Starting off the Year on the Right Foot

The start of the year is a great time for a financial check-up. 

Reflect on last year and get motivated to put some action items in place that will help you move your finances forward.

We are going to walk through the fundamentals that will help your finances progress.

Follow these 10 steps to get started on the right foot this year:

1) Write down your financial goals

We know you have heard this before. But there is true power in writing down your goals. There is a very strong relationship between writing goals down and accomplishment.

The best thing we ever did for our business was write our goals down. Within one quarter of doing so, we brought on 22 new clients and met our entire revenue goal for the year! We like to write our goals down on a sheet of paper that stays on our desk. We see it every day and each day we do something to make forward progress on our goals.

According to a Harvard Business study, those who have written goals are 10xs more successful in achieving their goals than those who do not.

2) Track your spending

At the end of the month, review your expenses and get an understanding of where your money is going. This step is crucial, especially if you need to increase your savings rate because it will help you identify areas where you are overspending and can cut back.

Using budgeting software like Monarch Money or YNAB will help with this.

3) Fully fund your emergency fund

Make sure you have a fully funded emergency fund, which is 3-6 months of living expenses.

If you’re single, aim for a minimum of 6 months.

If you’re married and both spouses are working and have stable jobs, aim for a minimum of 3 months.

4) Save for major purchases

If you have a big purchase that you plan to make in the next 1-3 years, it’s time to start setting money aside each month to fund these purchases.

Most common examples include a new home, car, furniture, repair, business or baby.

5) Review savings

Look at your savings and make sure you are saving towards your future. We like to see savings rates at 20%. 

It may be time to increase your 401(k) contribution or look into other retirement savings accounts. If you aren’t maxing out your 401(k), look into increasing contributions each year.

Make sure you are taking advantage of your full employer match at the very minimum and review whether Roth or traditional contributions make the most sense.

6) Review investments

Make sure your retirement contributions are being invested properly. Compound growth you receive from investing over a long period of time is going to be crucial to meeting your goals.

Now is a great time to review your investment holdings and make sure the expenses on those investments aren’t too high.

An expense ratio is the cost of owning a mutual fund or ETF. It's the management fee paid to the fund company for the benefit of owning the fund. 

Expense ratios have been declining for years and there are many passive funds out there with expense ratios less than 0.10 percent. Selecting funds with low expenses can save tens of thousands of dollars over your lifetime. 

Even though there are many great fund options with low expenses, we still onboard clients who have high expense ratios. 

We see significantly higher fees from clients who have previously worked with a commission-based advisor or a "free" advisor. They are able to charge the client little to no upfront fee because they are paid on the back end by the fund expenses that are often greater than 1%. Unfortunately, the least expensive financial advisors are often the most expensive and least transparent on fees.

7) Review Insurance

Life insurance protects your net worth and provides for your family if something were to happen to you. It's an integral part of every financial plan. 

But the truth is, most people are underinsured and still overpaying for their insurance policies. Make sure you have enough life insurance to provide for your spouse and children.

Life insurance is never an investment. If it's being sold to you as an investment, don't walk, RUN the opposite direction!

Unless you have a unique situation, most people are well served to have term life insurance.

8) Review estate plans

An estate plan is a road map for ensuring your wishes are carried out if something happens to you. Multiple documents are included in an estate plan that outline how you'd like your assets to be distributed and also who you would like to care for any dependents and pets.

Make sure you have the following documents in place:

• A Last Will and Testament

• Financial Power of Attorney

• Health Care Directive

• A Living Will

• A Living Trust (optional but often recommended)

If you have minor children, you need estate plans yesterday! Having a guardian, and even a backup, identified to raise your children is a must!

9) Review your generosity philosophy

Plan for how you want to do your giving in the beginning of the year so it becomes a priority you can stick with.

Whether it’s tithing 10% to your church, picking an organization you’re passionate about donating to or helping someone important in your life, plan for it in advance so you can easily see it come to fruition.  

If you're not yet giving, we encourage you to prayerfully consider donating your time, talent and treasure. It will completely change your life for the better.

10) Identify an accountability partner

Just like with all things in life, you’re much more likely to meet your financial goals if you have an accountability partner.

Whether it’s a financial advisor or someone close to you, identify someone that you can regularly open up to about your financial situation so they can help hold you accountable.

This is by far one of the biggest benefits to hiring a financial advisor.

Finances are such a huge part of life. Don’t neglect them. Take some time to be intentional about your finances this year and your future self will thank you. Put the reps in because each time you do, the less overwhelming it becomes and the easier and faster it gets.

Happy Planning!