One of the top New Year’s resolutions many people make is to get their finances in order. Unfortunately, like so many resolutions, the weeks go by and nothing gets done, but it is not too late to take action! The first thing to realize is that you do not need to reach for the stars – in other words, take small steps to getting your financial house in order.
But – where to start?
Look at Your Goals
Often, writing them down will be helpful. Start with short-term goals, things that you want or need to accomplish in the next 12-24 months. Then look at intermediate goals, which would fall into the next two to five years. After that, write down your longer-term goals of five or more years. By classifying the goals, you can prioritize and see which are attainable and which goals may be out of reach. If you want to buy a new car in the next year, go on a dream vacation in the next two years or even plan for retirement down the road, having your goals written down will allow you to periodically review and re-focus when needed. As you are writing your goals, you also need to put them in measurable terms. For example, when looking at a vacation, time frames and dollar amounts are important — when you want to go, where and what it will cost. Knowing all this will allow you to see how much you need to save to reach it. All goals should be quantified in the same manner.
Putting Things in Order
Being that tax time is right around the corner, now is a good to put things in order as well. As you receive your year-end investment and bank statements, do not just file them away. Take a look and make sure your allocations are in line with your goals. When you get your mortgage statements, review your interest rates. With rates at historic lows, now may be a good time to refinance your mortgage. Even if you do not have a formal budget, taking a look at your year-end credit card statements and bank statements allows you to see where you spent money last year and if there are places to cut back to free up savings for the goals you have written down.
Regarding your estate planning, do you have your papers in order? Review your wills, living wills, health care proxies, power of attorney and trust documents. One easy place to start is to check your beneficiaries on your life insurance and retirement plans, and make any needed changes. Look at how your assets will be managed in case of your incapacity or how they will be disbursed in case of death. For instance, is your money going to the right people? If you do not have these documents, then consider meeting with an attorney to discuss your estate planning needs.
While you are reviewing your life insurance policies for beneficiary updates, take a few minutes to look at other insurance coverage as well. Make sure you have adequate liability coverage on your home and autos, and do not overlook disability and medical coverage. If you don’t have your employee benefits handy, contact your company and see if you can get an updated benefit book. You may not be able to make any changes now, but at least you have the needed documents and can make changes when allowed, usually each November.
These are just some of the basic steps to reviewing your financial planning needs. It may seem daunting at first, but if you set aside a few hours, you can easily start the process and check this off your New Year’s resolution list as completed. And, if you need additional help, reach out to a CERTIFIED FINANCIAL PLANNER™ professional, who can help you get started and move forward enabling you to reach your goals.
FPA member Scott M. Kahan, CFP®, is president and founder of Financial Asset Management Corp. a fee only Wealth Management firm in New York City.