Last week we started talking about financial New Year’s resolutions, and your first step was to create a budget. When creating a budget, many people find that an awful lot of their spending is going towards debt. Let’s start off with how to deal with that.
1. Pay off bad debt: Notice I said “bad” debt. Not all debt is bad, such as a mortgage in a low interest rate environment. Bad debt is high interest, nondeductible debt such as credit cards etc. The two best ways to attack your debt are paying off the smallest balances first and then adding all of the previous payments to the next highest balance, etc. It’s called the snowball effect. The other way is to pay off the highest interest debts first then the next highest and so on. This is my preferred way since you end up paying less in interest overall with this method. Whichever way you choose, just get rid of the debt. In my opinion this is the number one obstacle to financial success.
2. Get a check-up: Not a financial one, but rather a medical one. Go see your doctor and get a yearly check-up. Why am I including this on a financial checklist? Because poor health can cost a lot of money. The healthier you are, the less money you’ll spend on healthcare, which can potentially mean more retirement income. Preventative medicine is a lot cheaper than treating a chronic condition after it’s developed. Plus, you’ll feel better too.
3. Rebalance your portfolio: We have seen a big run up in the stock market in recent years, which means that the portfolio you designed five or ten years ago probably looks nothing that today. An unrebalanced portfolio is likely much more heavily invested in equities today than you may have intended, which translates to more risk than you planned for. It’s easy to “let it ride” when the market is doing great, but understand that a severe correction could hurt you more than you intended.
4. Consider a Health Savings Account (HSA): An HSA lets you contribute up to $3,550 for yourself or $7,100 for your family and can be used to pay for medical expenses on a pre-tax basis. That could translate to up to a 37% savings on those expenses.
5. Look at what professionals are there to support you: These include your financial advisor, your CPA and attorney. Yes they cost money but are worth it. A good CPA makes you money, not costs you money. The same goes for a tax smart financial advisor.
6. Review your estate documents and beneficiaries: While you might not “need” these during the course of your daily life, when that life comes to an end, you want to make sure you’ve made smart decisions regarding your planning in order to minimize the impact to your family when you're incapacitated or gone.
7. Review your budget for waste: Since we started this series with creating a budget, let’s end it with reviewing one that you have. Now that you know what you’re spending your money on, look at what expenses you can eliminate in order to free up more money in order to increase your savings and investments.
I hope this helps make 2020 for best financial year yet!
T. Eric Reich, CIMA, CFP, CLU, ChFC is president and founder of Reich Asset Management and can be reached at 609-486-5073 or email@example.com.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.