Boost Your Financial Health in 12 Monthly Steps

By Eve Kaplan, CFP®

Yup – it’s that time of year again when you consider your New Year’s Resolutions. The top 3 New Year’s Resolutions recur each year: eat less, exercise more anHere are 12 monthly steps to cultivate better financial health.d clean up your finances/investments. You can do much of this if you’re a committed and determined do-it-yourselfer and you follow December advice (below):

1. January: Organize your paperwork. It sounds like an obvious starting point which eludes many. Are you financial documents organized (in paper or virtually) so the information is at your fingertips? Your heirs will be eternally thankful if you unexpectedly pass away or are incapacitated.
2. February: Consolidate investments. Trim the number of accounts you have, and consolidate all dormant 401(k) plans into IRAs. Spreading your assets across various brokerage accounts is not smart “diversification” – it’s a recipe for confusion.
3. March: Follow the money. If you’re still working (and too busy with your life), you may have a poor sense of your personal cash flow: how much $ comes in, and where it’s spent. Retirees often have a better sense. Either way, you can’t establish how much you should or could save or spend without knowing where you are right now. Websites like www.mint.com may help.
4. April: Tax smarts. It’s better to owe state and federal government money instead of overpaying throughout the year. Did you fund a spousal IRA, max out on your defined contribution plan at work and/or fund your Roth IRA by the 4/15 deadline to get credit for the previous tax year? Track unused cumulative losses on taxable accounts and knock $3,000 off your adjusted gross income each year by recording this on your Form 1040.
5. May: Investment smarts. How much do your investments cost you? Do you know what your broker, 401(k) plan or financial advisor charges? How about the underlying expenses you pay to buy mutual funds or Exchange Traded Funds? Are your investments allocated wisely to minimize taxes (example: do you hold real estate investment trusts in your tax-deferred account? Do you hold municipal bonds in your taxable account?). How much risk are you taking?
6. June: What’re you worth – and why does it matter? Net worth (all assets minus all liabilities) can be calculated any number of ways. Assets can include your human capital value, future pension lump sums and pensions (including Social Security). A sophisticated net worth calculation projects asset growth (rates of return, risk, savings rates) and liabilities to the end of your life. Your goal? To minimize the risk of outliving your assets.
7. July: Insure against Risk. Insurance makes you financially whole if disaster strikes. If you have the right amount and types of insurance, it helps you sleep better at night. Did you outlive your 20 year term life insurance? If so, you’re a winner because you remain living. Have you considered the merits of long-term care (especially if you’re female)?
8. August: Retirement planning. This kind of planning starts in your 30s and doesn’t end when you retire! If you’re employed, do you know when you can afford to retire (assuming you’re not laid off)? Are you aware of all available strategies to maximize your Social Security payouts? If you’re retired, are you drawing down on your accounts (taxable, tax-deferred, untaxed) in the correct order? Annual tax projection work can minimize taxes by e,g, calculating optimal IRA distributions and other taxable income sources.
9. Sept: Gift wisely. If you have the means there are myriad ways to “give back” to organizations and people you care about by gifting appreciated securities, paying down college loans, helping pay for a new home, etc. Go to www.irs.gov to look up gifting rules. For some of you, the greatest gift may be taking sufficient care of yourself so you don’t become a financial burden to your adult children as you age.
10. October: Estate planning – preparing for the inevitable. Engage an estate attorney. If you die intestate (without a will), your state of residency distributes your assets without any input from you. If your estate documents are older than 5-7 years, they need to be revisited. Everyone needs estate documents (wills, living wills/medical health care directives, power of attorney) – especially if a) you/ your spouse are uncomfortable with financial matters, b) you have minor children, c) you’re in a 2nd marriage, d) you own property and/or reside in more than one state, e) you’re concerned about privacy, f) you own a business and/or g) you have special needs issues in your family.
11. Nov and December: Reality check. If you’ve followed all hese steps, congratulations! I still recommend you engage an hourly Certified Financial Planner® to check your assumptions. If you haven’t been able to navigate much of this on your own, seek professional help – preferably from a Certified Financial Planner(R) at a Fee-Only financial planning firm. Be realistic about what you can do on your own, and where you benefit from objective outside help. Finances can be complex and confusing. As you age, it’s important to get it right, and keep it right!

(C) Copyright by Eve Kaplan, 2014. All rights reserved.