It’s well worth spending some time thinking about your money at the start of the year so you can achieve your goals as quickly as possible.
Here’s how you can get started:
Gather your data
Start the new year by taking stock of all things financial in your life, your income and expenses, your assets, including your retirement accounts, and your liabilities, your insurance policies, your income tax returns, and your wills, trusts and other estate planning documents. Try to identify gaps in your financial plan. Examine, for instance, if you have enough life and disability insurance in place or if your estate plan is in order.
Set goals and objectives
Use the data you gathered to get a sense of where you are and where you want to be in one year and in subsequent years. A comfortable retirement or being debt free are fine goals, but you should also attach objectives to your goal. Put in writing, for example, that you want to accumulate $1 million in your IRA or 401(k) over the next 20 years, or that you will pay a certain amount per month toward being debt free by December 2018, for instance. You especially want to categorize your goals and objectives by time horizons so that you can measure and monitor your progress. You should also prioritize your goals and objectives. You might want to save for retirement, but paying down your credit card debt could be a priority.
Create an investment policy statement
Lewis Carroll wrote, “if you don’t know where you are going, any road will take you there.” That’s somewhat true of your investment portfolio as well. You need a plan for your investments. Professionals call it an investment policy statement. The IPS identifies your objectives, establishes how much you will save toward your objective, how you will allocate your assets, establish when and how you will rebalance your portfolio to its target asset allocation, and the like. Think of it as a blueprint for your investments.
It’s not what you earn, but what you keep. And the same is true when it comes to saving. There’s a tax-efficient way to save, say, for retirement and there’s a tax-efficient way, when the time comes, to withdraw money from your accounts earmarked for retirement. Determine, with the help of a financial professional, how to save for your various objectives given all the different types of accounts – health savings accounts, Roth accounts, taxable accounts, and tax-deferred accounts—and investments and products you can use.
Manage your risks
Not having the right kinds and the right amounts of insurance in place will wreak havoc on your financial plan should you face a dramatic event such as disability. Find a professional you can review your various insurance policies and determine if you need more insurance of one sort or another.
Monitor progress toward your goals
You can’t measure what you don’t track. Commit not to just starting the year off on the right financial foot but to monitoring your plan through the year, say, at least quarterly.
Meet with a financial professional
You might think you’re doing a fine job managing your money and finances, but asking a financial professional to review your plan could go a long way toward helping you reach your financial goals.
Consider enrolling in an introduction to financial planning course at an institution that has registered a financial planning curriculum that satisfies CFP Board’s education coursework requirement. Learning about money will help you understand the need to address not avoid your finances.