2017 Financial Checklist

The holidays have come and gone. Hopefully you all had a wonderful time reconnecting with friends and family. With a new year underway, it is time to make sure you have your bases covered with respect to your personal finances. By taking a little bit of action today, you will wake up a year from now with improved finances and one step closer to achieving your goals.

I have created a list for you to go through and make sure you are on the right track to start the year. Remember, by staying on top of your finances and keeping clear on your goals, you will gain the confidence and peace of mind you’ve always wished you had. The first step to any great goal setting process is knowing where you are today.

If you have any questions about this checklist, be sure to contact me.

Max Out Retirement Contributions (2016 too!)

For most of you with a 401(k), the 2017 contribution limit is $18,000, not including the employer match. If you are age 50 or older, you also can contribute the “catch-up” contribution of $6,000, for a total of $24,000! When contributing to a traditional 401(k), these dollars go in pre-tax, effectively reducing your current income tax.

Individual Retirement Account (IRA) contributions for 2017 remain at $5,500 (with a $1,000 catch-up contribution for ages 50 and older). Your eligibility to contribute to either a tax-deductible IRA or Roth IRA will depend on your adjusted gross income for the year, so be sure to consult with your financial planner or CPA before contributing.

Did you contribute to an IRA in 2016? If not, it’s not too late! You can contribute up to the 2016 limit anytime before April 15, 2017. This is the perfect time to review your saving goals and make any remaining contributions before filing your taxes.

Max Out Health Savings Account

I briefly mentioned in my last post about using a Health Savings Account (HSA) as a supplemental retirement account, if eligible. To be able to contribute to an HSA, you must be enrolled in a high-deductible health plan. Whether or not a high-deductible plan is right for you will depend on many factors including your family, health, income, and budget needs.

With an HSA, all contributions are tax-deductible ($3,400 for individuals and $6,750 for families in 2017). After you make your contribution, you can invest this money just like you do in your other retirement accounts, and the funds grow tax-deferred. Dollars that go into an HSA do not need to be spent every year, so it is not a “use it or lose it” type of account.

When it comes time to spend the money you have put into your HSA, you have a few options. One is to spend the money as needed on health related expenses (medical bills, prescriptions, etc.). Another way is to allow the account to continue to grow year after year, while paying for your medical expenses out of your regular savings. This allows your HSA dollars to continue to grow in a tax-deferred account year after year.

If you don’t spend the HSA funds on medical expenses, when can you get it out? When you turn 65, your HSA acts just like a traditional IRA, where the growth in the account is subject to ordinary income taxes. However, if after age 65 you use the funds for medical expenses (like long-term care) then the distributions are tax-free!

Plan Donations

Charitable giving is a great way to give back to causes you believe in and want to support. You may choose to donate your time, cash, stock, or other assets that have appreciated over time. Along with the tax benefits of charitable giving, the emotional benefits can go a long way.

Some people will decide to give a set amount of money on a monthly basis, so as to even out their budget. This allows you to be very intentional about the causes you are supporting and how much you are able to give. Others prefer to make contributions throughout the year as they are asked or as they feel like they can contribute more. The danger in making irregular donations is potentially falling short of your giving goals and not keeping a predictable budget.

Get intentional about your giving goals now, so you can plan out your gifts for 2017 to make sure you are as giving as much as you see fit to the causes you believe in.

Rebalance Portfolio

Rebalancing your portfolio is important so you maintain the allocation you (hopefully) determined was best for you when opening the account.

To keep the conversation light, let’s use a portfolio consisting of 60% stocks and 40% bonds as our target allocation. Every day, your portfolio is changing in value and therefore the overall balance between the stocks and bonds will adjust ever so slightly.

Over the course of a year, this balance can sway one way or the other quite dramatically. If the stocks in your account rise in value more than the bonds, then your total portfolio balance may look more like 70% stocks and 30% bonds by the end of the year, causing you to assume risk that you did not plan on when opening the account.

On the other hand, if bonds rise in value more than stocks over the course of the year, your balance may look more like 50% stocks and 50% bonds, making your portfolio more conservative than you had intended.

To rebalance your portfolio, you will sell the assets that rose in value and buy the assets that declined in value (relative to each other). You are now selling high and buying low! The lesson that everyone should be familiar with.

If you have never set a target allocation for your investment portfolios, be sure to research which allocation may be best and/or have the discussion with your financial planner.

Increase Contributions and Savings

What would you do if your income taxes increased by 5% this year? You’d quickly find a way to cut your budget in order to make up for the difference. I believe you should take this same approach towards your personal savings. Tax yourself!

We discussed this last week in Kickstart Your Savings, but it is worth repeating - increasing your contributions and savings towards retirement (or any) goals is crucial to success. On at least a semi-annual basis you should ask yourself “how can I be saving more?”.

Now, I don’t want this to be a crippling question and don’t want you to feel bad if you are running on an extremely tight budget. But the fact is that most people have the ability to contribute more to their savings and should.

By increasing your savings a few times each year, you get into the habit of reevaluating what’s important to you (think delayed gratification). We live in a world of constant consumption and meaningless spending. Don’t get me wrong, I absolutely believe in enjoying our lives today but we also need to be realistic about what it will take to achieve a huge goal, like retirement.

In today’s world, with pensions nearly extinct and Social Security payments covering only a minimal amount of expenses in retirement, it is up to you to make sure your retirement is as peaceful as you’ve always dreamed. By following a few simple investment portfolio steps and repeatedly increasing your savings, you will be on the right path in no time.

Review Your Budget

The start of a new year is the perfect time to review your budget, even if you are a little nervous to see how much you spent over the holiday season. By sitting down for a formal review by yourself or with your significant other, you can see if last year’s spending was in line with your goals.

In today’s world, where the majority of our spending is recorded online (credit card and bank statements), it should not take long to compile an accurate list of your spending in 2016. Does any of your spending last year surprise you? Most people will be shocked at how much they spent going out to eat at restaurants or buying drinks at the bar. Others will realize they are paying for subscriptions they haven’t used in months or years!

Reviewing your spending will allow you to see which items/events are worth keeping in your regular routine and which need to be eliminated. This all comes back to being intentional about where your dollars are going which will make you feel more confident about the year ahead.

Make a Spending Plan

As with reviewing your budget, it is very important to have a spending plan for the year ahead. Obviously, life happens and your plan will change but it is important to have a game plan to start the year.

I bet a few things will surprise you after you review your budget. Now is the time to take action and become intentional about where your money is going.

Would you like to take a week long vacation this year? Calculate how much that may cost and find what needs to be removed from your budget to make room. If the trip will cost $2,000, where can you cut back in areas that don’t provide as much value to you? You will be amazed at how making a few small changes to your lifestyle today will create a lifetime of great memories.

With your spending plan in place, you will easily be able to make decisions throughout the year that reflect your 2017 money goals. The ability to say “no” will become easier with clear goals in mind.

Go Time

It is time to take action! By completing each of these steps either by yourself, with your partner, or with your financial planner, 2017 will be your greatest year yet.

How are you going to take action on improving your finances in 2017? Let me know by sending me a message - I’d love to hear all about it!

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