By Steve Tepper, CFP®, MBA
Here’s something I didn’t learn until I was today years old: January is Financial Wellness Month! Seems like something a seasoned financial advisor would know? In my defense, I’ve always assumed that every month was financial wellness month!
Apparently, as part of your month-long partying and celebrating(!), you’re supposed to spend time planning your financial goals for the year. I’m old-school and believe you should do such planning in the prior year, but that’s fine. If you haven’t made a formal plan yet, let’s consider some actions you may want to take before we hit February, which as we all know is Humpback Whale Awareness Month. (I did not make that up!)
Set specific financial goals for the year: “Make as much money as possible” or “Get a 15% return on my investment portfolio” aren’t good goals. “Increase my 401(k) contribution rate from 5% to 8%” is a very good goal. “Open a college savings account for Junior and have at least $5,000 in it by year-end” is also good. The main idea is that the goals you set are measurable, realistic, and achievable based on your own actions, not the whims of others or the market.
Take a look at your debts: With interest rates on the rise, debt service may start to become a major expense for a lot of households for the first time in a long time. For that reason, it’s important to review what you owe money on, what the interest rate is, and whether the interest rate is likely to change soon, if it hasn’t already. For example, if your home loan has an adjustable rate, you might have a little surprise with your next mortgage bill. The same would apply to a HELOC line of credit. If you’re looking to buy a new car, you’re definitely in for a surprise when you see how much more the payments are going to be on a car that costs the same as the last one you bought. You may want to consider paying it off much quicker, or not financing it at all.
Keep saying “no” to credit card debt: Regardless of interest rates, maintaining a balance on a credit card is a great way to mess up a financial plan. Your goal should always be to pay the monthly balance in full before the due date, and if you have debt on a card, apply every spare dollar you can to paying it down, and off.
Review your emergency fund: There is a misconception that you should have six to 12 months’ salary in the bank as an emergency fund in the event of a disaster, health emergency, job loss, or any number of other unexpected life challenges. While it is important to have a pool of money available quickly for such emergencies, it does not necessarily have to be in the bank (where it earns little or nothing). You should have enough money there to cover at least a couple of months’ worth of expenses, but the remainder could be in short-term or safe investments, like a brokerage money market or bond fund. Your advisor can assist you in determining the proper amount you should have available for emergencies and whether your investment portfolio is set up to access the money you need if you need it.
Report your income to the SSA: As discussed in this month’s article, “Social Security and Work,” if you are taking Social Security retirement benefits but not yet at full retirement age, you need to tell the Social Security Administration if you are still working and will be earning in excess of $21,240 this year. Otherwise, you could face a penalty and possible reduction in future benefits.
Do your taxes: If you expect to get a refund from the IRS this year, the sooner you complete your tax return and submit it, the better. Every day the IRS keeps it, you’re giving them an interest-free loan!
Check your automated bills: Do you have most of your bills set up on autopay through your bank account? It’s convenient and ensures you don’t miss a deadline and get hit with a late fee or finance charges. But some of those bills that are the same every month can change from year to year, like your mortgage (if insurance and taxes are included or the rate is variable) and your homeowner’s association fee. Check the billing statements you receive and make sure you update the payment amounts with the bank to avoid penalties for less-than-full payments.
Call your financial advisor: Of course, you can call us any time of the year, even if you wait until March (National Cheerleader Safety Month!). But if you want to hit the new year running and make sure your plan is on track, we’re here for you.