You have made it through the busy holiday season and are back in a normal routine. It’s a new year and a fresh start. If you don’t currently have a financial plan, this is a great time to create a thoughtful framework that will ensure you are strategically aligning your savings and investments with your financial objectives.
Put goals in writing
First, make sure you have documented specific goals and when you would like to reach them. This can be for anything ranging from retirement, a new home or car to saving for college or a vacation.
There are tools and professionals available at no cost to help with this process. Document and discuss these items with a trusted advisor who can help create a plan to achieve them. If you have already established your goals, then take the time to review and confirm you are on track.
Review investments and adjust as necessary
By now you have received and opened your end-of-year statements from banks, investment companies and retirement plans. First, make sure you fully understand the information and then determine if any action is required.
Perhaps money has accumulated in savings or checking accounts that should be reallocated based on your longer-term goals. You might also discover contributions to your retirement plan are not directed to an investment product that aligns the investments with your objectives. Evaluate these types of items as they may have your portfolio out of balance and require action.
Maximize additional income
The early part of the year is when many people receive pay raises, bonuses, contributions to their company retirement plans and early tax refunds. Focus on how this money will be distributed and the impact it can have on your goals. Whether it’s making an additional contribution to one of your accounts or slightly increasing your monthly savings allocation, modest changes can make a difference over time.
Understand the available account options
Once goals have been established and documented, consider the best type of account available to hold the investment and achieve the long-term goal. A 529 college savings plan may have tax advantages over a taxable account that is being used to save for college. Additionally, a traditional IRA or 401k may offer a short-term tax benefit, but may not be as favorable when compared to the long-term tax advantages of the Roth IRA or 401k. When looking at timelines and purpose, not all savings are created equal.
It’s easy to underestimate the importance and impact annual portfolio reviews and adjustments can have on long-term savings. Make this a priority, and conduct a thorough evaluation to identify strategic modifications. Taking the time to do so will help ensure you stay on track with your financial goals.