What would you do if you received a major financial windfall? Would you buy a new house or vacation home, give some to your family members, donate to your favorite charity, or take the trip(s) that you have always dreamed about?While most people will not receive a major financial windfall during their lives, it is not uncommon. You might receive a financial windfall by:
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Ruminating About Resolutions
As we begin 2019, many of us are taking a fresh look at our goals and the things we want to accomplish in 2019. According to Fidelity Investments’ 10th Annual New Years’ Resolutions Study, almost one-third of Americans are considering making a financial resolution for 2019, with the top three resolutions being to save more, pay down debt, and spend less. Research has shown that there is a connection between financial wellness and happiness. So, if you can start this new year by making resolutions and taking some actions to improve your finances, I believe that your long-term financial wellness and happiness will increase. Below, are six actions for you to consider implementing in 2019:
- Increase Your Savings Rate: Financial security in retirement is the top financial concern of many people. Regardless of where you are in your career or on your path to retirement, increasing your savings rate will greatly help you. If you are not yet maximizing your salary deferral contributions to your retirement plan, consider increasing your contributions to the plan until you hit the contribution ceiling. The maximum deferral contribution is $19,000 in 2019 for those under age 50 and $25,000 for those ages 50 and over. If you are maximizing your retirement plan contributions, consider creating an automatic monthly savings plan in a non-retirement account.
- Cut Back Unnecessary Spending: With the rise of subscription services and other expenditures that are automatically billed to our credit cards or debited from our bank accounts, you may be paying for services that you no longer need or aren’t valuable to you anymore. Now is a good time to review the services that you are automatically paying for and cancel any that you no longer want or use. Also, many people neglect to return or exchange unwanted merchandise that they have purchased online or in stores. This is another good opportunity for savings.
- Reevaluate Your Insurance Policies: Review your insurance coverage to see if you can get a better deal from other insurance carriers. Carriers use different methodologies to price their policies, so make sure you get price quotes from several different ones. This process will also ensure that you keep up-to-date with the types of coverages you need and the values of the items you are insuring.
- Review and Update Your Wills: Or put one in place if you do not have one. A will provides clear instructions for how your assets will be divided among your family if you, your spouse, or both of you die. It also lets you choose guardians for your minor children and your executor who administers and settles your estate. Other important parts of getting your wills reviewed and updated include getting current Advanced Healthcare Directives in case you are unable to make healthcare decisions for yourself, and appointing a power of attorney. A qualified estate planning attorney can help you think through the various options for how to set up your will, draft the will to reflect your wishes, and help you execute the will properly.
- Plan for your Financial Goals and Automate Them: First, determine what your most important financial goals are for 2019, then make a plan for them and automate them if possible. For example, if your goal is to save more for retirement, you can increase your payroll deductions into the plan. Or, you can set up an automated investment program that puts money into a separate investment account, or both. If your goal is to pay down a debt or loan, set up automatic monthly payments of additional principal payments on that debt or loan. Automating your goal will bring discipline to the implementation of that goal.
- Start a Wellness Plan for Yourself: What do health and wellness have to do with your finances? There are two major impacts that I believe you should consider. First, on the financial side, there are the costs of long-term care, hospitalization, prescription drugs and surgeries as people age. Many experts estimate that retirees will spend at least $250,000 during retirement on health-related costs. By maintaining your health and being able to avoid or postpone some of these costs, you can make a positive impact on your finances in retirement. Secondly, remaining healthy in retirement should enable you to continue to do the things you love doing, allowing you to enjoy using the money you have saved for a longer period of time.
I hope you found some action steps above that you can implement to help improve your financial wellness. Please remember that making progress is the most important thing. So, when you are making your resolutions and plan for 2019, make it a plan that you can do in steps, and don’t try to accomplish everything at once. You will be rewarded by being able to see your progress and having the satisfaction that you are taking and completing steps to improve your long-term financial wellness.
When I first sit down with prospective new clients to learn about their finances, one of the most common issues we come across is how spread out investment accounts are. We may have a brokerage account here, an IRA there and, very often, an old 401(K) or two still sitting in a previous employer’s plan. There are plenty of reasons why a 401(K) may be left behind with a prior employer – it could have gotten lost in the shuffle of beginning a new job, it may have just seemed like too much of a hassle to move the plan, or perhaps you took the time to roll the plan into an IRA but your employer made subsequent contributions you didn’t know about. These accounts, affectionately referred to as “orphans,” are becoming more and more common given the increasing frequency of job-hopping, especially among Millennials. So, who do these orphan accounts belong to and more importantly, what can be done about them?
When Congress passed the recent $1.5 trillion tax bill (The Tax Cuts and Jobs Act or TCJA), it triggered the first comprehensive revamp of the U.S. tax code in more than three decades. As we prepare to file our 2018 tax returns, Americans will feel the effects of this legislation for the first time. For most, the effects will be positive. In fact, 80% of Americans will see their taxes drop. However, not all the news is good. There will be inevitable surprises as 2018 taxes are filed with one particularly nasty “gotcha” that will likely catch many taxpayers off guard.
I was recently asked by a cousin during a New Year’s Day lunch conversation, “If you had to name the one key to starting a good financial plan at my age, what would it be?” My reply came without hesitation – “Margin.”
To provide context as to how the question arose, he and his wife are in their late 20’s. They married fairly young, have already survived some incredibly difficult life events together, purchased their first home, adopted two dogs, and are now expecting their first child. He understands the value of a dollar, the meaning of hard work, and is, quite frankly, one of the most principled men I know. So, what he was really asking was simply this: If we are looking to REALLY start getting our act together financially, and begin to put ourselves on a path to build wealth, where should we start? By the look on his face, my cousin was expecting something quite different in response, but quickly caught on to what I meant as we continued to chat.