A New-Year Checklist for Financial Health

financial healthJanuary is always a great time to wipe the slate clean and start fresh, tackling long-overdue tasks and starting on the right foot. Even more ideal is that this year is 2020 — as in giving your finances some 20-20 vision to be real with yourself and find opportunities to improve your financial health.

So here’s my “2020 Vision” list of financial moves you should consider making this year. Even if you only tackle a few of them, you’re well on your way to a financially healthier, happier new year.

Make sure you have a living trust.
This applies particularly to adults who have children who are minors. Are they protected against disaster if something happens to you? In most cases, without a living trust, your estate will go through probate before plans are established for your offspring. But with a trust, your wishes are followed immediately, including any and all rules you’ve established in the trust (age at which beneficiaries receive assets, for example). With a trust, you can designate a guardian for your children, too. Having a will is an important first step in designating whom will receive your belongings, but without a trust, your estate still will go through probate, with or without a will. Although a CPA cannot prepare this legal document, a CPA can prepare or assist with the balance sheet you’ll need to organize your finances and help create a list of assets for the trust. The best-case scenario is to work with a CPA and attorney as a team in this process, and our firm is happy to recommend area attorneys who can assist you with this.

Address life insurance.
Your policy should pay out about five times your annual income per working parent. Even if your children are older, it’s still important to have life insurance if your kids are pre-college age and living at home, and if you have a mortgage. If you are still young, you’ll find that the rates for term life insurance are very affordable, perhaps only about $500 a year. We advise clients to explore leveled term insurance; with this type of policy, you can get a 10, 20, or 30-year term without a price increase. Although such a policy might be more expensive early on, it levels off, making it much easier to adapt to the payments. At our firm, we have seen cases both with and without life insurance, and I can tell you that it makes a huge difference for the survivors’ lives to have the safety net of such a policy. We are happy to refer you to professionals who can find the right plan for you.

Make sure you’re getting the most from your retirement plan.
It doesn’t matter how young you are, the time to start thinking about retirement is now. The earlier you start, the better the result. If you have a retirement plan at work, plan to contribute up to the maximum allowed. If you don’t have a plan at work, look into setting up a Roth or Traditional IRA. For self-employed individuals, it’s a good idea to contribute to self-employment IRAs. For Roth and Traditional IRAs, if you’re 49 or younger, the maximum amount you are allowed to contribute each year is $6,000; if you’re over 50, you can contribute $7,000. However, if you have a 401k plan and you’re 50 or older, you’re allowed to contribute $19,500 per year, starting in 2020. (Note that the IRS goes by the year you turn 50, not your birthday. So if you turn 50 this year in October, you’re still considered 50 in January.) If you’re self-employed, you can contribute 25% of your net income to a self-employment IRA; doing so decreases your taxes. In other words, if you earn $100,000 annually after deductions, you can put $25,000 away and it comes off your taxable income amount. But note: You will pay taxes later. With a Roth IRA, your contribution comes from taxed income, so you won’t pay taxes on that when you withdraw funds later. There are also income limits, so consult with us. We can refer you to an expert on retirement plans to find the right one for you.

Ensure your beneficiaries are up to date.
Having a trust, life insurance, and retirement accounts means you’ll need to decide whom should receive the benefits of these plans. And if your plans were set up long ago, it’s possible that your beneficiaries have changed — particularly if your family’s demographics have changed, such as with a divorce, a new child, etc. Make sure you take the time to review the beneficiaries listed on all plans and make all necessary updates for your financial health.

Establish a doable savings plan.
Strive to save 10% of your gross earnings. Invest in different kinds of assets for your financial health; don’t put everything in one basket. Put your saved earnings in different savings vehicles — money markets, stocks and bonds (with a variety of risk levels), real estate, retirement plans, and savings accounts. Make sure you have an emergency fund — according to Dave Ramsey, that should be at least $1,000 and up to six months of your earnings. Such a fund enables you to weather unexpected financial storms without disturbing your day-to-day finances.

Create a safe list of passwords.
I’ve unfortunately seen numerous cases in which loved ones couldn’t access important accounts left behind when relatives pass away, all because they couldn’t find the passwords. Take the time to make a list of login information for those important accounts and keep it in a safe deposit box or some other safe place where the people leave behind could access it, in the event of your death. Or tell your CPA to direct the family to this so they can find that information.

Be sure you know what electronic payments you’re making.
We believe electronic, automatic payments are a good, time-saving idea, but don’t let them run on autopilot without checking on them. The beginning of the year is a good time to evaluate everything you’re paying automatically, to make sure those payments should continue. You can automate your payments for telephone, Internet, mortgage, car payments, and more, and you can sometimes work with representatives to find ways to lower those payments. For example, perhaps you’re paying for a sports channel on satellite TV that you never watch — that could save you a nice chunk of change. You might even look at changing providers or negotiating your rates. You might even find that you’re paying a monthly subscription to a service you aren’t using, like a gym membership. Even little changes like that help your financial health.

And finally, now’s the time, before tax season really heats up, to set up your CPA appointment to get your financial health in order.

We wish you all the best for 2020, and we look forward to working with you!