New Year’s is typically a time of fresh resolve and new commitments. The start of a calendar year motivates many to set new goals and habits and similarly, dispose of unhealthy ones. As such, a new year can also be a helpful prompt for recalibrating an investor’s finances.
While it’s always a good idea to stay on top of your financial situation, life has a sneaky habit of getting in the way and delaying this important (but usually not urgent) activity. However, since the calendar end is a tax-year cutoff for things like charitable contributions, gains and losses, flexible savings account distributions, etc., it only makes sense after the holiday festivities have passed, to pause and assess one’s finances before the business of the New Year (and the upcoming tax filing deadline) delays this activity further.
[See: 10 of the Best Stocks to Buy for 2019.]
Investors should take these five steps at the beginning of the new year:
— Review your financial plan.
— Review your asset allocation and rebalance if necessary.
— Reassess your insurance coverage.
— Check your debt.
— Re-evaluate your estate documents.
Review Your Financial Plan
The starting point for any personal financial checkup should be reviewing and updating one’s financial plan. Far from being a static document that gathers dust, a robust financial plan is a living document that should be updated at least annually to ensure that assets, insurance coverage, liabilities and goals are all current. At minimum, it’s likely that one’s balances have changed through contributions, withdrawals or market movements. Updating balances for both one’s assets and liabilities is crucial to having a clear picture of your financial plan health. It goes without saying that if you do not have a written financial plan, then one should be drafted as resolution No. 1.
Review Your Asset Allocation
As part of the plan update, it is also important to review one’s asset allocation to make sure it is still consistent with the plan goals. Financial markets, stock prices and asset classes all move over time, and it is quite possible that rebalancing is required to ensure you are not taking on more (or less) risk than is called for by the plan. After all, you’re another year older and another year closer to your “someday” plans. Updating and rebalancing your plan will help you remain on track.
Reassess Your Insurance Coverage
One should perform an annual insurance coverage assessment to make sure that it’s adequate for your present and future needs. Likely you did this for your employer health benefits during open enrollment at year-end, but you should also do the same review for your personal lines of insurance (home, automobiles, boats, umbrella) annually. Tragic reminders such as the recent wildfires, floods and hurricanes underscore the importance of a regular coverage review. A comprehensive insurance inventory with a specialist could not just save in premiums, but also potentially improve or expand coverage through consolidation.
[See: Build Your Investment Strategy With These 9 Questions.]
Check Your Debt
The start of a new year is an ideal time to perform a full review of your debts. Perhaps your holiday shopping bloated your credit cards more than you anticipated. Do you have a plan to pay down your liabilities? Can you consolidate balances on high interest credit cards to lower ones? Does your cash flow allow you to pay down your mortgage faster than your current schedule? Also, be sure to take advantage of the annual free credit reports that agencies provide as part of your review to ensure there are no inaccuracies or surprise accounts listed.
Re-Evaluate Your Estate Documents
Finally, it is important to annually review your estate documents to make sure they accurately reflect your wishes and are compliant with current tax and privacy laws. Are your listed beneficiaries accurate? Are the executors and trustees listed still appropriate? Was a child or grandchild born since the last update? Did a marriage or divorce transpire? Do any charities listed still reflect your current philanthropic intentions? Are the beneficiaries listed on all retirement accounts current and accurate? Are your various assets titled appropriately? Like the economy, life is dynamic, so one’s estate documents should reflect and conform to these changes.
These five resolutions provide a solid foundation for a finance checkup, and the New Year is a perfect time to begin.
If your plan review reveals that you are on track, perhaps you can still take a few more steps to financial success. If you received a year-end bonus, for example, be smart with it. Perhaps you can afford to increase your retirement savings this year.
[See: 9 Sectors That Investors Should Watch in 2019.]
Let the New Year prompt a fresh look at your finances and then continue your financial journey throughout the year to come. In the same way that consistency in exercise and healthy eating promotes improved wellness over time, regular review of your financial habits and disciplines can promote long-term financial progress, which will move you closer to the financial independence you desire.
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5 New Year’s Tips for Investors originally appeared on usnews.com
