Financial Issues to Consider at the Start of the Year | Financial Check-Up

The start of the new year is a great time to do a financial check-up. In addition to reflecting back on 2022, you may feel particularly motivated in January to consider making financial resolutions for the future. In this episode of The Agent of Wealth Podcast, host Marc Bautis helps guide you toward impactful improvements by outlining some of the most important considerations to make in a free, downloadable checklist.

In this episode, you will learn:

How to set, revisit and achieve your financial goals.
How to accurately determine your savings rate, and how to improve it year-over-year.
How to review your investment progress and strategy at the start of the year.
How to revisit your assets and debt to evaluate whether your risk tolerance continues to be appropriate.
And more!

Resources:

Complete the Checklist | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000

The beginning of the new year is the perfect time to discuss the various factors influencing your planning. If you’re looking for guidance on your financial situation, our team of financial advisors are always here to help.

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Welcome back to the Agent of Wealth Podcast, this is your host Marc Bautis. With the new year upon us, now is a good time to take a look at your finances and see if there’s any room for improvement. To help identify what to look at, we are sending out an interactive checklist to our clients. Today, I will share this checklist with Agent of Wealth listeners as well.

The checklist is called Financial Issues to Consider at the Start of the Year, and it outlines action items in the following categories::

Personal Issues
Cash Flow Issues
Asset and Debt issues
Tax Issues
Insurance Issues
Legal issues

The best way to use this checklist is to download it, review it, and check off anything that may require action on your part.

Complete the Checklist

The cool thing about the interactive version we send our clients is that when something is checked off, an alert is sent to us. We then can match that with other items we may have identified to be relevant for the individual, and set up a time to discuss.

Instead of just sending out something at the beginning and end of the year, one of these checklists will go out to our clients each month, so they can tackle one financial planning topic at a time. Some of the topics will include:

What accounts should you consider if you want to save more?
What should you consider when reviewing your required minimum distributions (RMD)?
As someone who is working, what should you consider when reviewing your tax return?
What should you consider when reviewing your cash flow?
What should you consider before you update your estate plan?
What should you consider when reviewing your investments?
What should you consider with your employer provided benefits?

… And so on.

It’s one thing for your financial advisor to recommend that you update your estate plan, but the estate plan checklist we use lists an array of items to consider before you make the updates, which helps prepare for any discussions we’d need to have with a client around that particular topic.

What to Consider at the Start of the Year

Now, let’s start with this start-of-the-year checklist, and specifically with the personal issues section.

Do you need to assess the progress you made toward your goals last year?

Everyone wants to know how they’re making progress towards their goals. A lot of people think about this in terms of their portfolios’ performance – what percentage gain or loss they achieved in a given year. Sure, that’s good to track, but you should also look beyond that.

Have you identified new goals for this year or the future?

It’s one thing to create a financial plan, it’s another to keep it up-to-date. As things change in your life, your goals will often change too. The start of the year is a good time to reassess your goals and set new ones if need be.

Are there any life events that are likely to occur for yourself or your immediate family?

This could be an upcoming move, a change in job, a marriage, a divorce, a birth, beginning to path to higher education, entering retirement, or even an illness. The reason why it’s important to highlight life changes like these is because they often lead to making big financial decisions.

Do you need to confirm that you are adequately saving toward your goals?

Moving onto the cash flow section, your goals most likely require some form of funding. When reviewing this piece, you should get clear on how much money you have to commit to each goal every year. For example, you might commit to saving $5,000 towards your child’s education, $10,000 towards retirement, $3,000 to make extra payments towards your mortgage and $5,000 to beef up your emergency fund. These numbers will look different for everyone.

Now, in order to plan how much you want to save, you need to know how much you’re spending. There are a couple of ways to do that.

Track every dollar. This is a painful exercise, but I recommend everyone does it at least once. It’s the best way to get a feel for exactly where your money is going.
Reference spending summaries. A lot of credit card companies send out an end-of-the-year spending summary that categorizes your spending, so if you put a lot of your purchases on your credit card you can use that summary and piece in the rest of your spending.
Use our portal to automatically categorize your spending transactions. This is available for our clients to use.

If you still aren’t sure how to target your savings for the upcoming year, you can take a different approach and instead, calculate your current savings rate.

Your savings rate is how much you saved in a given year (into any type of saving vehicle) divided by that year’s income. For example, let’s say you saved $5,000 in your 401k, $2,500 into a bank account and $2,500 into an investment account. You saved a total of $10,000 for the year. If your income is $100,000 per year, your savings rate is 10%. If your income is $1 million dollars, your savings rate is 1%.

Everyone’s optimal savings rate is different. It depends on how old you are and what your goals are.

One rule of thumb for retirement is to save 10% per year from the time you start working to the time you stop working. But not everyone listening to this episode or filling out this checklist is heading into their first year of work – quite the opposite, actually. So, I recommend calculating your savings rate from last year and setting a goal to improve it in the upcoming year. If you saved 10% last year, try to save 15% this year. If it was 2% last year, try to save 5% or 7% this year.

In the asset and debt section, there are a lot of things to consider…

Do you need to rebalance your portfolio, particularly your 401k?

A lot of 401k allocations got out of whack this year due to the markets. Now is a great time to get that back on track.

Do you need to review your asset location across the accounts in your portfolio?

From a tax perspective, you may want to look at the types of accounts you have (taxable, tax deferred, and tax free) and the types of assets you have in each of those accounts.

For example, an investment that’s expected to be high growth is a good candidate for a tax free vehicle like a Roth. Depending on your tax bracket, you probably want to keep investments that generate ordinary income outside of a taxable account, because that’s where you’ll pay the most tax on them.

Some investments may kick off dividends (qualified), some may generate capital gains.

Do you need to revisit your mortgage strategy?

One of the most common questions I receive is “Should I pay off my mortgage?” Let’s say you have a mortgage interest rate around 3%, and you compare that to the return on a specific stock… It’s never an apples to apples comparison, in terms of risk – as we have seen this year – but now there’s a different decision: If you have a mortgage interest rate between 2-3%, you might compare that to the 4-4.5% return you can get from a CD or Treasury Bill. The risk, in this instance, is closer to an apples to apples decision.

Are there debts that you would like to eliminate this year?

You may also want to create a plan for eliminating debt, especially if you have loans that are at a variable interest rate. In those cases, the rate you’re paying now is probably a lot higher than you were previously. It could be a HELOC, personal loan or business line… Look to see if it makes sense to plan to pay it off.

In the legal issues section there is an item that I wanted to point out:

Have any new laws gone into effect that might impact your financial plan?

We have a big one this year in SECURE Act 2.0, which is now poised to be signed into law. The bill includes dozen of retirement-related provisions, among other changes, that can impact you.

There are also some year-end items on this list that echo some of the suggestions we make for year-end to-do’s. However, if you didn’t get a chance to take action before December 31st, it may still make sense to consider:

Do you need to review your unrealized gains and losses and create a harvesting strategy?

…And:

Would Roth conversions be beneficial this year?

Everyone wants to get off to a good start in the new year, especially when it comes to finances. Doing that can sometimes be overwhelming – especially if you don’t know where to start. I’ll never forget a piece of advice I heard from Navy Admiral Bill Mcraven, who made a famous speech at a University of Texas graduation ceremony a couple of years back. One of the things he said was to make your bed, every day, first thing in the morning. As simple as it is, completing the task gives you a win to start the day.

I think you should do the same thing when it comes to getting your finances in order: Get an easy win to gain some momentum. This checklist is a great place to start.