing a budget or shredding unnecessary paperwork, they can create more time for their family. Or, they may want to be more philanthropic in the upcoming year. This can be done by investing in a Socially Responsible Investment product that meets one’s personal values, thus meeting personal and financial goals.
Organizing one’s finances each year is just as important as taking on the junk drawer or the kid’s closet. Below are five resolutions that can easily be instituted that will help both personally and financially:
- Analyze Budget and Cash Flow – The beginning of the year is the best time to analyze one’s cash outflows from the prior year and prepare a budget for what is expected in the upcoming year. Review monthly credit card and bank statements to see where you have been spending money. Remember to include ATM withdrawals. Consider using a simple Excel spreadsheet or software like QuickBooks or Mint.com. You will be able to see which expenses are expected to repeat and which are one-time or unusual items. This provides a foundation for the upcoming year. It could reduce stress levels as you will understand where the money goes, as opposed to worrying and wondering where the money disappears to each month.
- Create a Savings Plan – Once cash outflows have been identified, you can then determine how much can be saved. Calculate a monthly amount that can automatically be put into a savings, brokerage or retirement account. By automating the deposit, you are ensuring the savings happens, and that your goal has a better chance of being met. If you are not participating in an employer sponsored retirement plan (403b or 401k), we recommend doing so. This will reduce your income taxes paid, and who doesn’t like that? Contribute at least enough to maximize any company match they might provide. We recommend making your contributions a percentage of your pay, as opposed to a straight dollar figure. This way, when you receive a raise, your savings plan automatically increases and you do not have to worry about making the change yourself. Building a nest egg will make you feel better that your long-term goals will be met.
- Shred / Purge your files – This is a great time to clean your files and shred the documents that are no longer needed. Please refer to my Dec. 22 blog post for tips on purging files.
- Rebalance your investment portfolio – The beginning of the year provides an excellent opportunity to rebalance your investment portfolio. When you established the portfolio, you did so with a long-term goal and a strategy that called for a specific percentage of the assets in equities versus fixed-income. As the year goes along, the value of your individual investments will vary. We recommend rebalancing to your original goal on at least an annual basis. This will automatically cause youto sell certain assets that have grown and buy assets that are at a value. It is also a great time to review whether any individual assets need to be replaced. Remember, the asset classes that perform well one year do not usually perform as well the next year. And by doing this at the beginning of the year, you do not have to stress about rebalancing for the rest of the year and that provides more time for the other important things in your life.
- Review your estate planning documents – Spend one hour reviewing the estate planning documents that you spent so much time and money preparing. These documents, which include your Will, Durable Power of Attorney and Advance Medical Directives, may need to be amended to ensure they reflect your current wishes. In addition, review the beneficiary designations of your retirement accounts (IRA, Roth IRA, 401k, 403b, etc.) and life insurance policies to ensure they meet your wishes. Remember, your Will does not govern who will receive the benefits of retirement accounts and life insurance. The assurance that your wishes will be met should provide a reduced level of stress and allow you to concentrate on thethings that are most important to you.
Remember, a goal without a plan is a wish. Set your goals and resolutions, but remember to make them manageable so you can succeed. The majority of unmet resolutions are due to the goal being unattainable at the start. Do not bite off more than you can chew and you should reap the rewards of less stress and more time for personal satisfaction and growth.
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About the Author: Darren Zagarola is a CPA, a Certified Financial Planner, and a Personal Financial Specialist with EKS Associates, a fee-only financial planning firm with offices in Princeton and Roseland. He can be reached at 609-921-1016, or at email@example.com