“Exercise more.” “Eat better.” Like most people, you likely have a laundry list of fresh resolutions to help you start the New Year on the right note. And then reality sets in — the hustle and bustle of everyday life gets in the way, and you begin to realize that bringing your resolutions to fruition is far easier said than done.
But this year, we challenge you to set a few resolutions you can actually stick to — financial resolutions. Whether it’s reining in your spending or starting that college savings fund you’ve been putting on the back burner, there’s no better time to get your finances in shape and develop new goals for the months ahead. Find out what action items our advisors are giving their clients at year-end.
1. Get Organized
First, lay the groundwork for your resolutions — gain a complete understanding of where you are, where you want to go and what steps you need to take to get there. “We call this a ‘process’ for a reason; it doesn’t happen overnight,” says Karl Schwartz, CPA, CFP®, principal and senior financial advisor based in Miami. He likens this ‘process’ to setting the goal of getting in shape — but instead of scrutinizing your diet and exercise habits, you should start by taking stock of your financial habits.
Make a list of any outstanding financial tasks and rank them in order of time-sensitivity and importance. Next, create a schedule for the upcoming year and challenge yourself to complete one task on your list per month. “You might plan to create a will in January, or examine your outstanding debt balances and interest rates in February,” says Karl. “Taking these small steps will make the entire process much more manageable and can have a substantial, long-term impact on your financial health.”
2. Seek Insight From the Outside
So you’ve got your list of to-dos and a basic plan of action — but how do you put everything together? Enter, your financial advisor. “Having a year-end meeting with your advisor is crucial, because it allows you to tie up loose ends and proactively plan ahead,” says Thuong Thien, CFP®, senior financial advisor in the Bay Area. “I always encourage my clients to schedule a meeting with me and their CPA. In my experience, having two financial experts in the same room can give rise to so many creative, beneficial strategies — numbers are confirmed, trade-offs are discussed and decisions are made without playing the telephone game.”
As you’re gearing up to meet with your advisors this year, Thuong suggests bringing up a few of the following items (which may vary, depending on your age and financial situation):
— Projections for required minimum distributions (RMDs), particularly if you’re nearing retirement
— Strategies for making the most of your retirement accounts
— Considerations for any health savings accounts (HSAs)
— Spending plan evaluation
— Charitable giving opportunities (we’ll get into this a bit later)
3. Examine Your Spending
We know what you’re thinking — reflecting on 12 months of spending immediately after holiday shopping season can be a little overwhelming. To make sense of it all, Jordan Lochner Mills, CFP®, senior financial advisor in Minneapolis, recommends starting at the beginning: your bank account. “You don’t necessarily need to create a detailed, itemized budget — simply start adding up all of your bank account outflows for the year (excluding amounts that went toward savings and investments). Then, add in any credit card or line-of-credit spending that you didn’t repay over the course of the year.”
Once you have that data, Jordan recommends regrouping with your advisor to update your financial plan. “Use the information you gathered from your spending analysis to confirm that the limits you set in your financial plan are accurate and that you’re on track to meet your goals,” she says. “This will allow you to make adjustments if necessary, before you veer too far off course.”
4. Review Your Tax Situation
There are likely a few big tax changes on the horizon for 2017 under the new administration. “President-elect Donald Trump’s proposed tax plan includes both a decrease in the highest marginal income tax bracket and a cap on itemized deductions,” explains Anthony Perillo, CFP®, financial advisor in Milwaukee. “If passed, high-income individuals and couples could receive a significantly smaller tax benefit for charitable contributions in future years.”
If you fall into this category and are charitably minded, Anthony recommends consulting with your advisory team to find out if it makes sense to boost your charitable contributions or perhaps start a donor-advised fund (DAF) before the end of the year.
5. Speaking of DAFs…
Do you own securities with a low cost basis? Want to give back to the greater good, but don’t have a charity or organization in mind? Jedd Nicolas, CFP®, CLTC, financial advisor in the Bay Area, suggests financing a DAF with highly appreciated assets — one of the most tax-savvy methods for giving back.
“The strategy is simple: gift an appreciated security, such as stocks, mutual funds or exchange-traded funds (ETFs), and receive an immediate income tax deduction,” he says. “Deductions are limited to 30 percent of your adjusted gross income (AGI) when you donate appreciated investments, with a five-year carry-forward deduction on gifts above the AGI limits.” A benefit to this strategy is that you can recommend grants from your DAF over time, which means you have some buffer room to decide which charity you’d like to receive your donation.
6. Check Your Beneficiaries
“Did you experience a major life event this year, such as marriage, a divorce or a new addition to your family?” asks Derec Mieden, associate advisor in Wausau. “If so, you’ll need to make sure all of this information is reflected in your beneficiary designations as you head into the New Year.” Outdated beneficiary designations could lead to assets being passed along to people you didn’t intend to receive them, which could be detrimental if an emergency or unexpected event occurs.
7. Start the Conversation
For just a moment, take a step back from your resolutions list. Sometimes, it can be easy to get caught up in deadlines and to-do lists, and wind up losing sight of the big picture. That’s why Leah Schmid, associate advisor in Madison, says you should look past the here and now and have an open discussion with your family members about your long-term financial goals.
“What is the ‘why’ behind what you’re doing?” she asks. “Before the end of the year, sit down with your loved ones and talk with them about your dreams for retirement, a new house or maybe a bigger family.” You can have peace of mind and start 2017 with a clean slate, knowing you’ve set clear expectations for the future.
Need help crafting your own financial resolutions? FIND AN ADVISOR