This column has been provided by our partners at Maclendon Wealth Management, the official wealth management advisor for Grandparents.com. Maclendon is an independent Registered Investment Advisor built on expertise, innovation, and outstanding client service. Learn more at their website.
As the year draws to a close, we tend to reflect on the past and even more important, set goals for the future. We evaluate the changes we want and need to make in our lives. Many people set fitness goals – maybe they want to lose that extra 5 or 10 pounds. Going to the gym the first weeks after New Year's Day is like boarding a train in Grand Central Station at rush hour: Wall-to-wall people who want to get in and out as quickly as possible. Go to that same gym three months later and the treadmill of your choice will be sitting there all alone, waiting for next year's wave of "resolutionaries" to come along.
Why not do something different this year? While others crowd the gym and stock up on wheat germ, get financially fit! You can use our checklist to set goals for the coming year, but as we all know, the main challenge will be sticking to those goals. Hold yourself and your family accountable. Write your goals on a post-it note and keep it in your wallet, or post them on your refrigerator. Keep reminding yourself that this year you are setting fitness resolutions that you are going to stick to!
1. Set your top priorities.
What do you most want to do with your money this year – pay down debt, save for retirement, take a family vacation, or something else? Put a dollar amount on your priorities, divide by the number of months you have to achieve them, and make a plan to set aside funds each month.
2. Budget, budget, budget!
Track your monthly expenses – from your mortgage payment to a pack of gum. Now, subtract those expenses from your income. Any surprises? Is there enough left for your goals? If not, it's time to reevaluate your spending and maybe even your goals.
3. Create a balance.
Ask yourself some tough questions that will make your life easier: Can you maintain your lifestyle within your current income? Could you cut back on certain spending habits while maintaining a happy and healthy balance? What bad financial habits do you have – and how can you change them?
4. Review your retirement plan.
There is no better time to boost your retirement savings than right now. Make efficient use of your income by making contributions to your qualified, tax-deferred retirement plan. Individual Retirement Accounts (IRAs) and 401(k)s are the best places to save for your retirement. These vehicles allow you to defer taxes on the money you save, as well as the returns you earn in the account.
Tax deferral is a powerful tool to have in your financial-fitness toolbox. This tax-free growth allows you to avoid the usual income taxes until you make withdrawal years later. By not paying taxes today, more of your money can earn investment returns over time. Consider another benefit of tax deferral: When most of us retire, we earn little to no income, so all this growth is taxed a much lower rate.
To take a proactive approach to financial fitness in 2012, begin this conversation with your personal tax advisor now to understand what your taxes will look like when you retire.
5. Check your beneficiaries.
Ensure that you have properly named your beneficiaries on wills, insurance policies, and retirement accounts. Also: Contingent beneficiaries are a must – if you have no living primary beneficiaries at the time of your death, the account will be divided among the contingents. By naming beneficiaries now you ensure that your assets will pass on according to your wishes and avoid the delay and expense of probate.
Call your financial advisor to clarify who you have listed as beneficiaries on your retirement accounts, life insurance policies, and annuities. If you do not have an advisor, call the company where your policy is held for clarification. And your legal advisor should be able to help you when it comes to questions regarding trusts, wills and estates.
You should complete this financial fitness exercise periodically, as major life changes or a change in goals can affect your beneficiaries. Remember, when you're proactive, you can avoid any surprise in the future.
6. Seek professional help for wealth planning.
Your financial professional should provide tailored solutions and adaptive investing when discussing your lifestyle planning. He or she should have a clear picture of where you want to be with your finances and provide the vehicles to get you there – but always be realistic.
Begin working on this checklist now. With the economy in a state of uncertainty and volatility, you need to grab the reins and control your own wallet. The first step is getting a clear understanding of where you are, and where you want to be. But remember, the key to this checklist is being honest with your partner, your family, your financial advisor, and most importantly, yourself.
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