financial goals – Memphis Flyer

Are you starting the year off with fresh financial goals? Great! Recommitting to your finances by focusing on your goals is a great way to enter the new year. One of the best ways to ensure progress toward your goals is by considering how they impact each part of your financial plan and making updates to accommodate them, including the following.

Account for life events.
One of the most important reasons to continually update your financial plan is to ensure it continues to meet your needs as your life evolves over time. Anytime you experience a major life change, such as a marriage, divorce, new baby, death of a loved one, new job, etc., work with your wealth manager to make sure that change is accounted for across all aspects of your financial plan.

Update your goals.
Your goals may not be the same today as they were a year ago. Maybe you successfully saved for a down payment on a home and made a purchase. Perhaps your son graduated college and you no longer need to plan for that expense. Maybe you injured yourself skiing and decided that purchasing a ski condo is no longer something you wish to pursue. Whatever changes may have occurred in your goals over the last year, be sure to incorporate them into your financial plan.

Minimize your taxes.
Proactive tax planning can lead to significant savings over time, which is why it’s important to regularly check in on your tax planning strategies. A fiduciary financial advisor should regularly review your portfolio’s tax efficiency and make changes as necessary to help minimize your tax liabilities. However, it’s still important to check in and ensure you’re taking advantage of all tax planning strategies available to you.

Check in on your investments.
When you and your wealth manager first established your portfolio’s asset allocation, you carefully chose a mix of investments you believed would give you the best possible chance of achieving your financial goals. You should review your investments and target allocation with your wealth manager in your annual reviews, discussing whether any changes should be made (as life events take place and risk tolerances vary).

If you regularly review your investments, your allocation can begin to drift away from your targets (as some sectors outperform others over time). It’s important to periodically rebalance your portfolio back to your original (or an updated) asset allocation. Rebalancing is the process of selling off outperforming investments and reinvesting in lower-performing assets in order to get back to your target allocation. While this may seem counterintuitive, it prevents your allocation from drifting too far from your target investment ranges. This is an important risk management strategy because it prevents one asset type from dominating your portfolio and exposing you to too much risk.

Plan for retirement.
Planning for retirement is an important goal to focus on at any age. In fact, the younger you start, the better off you’ll be when you’re ready to retire. As you review your financial plan, don’t forget to review progress toward your retirement goals. If your financial situation allows, talk with your wealth manager about possibly increasing or even maximizing your 401(k) and/or IRA contributions.

Prepare for emergencies.
If you don’t already have an emergency fund, consider starting one as soon as possible. Generally, you should have at least three to six months’ worth of expenses set aside in a liquid account for emergency use. If you have an emergency fund in place but have recently dipped into it, be sure to focus on building it back up to your ideal level.

Gene Gard, CFA, CFP, CFT-I, is a Private Wealth Manager and Partner with Creative Planning. Creative Planning is one of the nation’s largest registered investment advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.

It can be difficult to know how to start building a solid financial future. With all the responsibilities of early adulthood you may be tempted to put financial planning on the back burner. However, the sooner you start planning, the better off you’ll be in the long run. The following tips can help you get started.

1. Create a budget.

Identify how much money you spend each month and compare that to your monthly income, considering two types of expenses: fixed and discretionary.

Fixed expenses are those you pay each month, including rent/mortgage, minimum credit card payments, car payments, insurance, utility bills, and cell phone.

Discretionary expenses are costs you choose to take on that may not be essential, including eating out, movie and concert tickets, streaming TV subscriptions, gifts, and vacations.

Once you’ve added up your fixed and discretionary expenses, compare the total to the income you bring in. If you’re spending less than you earn, congratulations! You’re one step closer to a stronger financial foundation. If you find you’re spending more than you’re earning, you may need to trim some discretionary expenses to bring you back to level footing.

Look at the discretionary expenses. Where can you lower your spending? Maybe you can cut back from eating out four times per week to one or two times per week. Perhaps you don’t need all your streaming services. Or maybe you choose to take your next vacation closer to home rather than paying for a plane ticket.

The key is to establish a budget that allows you to pay your fixed expenses and discretionary expenses while living within your means and taking care of obligations.

2. Pay off debt.

Regardless of the type of debt (student loan, credit card, auto loan, etc.), the sooner you pay it off, the sooner you’ll achieve financial security. While there are times when it’s necessary to take on debt, there are other times where outstanding debts can spiral out of control. Two effective strategies for paying off debt include:

• The snowball method — This involves paying off your smallest debt balance as quickly as possible, then moving on to the next-smallest debt. This approach can help you gain a sense of accomplishment as you knock out one loan after another.

• The avalanche method — You begin paying on the loan with the highest interest rate first. Once that is paid off, you move to the loan with the next-highest interest rate. This allows you to pick up speed because each payment saves you more money than the one before.

3. Build an emergency fund.

An emergency savings account can enable you to keep up on your necessary expenses, pay down debt, and continue your lifestyle for a period of time. A rule of thumb is to have three to six months’ worth of living expenses saved. An emergency fund can protect you from taking on additional debts to meet your needs

4. Save for retirement.

The sooner you start saving, the better your chances of achieving or maintaining the lifestyle you want. The easiest way to start is by contributing to your employer-sponsored retirement plan at a rate that maximizes your employer matching contributions while still being sustainable.

Don’t have access to an employer-sponsored plan? Consider an individual retirement account (IRA). There are two main types of IRAs: traditional and Roth.

• Traditional IRA — Contributions are made on a pre-tax basis, which reduces your taxable income in the year you contribute. Money invested in a traditional IRA is free to grow tax-deferred until retirement. Distributions are taxed as ordinary income and may be subject to a 10 percent early withdrawal penalty if taken before reaching age 59½.

• Roth IRA — Contributions are made with after-tax funds, providing no tax benefits during the year in which you contribute. Contributions can be withdrawn after five years with no taxes or penalties (earnings are subject to tax and a potential 10 percent penalty if withdrawn before you reach age 59½).

5. Avoid lifestyle inflation.

As your income increases over time, it may be tempting to increase your spending. This tendency is sometimes referred to as “lifestyle creep,” and if not managed, it can get in the way of your financial goals. When your income increases, consider increasing your savings first.

Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.