From your health to your wealth, New Year’s resolutions can help jump-start your game plan for 2024. While polls often suggest only half of those Americans who make New Year’s resolutions actually follow through, a formal process for prioritizing and establishing goals can help improve your chances of accomplishing them.
As you review the areas of your financial picture that you would like to enhance, consider adding the following money moves to your resolution list:
Do you know approximately how much you are spending each month and have you completed an updated budget? What is your after-tax income and what percentage of your income are you saving toward your goals? How much are you paying toward debt and what are you being charged in interest costs? Unfortunately, many people are simply unaware of where they stand financially. Begin the New Year by accounting for all of your assets, liabilities, income and expenses. Consider building a budget, reviewing life and disability insurance and requesting an updated credit report. Remember, before developing a plan for where you want to be, it is important to have an awareness of where you currently are.
Rebalance after the Year-end Rally
Market volatility, inflation, geopolitical concerns, and potential recession forecasts by some analysts were no match for stocks in 2023. In fact, despite all of the above concerns, stock and bond market performance was quite strong. Considering the significant move in the value of the market as measured by the S&P 500, now may be a good time for investors to review their portfolios to ensure they are still properly allocated.
If you are like most savers, it has been a while since you last reviewed and rebalanced your portfolio. As a tool that may prove effective in helping to manage risk, rebalancing may help bring the various investments that make up your portfolio back into proper alignment. Remember, all investing involves risk and rebalancing does not eliminate volatility.
When determining your rebalancing strategy, also be cognizant of transaction fees and taxes. Keep in mind that capital gains or losses will be realized in nonretirement accounts, so speak to your tax advisor prior to making any adjustments.
Pay off high-interest debt
Interest rates on Auto loans, credit cards, mortgages and personal loans have all increased substantially in the last year. In fact, according to bankrate.com, the average credit card interest rate is now nearly 25 percent. Carrying debt at those rates can be detrimental to the achievement of your long-term financial goals. Consider searching on www.nerdwallet.com for a list of low-interest or 0 percent interest balance transfers on credit cards and consider a debt elimination plan. When structuring a plan to eliminate debt, it is often best to target the highest rate of debt first. Remember, paying off a liability that is charging you 25 percent is the equivalent of earning that return on your money.
According to the IRS, the average taxpayer received a tax return of $2,753 in 2023. Keep in mind that a tax return is simply and interest-free loan from you to the IRS for extra money withheld for taxes that wasn’t necessary. While many taxpayers prefer the forced savings a tax return offers, adjusting your withholdings can increase your cash flow each month and with online money market rates at nearly 5 percent, why not have your money working for you. If you could use the additional cash flow to meet other financial goals, consider speaking to your tax advisor to adjust your W4 with your employer. However, be careful not to withhold too little as it may lead to owing the IRS money in April — something most taxpayers do not want.
Review your estate planning
Estate planning is often viewed as being necessary only for those with significant wealth. However, this couldn’t be farther from the truth. From addressing how assets should be passed to heirs and guardianship of minor children to decisions related to financial and health-care matters if someone is incapacitated, addressing estate planning topics is a critical component of any financial game plan. While there are many tools that may be used to accomplish estate planning objectives, the development of a basic will, durable power of attorney and advanced health-care directive are often used as the foundation for many plans. Additionally, consider reviewing all beneficiary designations for retirement and nonretirement investment and bank accounts to ensure they are up-to-date.
Developing financial resolutions for the new year can help ensure that you are making progress toward your goals. Since everyone’s circumstance is unique, consider speaking to your tax, legal and financial adviser to determine the most appropriate approach for you.
Many economists predicted some level of recession in 2023. While we have managed to avoid a recession and may get lucky and achieve the soft landing the Federal Reserve is hoping for, it is important for Americans to continue to prepare for the possibility of an economic slowdown. Building and maintaining a solid emergency reserve that is investing in an FDIC high yield savings account is a great place to start.
In addition to a solid reserve, securing home equity lines of credit, business lines of credit, and consolidating debt can all be important items to review before a potential slowdown. Consider giving yourself additional safety nets as they may help protect you against the impact of unforeseen financial difficulties.
While financial game-plans may be difficult to stick to, maintaining a disciplined approach throughout the year may help as you pursue the goals most important to you. Consider focusing on what you can control and addressing the Smart Money Moves noted above. Consider speaking to your tax, legal and financial adviser to determine the most appropriate approach for your unique circumstances.
Kurt J. Rossi, MBA, is a Certified Financial Planner practitioner and wealth adviser. He can be reached for questions at (732) 280-7550, kurt.rossi@Independentwm.com or www.Independentwm.com. LPL Financial Member FINRA/SIPC.