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A New Year Means a Fresh Start for Your Finances

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January 3, 2022 by Bill Gallagher

It is that time of year again…time to work on your New Year’s resolutions and start fresh with your finances. While many think about their resolutions in terms of eating better, exercising, reading more, etc., not many people think about it in terms of their finances.  The beginning of the new year is a great time to think about how you can improve your finances so that you can achieve your goals.  Whether it includes buying a home, saving more for retirement, putting away money for a child’s college education, creating a budget, paying down debt; having a financial plan and a strategy for the year ahead can be a great way to reduce stress and put you in control of your financial life.  If you want 2022 to be a better year for your money, consider incorporating some of the items below into your New Year’s resolutions:

  • Create a budget – I will be the first to admit that budgeting is not a fun exercise.  However, a solid financial plan starts with a well-thought-out budget.  A spending plan can not only help you make progress towards your financial goals but can also help reduce stress throughout the year.  Consider tracking your expenses via a software program to get a good understanding of where your money is going.
  • Build an emergency fund – An emergency fund is a cornerstone of a financial plan. It is a great way to ensure that you are covered should you need cash to cover an emergency.  This way you do not have to rely on a credit card or dip into your long-term investments to get the cash you need.  While the textbooks say that you should have three to six months of your living expenses in an emergency fund, this could be an overwhelming number for some to achieve in the short term.  For those who do not have an emergency fund at this time, I would suggest that you commit to saving at least $1,000 in your emergency fund.  Once there, you can add to the fund over the course of the year should you find yourself with excess cash flow.  Better yet, choose a time frame in which you would like to target for a fully-funded emergency fund.  This way you can add the monthly amount going into your emergency fund to your budget.
  • Pay down debt – If you have outstanding credit card balances or other debt with a high-interest rate, then now is a good time to commit to eliminating your debts for good.  Perhaps it would make sense for you to refinance your debt into a lower interest rate.  Refinancing your debt may provide you with a lower monthly payment, which will improve your monthly cash flow.  These extra dollars can be applied to extra principal payments on your debt, redirected into your emergency fund, or put aside and invested for other long-term goals.
  • Make sure you get your free money – Do you have access to a retirement plan (401k, 403b, TSA) at work?  If so, do you know if your company offers a matching contribution?  Contributing to a retirement plan is an excellent way to save for retirement in a tax-efficient manner.  Most companies that have a retirement plan, but not all, will match an employee’s contributions, up to a certain amount.  This is virtually free money! If your company has a matching program in place then I would suggest that you take full advantage of the match, or at least as much as your budget will allow.  Do not leave free money on the table.
  • Review risk tolerance – If you experienced a life change over the past year or if you are expecting a change in the new year, then now is a good time to take a fresh look at your risk tolerance.  Understanding how you respond to market risk can have a positive, or negative, impact on your ability to achieve your goals.  If you are taking on too much risk than you can handle and we find ourselves in the middle of a bear market, how will you respond? If you are like most investors, you will most likely sell at the bottom and not be around for the recovery.  This can have a devastating impact on your long-term financial security.  Have an honest conversation with yourself about your risk tolerance.  Ask yourself: if the market drops 30% or 40%, how is that going to make me feel?  Will that cause me to abandon my long-term investment plan? If so, you may want to think about reallocating your portfolio so that it is in line with your risk tolerance.
  • Rebalance portfolio –Rebalancing your portfolio involves shifting your investments among different asset classes to keep your portfolio in line with your target allocation.  Not only does this approach ensure that you are buying low and selling high but can also eliminate the temptation to time the market.  Since we cannot consistently predict what a particular asset class will do in the future, it is impossible to know the optimum time to sell an asset to maximize profits.  But by rebalancing your asset allocation at least once a year, you will be taking advantage of the market.  You will also be keeping your portfolio in line with your risk tolerance so that you can achieve your long-term goals.
  • Review insurance – Reviewing your various insurance policies is a great way to not only to know how much you are paying for these policies but, more importantly, to determine if you have too much insurance – in which case you can probably save some premium dollars by reducing the coverage – or not a sufficient amount of insurance – in which case you may need to increase your coverage in certain areas.  Creating an inventory of your insurance policies (life, disability, auto, homeowners, renters, etc.) is a great first step in understanding the cost and coverage of your policies.
  • Estate planning documents – I know that it is never easy to talk about estate planning.  However, it is extremely important that you have the basic estate planning documents in place.  These include a Last Will and Testament, Power of Attorney, and Medical Directive.  Not only will these documents name your beneficiaries but will also allow you to name a trusted person, or persons, who you would like to take your place should you not be in the position to make financial or medical decisions for yourself.  If you already have these documents, it is still important to review them from time to time to ensure that they are consistent with your current estate planning goals.

Take control of your finances, and start fresh this new year with a plan for how you are going to handle your cash! We are here to help, so if you have any questions, feel free to contact Zynergy Retirement today.

Filed Under: Personal Finance Tagged With: budget, debt, emergency fund, finances, financial advisor, insurance, new year, rebalance portfolio, risk tolerance

June 2, 2020 by Ryan Zacharczyk

Budgeting is arguably the most important aspect of financial planning. Saving, investing, insurance, retirement planning, and projections are useless if you have no idea how much money you are spending today and how much you would like to spend (or have the ability to spend) in the future. We all have a limited amount of resources to spend. Determining the amount that is right for your particular situation, allocating those funds into buckets based on your priorities, and then tracking to make sure your spending stays on track may seem time-consuming, but utilizing technology, the process may not be as difficult as you think.

The reason that developing and tracking a budget is important is it allows your long-term thinking to have an impact on your day to day spending. Making smart decisions about how you want to utilize your resources over a month or year will allow you to ensure that the important things, such as saving for your future, are handled and emotional, short-term overspending stays in check.

Start with your Annual Income

When developing your budget or spending plan, think of things on an annual basis. Determine what your net income is (net income is the actual money that is deposited into your bank account after taxes and withholdings are accounted for) and use this annual number as your starting point.

Determine your Annual Expenses

A common mistake in budgeting is analyzing only your monthly expenses to find that you have left out important irregular expenses that are inevitable such as vacations, holiday gifts, and auto repairs. It is important that every single thing you spend money on over the course of the year is included in your budget. If you are not sure how much you will spend on any one category (i.e. I know I will have to buy gifts this year for birthdays, weddings, etc., but I have no idea how much it will cost) do your best to estimate. Budgeting is a projection into the future and like all projections, it is impossible to be perfect. As time goes on and you get better at budgeting your expenses, your numbers should be very close, but for the first year, do your best to estimate.

Ensure Your Budgeted Expenses are Less than Income

Regardless of how the numbers look, you will need to reduce your expenses if they are higher than your annual income. Essentially, you will fall into debt if your expenses exceed your income each year. Think about your priorities and find one or more places to cut that are low on your priority list.

Track Your Spending

At Zynergy, we highly recommend an aggregator and spending tracker such as Mint.com to track all of your spendings. You can start by setting your budget into the Mint.com system and then link your spending accounts to Mint, such as credit cards, bank accounts, and anywhere else you may spend money from. This secure system will then automatically pull your spending data from these accounts and even categorize your transactions for you. It will be important for you to log in from time to time to update your spending categories and make sure the numbers are right and the categories are properly assigned, but otherwise, the platform does most of the work for you.

Review Your Spending Every Month

Take a look at what you spent against what you earned. You will never perfectly follow your budget, but if one category is slightly over budget one month, make sure another is under budget. The important thing is that over time you are spending less than you are earning, so you have the ability to save for your future.

Budgeting is often seen as a chore by most of the people we work with. However, if you follow the steps described above and utilize technology, it doesn’t have to be. Proper budgeting and planning are sure to lead to a comfortable retirement!

Filed Under: Personal Finance Tagged With: expenses, financial planning, insurance, net income

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