Written By: Jen Pieson
Happy New Year! We hope you have a healthy and prosperous 2020!
The New Year serves as a milestone to reflect on what’s happened over the last twelve months and proactively plan for the future. Sometimes we’re proud of the things we’ve accomplished in the past year, and other times we think “I meant to do that thing…and now another year has passed without me doing it.” Well, folks, it’s time to Do Some Things.
Agili’s team of financial planning professionals have lots of good ideas about how to make small changes that matter. I asked Agili’s strategists and analysts for their “Best Financial Planning Advice” with the hope that you’ll choose one or two things from this pool of ideas and implement the changes this month. Next January we’ll talk about this again, and I bet we’ll be glad we made the changes when we did, and we won’t have to think “…another year has passed without me doing it.”
First, advice from yours truly…When my children were very young I spoke dreamily about the “someday” that our family would take a trip to Disney World, “when we could afford it.” After fantasizing about this for several months it finally occurred to me that I would never be able to afford the trip if I didn’t start specifically saving for it! I know, it seems simple, but until that point, the trip was just a dream. Saving for the trip morphed the idea from a dream to a goal, and then after a few years, when we’d saved enough, the trip became a happy reality. I am now a big proponent of targeted savings accounts! My best financial planning advice is to address one goal that you’ve put off, open a savings account with a high-yield online bank (ask your financial planning team for recommendations) and set up an automatic monthly contribution – even if it’s a small amount to start. Remember to label this account so it’s specific to one goal. Revisit this account throughout the year, and increase the monthly contribution if that’s a reasonable and comfortable thing for you to do. A year from now, you will have an undeniable start to your next goal.
Now, here’s what the rest of the team had to say:
- Consider getting disability, life, and possibly long-term care insurance well before you need them. By the time you actually need them, they may be impossible to get because of the medical underwriting required, or they may be prohibitively expensive. In addition, the earlier you get these, the cheaper the premiums tend to be.
- Make additional savings both invisible to you and automatic. Every time I get a salary increase, I allocate part of it to increased savings by increasing my elective deferral for retirement savings and/or setting up an automatic transfer from checking to savings for non-retirement savings, and then I also have some of it reflected in an increased paycheck. Behavior change is more likely to occur when we establish new habits, and two key components of habit formation are (1) to establish one, it helps to have a reward in place, especially at the beginning (hence enjoying some of the additional salary as increased take-home pay), and (2) behavior occurs automatically (hence setting up the increased elective deferral or automatic transfer to savings before the first increased paycheck ever hits your account).
- At minimum, set your retirement plan contributions to maximize your company’s match.
- Make sure you have three to six months’ worth of expenses set aside to support you in the event of a job loss.
- Revisit pre-tax versus Roth retirement account contributions with your Financial Strategist.
- Make sure your beneficiary designations line up with your overall estate plan.
- Check your credit reports. The best place to do so is at this Federally-authorized website.
- Simplify your financial life by reducing the number of credit cards owned and consolidating accounts wherever possible.
- Early in the year and as your personal circumstances change, use the IRS Tax Withholding Estimator to ensure the right amount of tax is being withheld from your paycheck. Too little withheld can result in an unexpected tax bill or penalty at tax time the following year. Too much withheld can result in a large refund – essentially an interest-free loan to the government.
- If you’re a mid- or low-income taxpayer – whether starting your career or semi-retired – you may be eligible for a non-refundable tax credit known as the Saver’s Credit.
- Do you have the proper withholding on your W-4 at work? If your marital status or family situation changed recently, make sure you update your W-4 and your allowances.
- Are you maximizing your 401k contributions? In 2020, the maximum contribution will be $19,500 plus an additional $6,500 for those over age 50.
- Do you have a Health Savings Account? The rules are complex, but overall we like HSAs. Be sure you are contributing if possible.
- Gather together all of your tax documents that come in the mail between January and March. If you received income for the first time in 2019 from a pension, Social Security, self-employment, or any other means, be sure to report the new information on your tax return. Your accountant or your tax software won’t be looking for new sources of income. Likewise, if you sold your home or other assets be sure to include the 1099 information on your tax return.
- Check on the health of your emergency fund. If your emergency fund is insufficient, make a plan to bolster it – a bonus or salary increase could help here. If you have accumulated excess funds, consider investing a portion of them.
- Do you have a debit card? And if so, how much money can it directly access? Do you routinely use it to pay for gas or online purchases? Debit cards do not have the same protections as credit cards. We strongly recommend using your debit card ONLY at an ATM and having your debit card linked only to one small bank account.