I love short articles, but I also
love lists! Here is my list of 20 financial ideas to help you live a more
prosperous and abundant life in the year and decade ahead.
1. Skip Resolutions… Make New
Year's Systems and Habits.
The start of a new decade is a time to
reflect over all the amazing things you have accomplished in a ten-year window.
It is also a time to get clear on what you want in life in the years ahead.
However, the research is clear, individuals are not good at sticking to New
Year’s resolutions. Explore the person you need to become to accomplish your
most important “wildly important goals” and then develop the systems and habits
required to support that vision of you.
2. Invest in You
Your health may possibly be your most
valuable asset. Yet, many of us do not take the time to care for our physical
or mental health like we should. This starts with the fundamentals. Make sure
you are sleeping, eating, and moving in ways that support the vibrant life you
want to live. Make this a priority. Consider a personal development budget to
invest in you.
3. Spend Less Than You
Make.
Consistently spending less
than you bring home in income is one of the basic keys to financial success and
stability. Make a commitment to know how much you spend and where your money is
going. Find a plan that works for you and your family!
4. Start an
Uncertainty Fund.
If you don't already have
an uncertainty fund, start one today! This is what most people traditionally
call an emergency fund. Target a minimum of 3 months’ worth of expenses and
build it up to 1 year depending on your comfort level and degree of life
uncertainty. This is your “peace of mind” account for any emergency money you
need if you suffer a job loss, receive unexpected medical bills, face inevitable
repairs and replacements, etc. Having an uncertainty fund makes you far more
prepared to weather the storms and provides the peace of knowing you have a
little breathing room with your finances. In the midst of stressful moments, that
peace of mind can make a massive difference.
5. Increase savings to
a target of 10%, 15% or even 20% of your income.
We have all heard by now
you must “pay yourself first.” Unfortunately, not everyone does this. If you
are not saving, just start somewhere TODAY by setting up an auto draft to save
1% and increase that by 1% every couple of months. In time, you will have less
financial stress if you can save a larger percentage of your income. If available,
take advantage of matching benefits available through many 401(k) plans or
consider a Traditional or Roth IRA if you do not have a 401(k) plan offered
through work. For those who want to live with less financial stress, we are big
fans of the 50/30/20 budget approach.
6. Reduce your debt.
Debt is a future financial
obligation that you are living with today. If that helps empower you to buy a
home or fund an education, that is great. If it is used to fund an
unsustainable lifestyle, it can be toxic. Write down all your debts and rank
them by interest rate from highest to lowest. Make a systematic plan to be debt
free and know when that will happen. If you need help, get help sooner than
later. Seriously, take action now as time is not your friend when you are
getting out of debt and it is not a problem that will go away on its own.
7. Calculate your net worth.
We recommend updating your net
worth statement each quarter as a proactive way to gauge if you are financially
on the right track. This can be as simple as taking a paper and adding up the
value of all your financial assets and subtracting out all your debts. This
number is your net worth. Let me know if you want a digital tool or spreadsheet
to help track this.
8. Check to make sure you have right sized your insurance.
We often talk about “the certainty of
uncertainty.” It’s just one of the unpleasant facts of life. Nobody wants to
pay for insurance but everyone’s glad they have it when disaster strikes. Everyone's
situation is different and not all insurance is created equal. Basically,
insurance should cover you for financial risks that you cannot afford to
experience on your own. Considering your life stage review your auto and home insurance,
life insurance, disability insurance, health insurance, long-term care
insurance and remember to adjust as your needs change.
9. Organize Your Financial Life
Do you have all your finances on one
page? Does anyone else know what you know? Many people only have all the
details in their head. Consider creating a document that summarizes all your
financial information in one place. Banks, investment accounts, safety
deposits, insurance policies, key contacts, online assets, etc. The basic idea
is that if anything happened to you or there was a natural disaster could
someone else piece together and easy locate all the key data of your financial
life? If you are married, make sure to
review this with your spouse.
10. Rid yourself of the weight of
old records.
With digital files, it is becoming
easier to keep detailed records. For most items, it is safe rule of thumb to
keep seven years of files for tax purposes. We only keep receipts for major
purchases, for business purchases or to support tax records of itemized
deductions. Items to keep longer than seven years include estate documents, records
relating to real estate, all past tax returns and 1099’s.
11. Create or Update Your Financial Plan.
A pilot never takes off without
knowing his or her destination. Absolutely, you will make course corrections
along the way but it’s important to know where you are going. A true financial
plan allows to explore trade-offs to make better decisions. What if you retire
at different ages, claim social security differently, spend extra money on
travel, buy that second home, or give money to the grandkids? Your financial
plan should let you consider the ability to fund whatever your wildly important
goals are that have a dollar sign.
12. Create or Update Your Estate Plan.
Many people fail to realize estate
planning goes beyond just what happens to your assets when you pass. Regardless
of whether you are single, married, divorced, have children or have no
children, there are some key documents you need to legally have your wishes
followed. Consider talking with an
estate attorney about the 5 key estate documents: Will, Financial Power of
Attorney, Medical Power of Attorney, Living Will and Revocable Living Trusts. Consider
an addendum in your will to reference a list outlining who will get important personal
property. Be as clear as possible with your language and intent. Consider
reviewing “The 5 Wishes” to help you explore topics to address.
13. Perform a Beneficiary Review
Having an estate plan is not enough. Every
so often, it is important to review all your beneficiary designations to ensure
they are matched with your current wishes. Most people don’t remember how they
signed these forms. Beneficiary designations control the distribution of money
at your passing for all retirement plans, annuities and insurance. They can
also be added to bank accounts and brokerage investment accounts. These
designations bypass your will, so it is important they are listed in a way that
is consistent with your estate plan and final wishes.
14. Protect Your Identity
Identity theft is a serious crime that
can end up costing you lot of aggravation, time and money. The old
recommendations of safeguarding your information by shredding financial
documents and protecting your Social Security number are no longer enough in
the digital world we are living. Practice safe internet use by using a
firewall, keeping updated anti-virus and anti-spyware software and never click
on links in unsolicited emails you can’t verify. Consider a credit monitoring service or
explore the ability to freeze your credit. If you suspect identity theft, act
quickly. Place a “fraud alert” on your credit report and file a police report
with law enforcement to document proof of the crime. You can review your credit
report annual for free by requesting this information from the three major
nationwide consumer reporting companies: Equifax, Experian, and TransUnion.
15. Set Your Kids Up for the
future with Section 529 Plans and Roth IRAs.
Start early and take advantage of tax-advantaged
savings plans. College savings plans or 529 plans can be a great way to set
money aside for future college expenses. Once children reach working age,
it may become possible to make Roth IRA contributions. This has the dual
benefit of introducing the idea of saving money and starts investing to benefit
from more years of the magic of compound growth. Both accounts allow for
tax-free distribution for educational expenses if the rules are followed. Successful
small business owners should take the time to explore additional tax strategies
to help pay for children’s college.
16. Keep up with regular home and
car maintenance.
Yes, life gets busy, but you need to
maintain your property. For most people, you home and car represent valuable and
expensive assets. Regular maintenance is key to avoid potentially large
expenses if there is neglect. A little time and effort can go a long way. Check
online or with your homeowner’s insurance company to find a checklist. Make it
simple and automatic such as changing your homes air filters on the first
Saturday of every quarter.
17. Reduce taxes and be
intentional about the timing of your tax deductions.
Nobody likes paying taxes. The ways to
reduce taxes are very dependent on your personal situation. If you are eligible
and depending on your income level, making annual contributions to tax-deferred
retirement accounts can reduce your taxable income. Consider a health insurance
plan that will allow you to contribute to a Health Savings Account. Be aware of
changes that impact your incentive to itemize. The recent tax law changes
increased the federal standard deduction amounts to $24,000 for married filing joint
and limits state and local tax deductions to $10,000. This has considerably
reduced the number of families and individuals who itemize their taxes and
subsequently lose the tax benefit of charitable contributions. There are
planning opportunities to consider such as utilizing Donor Advised Funds that
allow you to “bunching" your charitable donations which can be good for
you and good for charities. You should consider exploring this in a year where
you have major out of pocket medical expenses or major life events such as the
sale of a business or secondary real estate transactions.
18. Embrace the Compound Effect in
Investing and Life.
Albert Einstein is
famous for many things but reportedly said, “Compound interest is
the eighth wonder of the world. However, compounding doesn’t just impact
your money. It impacts every part of your life. Dan Hardy’ explains his formula
clearly in his book The Compound Effect: “Small,
Smart Choices + Consistency + Time = RADICAL DIFFERENCE.” We also love his
success formula: Your Success at achieving goals = Choices + Behavior/Actions +
Habits + Compounded Over Time. We
believe focus is required to be successful financial because good investing is
as much about avoiding get rich quick schemes as it is controlling your
emotions. We think it is key to focus on controlling what is in your control,
having a clear action plan and giving your financial and investment plan enough
time to work.
19. Use Spending to Become Happier
Most
people have heard the studies that say money only increases happiness to an
income level of around $75,000 and then more money doesn’t bring more
happiness. Well, Dr. Dunn completed extensive research to show that what actually
makes people happier is how they choose to spend money. Hint – most of us spend
on things that don’t bring happiness. Consider reading her book, Happy Money:
The New Science of Happier Spending, where she explores the 5 ways to
spend money scientifically proven to increase happiness.
20. Higher a Financial Designer
Yes, this may sound a little self-serving,
but we are passionate about making an impact and serving others. Many people
don’t associate with “wealth management” or have had bad experience with
“financial advisors.” We get it. We created the concept of Financial Design as
a unique way to encourage and empower our clients to use money as a tool to
pursue their ideal life, not only in the future but also today. This is why we
grounded our firm on the concept of “Intentional Planning. Abundant Living.”
Reach out to our team to explore how we can help you live your abundant life in
2020. We wish you blessings!
High Point Financial Design is a DBA for Clinard Financial, LLC.
Investment advice offered through GWM Advisors, a registered investment
advisor. Securities offered through LPL Financial. Member FINRA/SIPC. Clinard
Financial, LLC, and GWM Advisors are separate entities from LPL Financial. The
opinions voiced in this material are for general information only and are not
intended to provide specific advice or recommendations for any individual
security. To determine which investment(s) may be appropriate for you, consult
your financial advisor prior to investing. CAR#1-936201