By the time you read this article, 75% of people will have already given up their New Year’s resolutions. The main reason for this is that resolutions are usually too broad and too vague. I want to challenge you to revisit your resolutions, but this time, use the word “goal.” Goals tend to generate more actionable and effective behavior.
Below are seven financial goals we recommend you target for 2020.
Financial Goal #1: Rebalance Your Investment Portfolio
The beginning of the year provides an excellent opportunity to rebalance your investment portfolio. When you first established the portfolio, you did so with a long-term goal and strategy that called for a specific percentage of the portfolio to be invested in equities versus fixed income. As the year progresses, the value of your assets varies and you may stray from your main goal. We recommend rebalancing your portfolio back to your original goal at least annually. This will cause you to sell certain investments that have grown and purchase assets that are at a value (buy low, sell high). It is also a good time to determine if your goals have changed (and thus should your allocation), or if any individual assets need to be replaced.
Financial Goal #2: Understand Your Net Cash Flow
Net cash flow is the difference between cash inflows and cash outflows, and understanding these areas are the basis for preparing a budget. Money received during the year is your cash inflow, which could include salary, pension, social security, dividends, and interest. Cash outflows are how much you are spending to maintain your lifestyle (discretionary and nondiscretionary). This includes mortgage, taxes, home-related costs, travel and entertainment, recreation, food, and clothing. How much you are spending on these items can be discovered by reviewing your monthly credit card and bank statements. Be sure to note which expenses are recurring versus one-time events.
Financial Goal #3: Develop a Formal Savings Plan
If you have a net positive cash flow, your first priority is to start an emergency fund. Your second priority is to develop a plan for debt repayment, saving for retirement, or saving for shorter-term goals such as buying a home or car. Don’t put off saving for retirement; the more time you give yourself the better off you will be. Automate your deposits by scheduling an automatic sweep into a bank, brokerage, or retirement account. This will ensure the savings happen and increase the chances of your financial goals being met. To help keep you on track, have a savings target for retirement plans, as well as shorter-term needs outside of retirement. Another important thing to note is that you should not prioritize saving for your child’s college education before saving for retirement because loans are available for college, but it is hard to borrow for retirement.
Financial Goal #4: Review Your Credit Reports
Having good credit can save you money on borrowing costs, insurance costs, and other areas of your financial life. Monitoring your credit is an important way to protect yourself from identity theft. You are entitled to a free annual credit report from each of the three credit bureaus (Equifax, Experian, and Transunion). We recommend requesting a credit report from a different bureau every four months to monitor your credit throughout the year. Ensure your information is correct on the report, including payment history and credit cards or loans in your name. If you are truly concerned about protecting your identity or suspect fraudulent activity, you can institute a credit freeze or fraud alert on your Social Security number.
Financial Goal #5: Change Your Passwords
If you haven’t updated your passwords recently, now is a good time to do so. Consider using passwords of at least 12 characters with a mix of letters, numbers, symbols, and cases. The longer the password, the better the security protection. Here’s a trick: Consider a quote or song lyric that is important to you and develop a password that represents it. This type of password might be easier to remember than a complex password of random characters. Remember, passwords should be unique from previously used passwords. Additional options include using two-factor authentication or a password manager to improve the overall security of your digital footprint.
Financial Goal #6: Purge Files
Tax time is a great time to examine your files and records and dispose of those that are no longer needed. Determine what you need to keep for tax or other purposes and scan those documents into a secure cloud-based filing system. (Watch for an article on Retention Rules in a future newsletter.) Then shred everything that contains even a single piece of personal data.
Financial Goal #7: Schedule a Meeting with Your Financial Planner
Meeting with your financial planner at least once per year is a great habit to start. Your advisor is a valuable member of your team, and the more they understand your evolving goals and values, the better positioned they are to assist you in meeting these goals. The meeting should include a review and update of your personal and financial goals, as well as a review of your cash flow and savings opportunities.
Becoming clear on what you want to accomplish and identifying the specific steps to achieve these goals will greatly increase your chances of success.