Welcome to a new year (and a new decade)! There is something so special about a new year. It gives us a chance to start fresh, begin new traditions, and embark on different journeys.
One thing that you can do for yourself to start off 2020 on the right foot is prioritizing your financial plan. Keeping up with finances is an important piece of our lives and January is an excellent time to take inventory of what has been done and be expectant for what is to come.
While there are many tasks that you can do to organize your finances, we wanted to share a few of them with you today. Without further ado, let’s dive in!
1. Set your budget
You had to see this one coming. We talk about budgets a lot and they are used all year round, but the beginning of the year is an excellent time to either create a new budget or revise your current one.
A budget is the building block for your financial plan. Like legos in a box, the pieces are all scattered and out of sorts until you arrange them in a way that makes the most sense for you. Budgets can and should be personal. Many budgets follow a similar blueprint: detailing living expenses (housing, food, utilities) entertainment, debt, medical costs, emergency funds, saving goals, and more. How you actually spend and save your money within these categories is what makes a budget personal and what makes it work.
You may not like your budget or find it difficult to stick with and trust us you are not alone. Millions of Americans struggle to keep their budget, but for retirees, your budget becomes even more crucial. Below are some questions to help you think about your budget in a different way.
- Is your current budget working for you? Understand why it either is or is not.
- Do you have any large planned expenses that you should account for in this year’s annual budget?
- What are your goals for your budget this year?
- In what ways does your budget reflect your values and vision for the future?
- How can you better incorporate your values and goals into your budget?
- Where are the areas in your budget that you can improve upon this year?
Remember to be flexible with yourself and your budget. If something isn’t working, then be sure to change it to better reflect the financial life you want to live.
2. Examine your financial goal
The beginning of the year also provides a wonderful opportunity to prioritize your financial goals. Take some time to check-in on the goals you already have set. What progress have you made and what do you still have left to accomplish? Be sure to celebrate the milestones as you work toward your short-term and long-term financial goals. Giving yourself a regular check-in will help show you how far you have come while also enhancing your motivation.
Now is also a good time to create new financial goals. What are a few things you would like to accomplish both in the next year and in the years to come? Setting both short-term and long-term goals will help bring balance to your financial life. You can set the tone for this new year by celebrating the things you have accomplished while also creating a plan to work toward your other goals.
3. Plan for your taxes
Employing effective tax planning strategies throughout the year is the best way to remain tax-efficient in retirement. While it is important to work with your financial advisor and tax professional to create a plan that will work for you, here are a few action items to consider:
- Live in a tax-friendly state like SC
- State taxes can present a unique challenge for many retirees. As you think about where you want to retire or where you are at currently, be sure you understand the following: sales tax, income tax, taxable retirement benefits for your state
- Use your RMDs wisely (we will post our summary of the SECURE Act soon)
- Required minimum distributions can significantly increase your tax bill as each withdrawal is taxed as ordinary income. There are tax-efficient strategies for handling your RMDs, one is donating them to charity through a process called a qualified charitable distribution.
- Leverage your Social Security benefits
- Social Security is another primary revenue stream for retirees but it is important to approach this benefit with a tax-angle in mind. The SSA taxes the benefit when the filer’s provisionary income is less than $25,000 for single filers and $32,000 for married couples filing jointly, anything higher than that and the benefits will be taxed based on the income scale.
- Remember your Roth IRA
- Qualified distributions from your Roth IRA aren’t taxed, so withdrawing from this account is a great way to maintain cash flow while being tax-efficient.
4. Assess your investing strategy
Many retirees continue to invest throughout retirement. The new year is a great time to take another look at your portfolio and talk with your wealth advisor if there are any areas you would like to change.
Take a look at your asset location (the type of account your money is stored) and asset allocation (diversification strategy) and determine if something needs to change. Likely, your risk tolerance has shifted in retirement. Be honest with yourself and your advisor about that in order to help create a plan that is right for you now and your goals.
5. Prioritize your emergency fund
Emergencies happen to everyone, often when we least expect or want them to. These “one-time” expenses happen every year, they are just different each time they occur. Therefore, it is important that you establish a healthy emergency fund to help cover you. The new year is a great time to start replenishing that fund and build up a safety net for you and your family.
When it comes to your finances, there are always things you can be doing to improve. Take some time at the beginning of this year to check-in on all of the progress you have made so far and all that you are bound to achieve in the future.
We love empowering clients to have control over their finances. Do you want to take a step to improve your financial life this new year? Schedule a time to talk with us. Our team would be delighted to speak with you.