Getting your financials in order at the start of the year is a great idea. Be especially cautious when you create financial resolutions. Watch out for excessive inflation and the possibility of a recession.
The current inflation and potential recession are being fueled by the continuing war in Ukraine and the potential war over Taiwan. In addition, the economy still remains susceptible to shutdowns caused by Covid-19 variations. This is on top of the volatility of the stock market that is excepted to continue into 2024.
Therefore, it is essential to protect your funds. Here are ten new resolutions recommended by financial experts to help you accomplish this objective.
Your task is to tailor your resolutions to your own needs. Meredith Stoddard, vice president of Life Events Planning at Fidelity Investments, stated, “You should always seek what works for your particular situation.”
#1: Investment Strategy
If you do not have an investing strategy, you should create one. “If you’re trying to lose weight, winging it won’t work,” said Judith Ward, a financial adviser and Thought Leadership Director at T. Rowe Price. The same applies to investments.
Determine how you will achieve your objectives. Especially with the diversified, fund-focused section of your portfolio, choose and adhere to your asset allocation. Concentrate on each step individually. You will execute the aforementioned tasks this quarter, and you’ll do what else next quarter. This increases your chances of success.
#2 Rebalance After Market Gyrations
Even the diversified elements of your portfolio must be rebalanced. In the last year, market fluctuations may have caused your asset allocations to deviate from your investment strategy. Rebalance if allocations are 3% to 5% off from your intended levels, Ward said. However, remember that rebalancing taxable accounts might generate taxable capital gains.
#3 Emergency Funds
According to Paul Schatz, president of Heritage Capital, the third resolution should be to establish an emergency savings fund. Generally, individuals should save three to six months’ worth of expenses in case of unemployment.
You should have a sufficient financial cushion, so you do not feel compelled to use your retirement funds. Allow your IRA and 401(k) to grow tax-free for as long as feasible.
#4 Reduce Debt and Reduce Expenses
Ward’s fourth resolution was to “reduce debt.” In difficult economic circumstances, one of your primary objectives should be to limit your expenditures. It is difficult to reduce fixed expenses, such as a mortgage, while interest rates are rising. Credit card debt is a better objective.
Aim to pay off your credit card bills to avoid paying interest. And replace cards with high-interest rates with cards that have reduced rates. Shop around for the best deal. As of December 21, CreditCards.com states that the average card rate is 19.77%, and Low-interest credit cards average 16.8%. Consider the interest rates on your student debt and attempt to repay student debts from private lenders.
Resolution #5: Reduce Expenditures.
Determine your household’s discretionary expenditure by creating a net worth statement or an annual budget. If sufficiently thorough, these records identify the sources and destinations of funds.
Consider canceling subscriptions to publications and services you rarely use. Have you paid for Ancestry.com but not utilized it? Ward stated. Or a video service you do not subscribe to? It may be time to unsubscribe.
# 6. Keep Saving For Retirement
Ensure that your 401(k) contributions, including any business match, amount to at least 15% of your income. Invest as much as you can afford in a Roth account if the option is available under your plan.
Remember that Roth contributions are made with already-taxed money, so consider the impact on your overall tax liability. (Regular 401(k) contributions are made using tax-free funds.) Years later, withdrawals from your Roth 401(k) remain tax-free. Unlike Roth IRAs, there is no phase-out of contribution eligibility based on income, Ward noted.
For example, married joint tax filers with 2024 modified adjusted gross income (MAGI) of $228,000 or more cannot contribute to a Roth IRA. However, Roth 401(k) account owners have no such restrictions.
Resolution #7: Name a Financial Proxy
Update your estate plan. Out-of-date estate plans can cost you a lot of money in uncertain, financially difficult times when individuals seek methods to conserve money.
Now is the time to create or amend your financial power of attorney. This instrument allows your representative to make financial choices if you become incapacitated, which may occur if you are medically debilitated.
Additionally, review beneficiary designations for financial accounts, such as checking, savings, IRAs, 401(k)s, and insurance policies. Especially if you’ve had a big life event such as a divorce, verify that your intended beneficiaries remain the same.
Review your medical power of attorney, or make one if you don’t. Another person can make medical decisions if you are incapable of doing so. Similarly, update or write a living will to specify the medical treatment you do or do not wish to have in the future so that your wishes are known if you can’t make them. In addition, it is prudent to evaluate your standard will annually.
#8 Check Your Social Security
Check your Social Security benefits record. Create an account at SSA.gov if you do not already have one. Then, review your annual income history. Social Security payouts are based on the 35 years of greatest earnings. Ensure that your salary history is accurate, said Ward. If not, contact the Social Security Administration to get it corrected.
You may also use the website to estimate the amount of your benefit. The longer you wait to begin receiving Social Security benefits, the greater your initial payment will be. Knowing how much larger your benefits may be if you postpone your benefit can be beneficial for you and your spouse, Ward said.
# 9: Examine Your Credit Report.
Your credit report determines your credit score. This figure indicates whether you’ll pay less, pay more, or even qualify for the credit, said Ward. Scores vary between 300 and 850, and your interest rate will be lower if your credit score is higher. According to Ward, a score of 670 or more is deemed satisfactory, and a score of 740 or above is regarded as excellent.
AnnualCreditReport.com and the three major credit bureaus offer free credit reports each year. If your information is incorrect, you can request that it be corrected. As for your credit score, suppliers often charge a fee to display it. But other card providers, such as Capital One, provide consumers free access to their credit ratings.
# 10 Put Your Info Together
Create an owner’s manual for your financial planning for 2024. That is, provide your closest loved ones with account access information. Include account numbers and passwords alongside a list of your accounts. Also include the contact information for any crucial individuals. Ensure that this information is stored securely.