As I lounged by my fireplace with my dog snuggled at my feet, I started reflecting on how to make my financial resolutions article more entertaining this year. While I was perusing video reels on my phone (and thinking my New Year’s resolution should be to spend less time on this god-forsaken device), I came across a video of an old David Letterman Top 10 list.
So here it goes.
The Top Ten List of Resolutions for Financial Success
Coming in at #10 – Review Your Beneficiary Designations.
When setting up your retirement accounts (IRA, Roth IRA, 401(k), 403(b)) or your life insurance policies, you name a primary beneficiary, the person who will receive the funds at your death. Typically, if you are married, that person is your spouse. Now is a great time to review the named beneficiaries to ensure they are still appropriate. Time may have passed since you updated them, and things in your life may have changed. You don’t want to accidentally cut a loved one from an inheritance. Remember, your Will does not necessarily govern who will receive the benefits at your death, so these designations are important.
#9 – Pay Down Personal Debt.
In case you haven’t noticed, interest rates are at 20-year highs. We recommend identifying the current interest rate on any personal debt outstanding and developing a plan to methodically pay down the higher-rate debt first. Remember, paying the minimum balance is not paying off the debt. The interest on the unpaid balance grows quickly and makes it harder to pay off the debt in a timely manner. Paying down your personal debt will also help your credit score.
Speaking of your credit score, that brings us to #8.
#8 – Monitor Your Credit Score.
Maintaining good credit is vital when you need to apply for a credit card, mortgage, or auto loan. Your credit score tells lenders how credit-worthy you are. Poor credit leads to lenders charging higher interest rates, causing higher borrowing costs. Your creditworthiness also impacts the cost of your insurance, such as auto insurance premiums being higher for less credit-worthy individuals.
Monitoring your credit score will allow you to spot issues early. For example – a sudden drop in credit score could be a sign that your credit is too high, or you have been a victim of identity theft. Scores over 670 are generally considered good.
You are entitled to a free annual credit report from each of the three credit bureaus. We recommend spreading the request out throughout the year by requesting one from a different bureau every four months. When evaluating your credit report, ensure that all information is correct, including payment history, address, and social security number, and that you are aware of all the credit instruments listed under your name. We recommend considering a credit freeze if you are truly concerned about protecting your credit.
#7 – Change Your Passwords.
Now is a great time to change the passwords on the key websites you utilize. Hacking and identity theft are at all-time highs. Your passwords should be different for each website, so if one is hacked, cybercriminals do not gain access to all your information. Consider 10-digit or more passwords that include letters, numbers, and symbols. You might also consider a phrase that you can easily remember, such as “RUtalking2me?!”. Using password managers and two-factor authentication also improves your digital security.
#6 – Purge Your Files.
This is a great time to examine your files and records and dispose of those items that are no longer needed. Determine what is needed for tax or other purposes and scan them into a secure cloud-based filing system. Then, shred everything that contains even a single piece of personal data. For more details on what to keep and what can be shredded, please keep an eye out for an article on document retention in a future new letter (I know – you are all holding your breath in anticipation).
#5 – Read a Book on Finances.
Improve your financial literacy. As parents with school-age children, we often discuss with friends the lack of practical financial literacy courses available in the schools. As adults, we can expand our financial literacy by reading a current book on finances to stay on top of the latest ideas and concepts. If reading is not your thing or you are too busy, you can listen to an audiobook while commuting or enjoy any of the multitudes of financial podcasts available.
#4 – Review Your Cash Flow.
Your net cash flow is the difference between cash inflows (income) and cash outflows (expenses). Understanding your net cash flow ties directly to your ability to meet your financial goals. Here’s an exercise you can do. Review your living expenses for the last two years to determine where you spend your money. Your bank statements and credit card bills are a great place to start. Why two years? Higher inflation during the last two years has impacted spending, so looking back at this timeframe gives you a stronger understanding of your expenses. This data will help you decide how much you can save or spend and still be able to meet your retirement goals.
#3 – Rebalance Your Investment Portfolio.
Given the extreme volatility in the equity and fixed-income markets over the last several years, your portfolio might be out of balance from your original goals. Portfolio rebalancing can be done throughout the year, but we highly recommend it is done at least once per year.
You should have a target asset allocation for your investment portfolio based on your risk tolerance and short- and long-term investment goals. This includes how much of your portfolio should be allocated to equity investments versus fixed-income and cash investments. Your equity allocation includes what percentage should be allocated between domestic and international investments, as well as large-cap versus small-cap investments. Your fixed-income investments should be allocated between taxable and tax-free bonds, short-term versus intermediate-term versus long-term bonds. Each asset class has a different risk and expected return; the more the risk, the higher the expected return. Rebalancing the portfolio forces you to sell investments that are doing well and buy investments that are of value, which is the old axiom of “buy low and sell high.”
#2 – Exercise.
You might think I am kidding by including this in a financial resolution article. But I am not. I will be writing a column this winter on how, as advisors, we should not only help our clients prepare mentally and financially for retirement but also prepare physically, especially if you want to live an active retirement life like my parents.
And the #1 resolution for 2024
(drum roll please!)
#1 – Set Up a Meeting with Your Financial Advisor.
Meeting with your financial advisor at least once per year is a great habit to develop. Your advisor is a valuable member of your team. The more they understand your ever-evolving goals and values, the better they can help you and your family meet those goals. The priority of the meeting should be to review your updated goals, as they may have changed since your last meeting. The meeting should also include a review of your net cash flow and the rebalancing of your investment portfolio.
I know I had some fun writing this article and I hope you enjoyed reading it. There are other resolutions that would not fit in the Top 10 List concept, such as building an emergency fund, reviewing your Wills, and reviewing your insurance coverages. Remember, whatever your resolutions are, make them specific and attainable, and give yourself a deadline.