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Education | Jan 26, 2022

Our Top 3 Financial Planning Resolutions for 2022

Steven Kohler

CFP®, CPFA®

Nancy I. Kunz

CFP®, CPFA® ChFC®, CLU®

As we begin a new year, there are many New Year's resolutions to be made on financial matters. It’s a perfect time to reflect on what worked and what didn’t work last year, and where we want to go with our money this year. As advisors, we think of them more as goals than resolutions, but the objectives are still the same.

With any new goal, sometimes the hardest part is just getting started. Taking that first step is important because if you’re not in control of your money, you’re not in control of your life. As we speak to our clients this time of year, our conversations typically center on saving more money, spending less, paying down or eliminating debt and revisiting their retirement and investment strategies.

Let’s look at three achievable goals that may improve your financial situation in 2022:

1. Set aside an emergency savings

The pandemic taught many of us that having a sufficient amount of cash reserves is important. We advise clients to have enough money in your cash account for 3 to 6 months of essential living expenses. This will come in handy if you have any unexpected expenses such as medical costs, home and car repairs or other family needs. It can also help you pay for big ticket items like a new car, trips, a wedding or other expensive items without taking on additional debt.

2. Revisit your investment portfolio

It’s important to review your investment portfolio at least once a year to consider rebalancing according to your target allocation of stocks, bonds and cash. But now is also a good time to consider other portfolio goals. If you are retired, are you currently generating enough retirement income? And if you are working toward retirement, are you still on track?

There are a number of new developments from Washington that could benefit you in 2022. For example, the saving max on 401(k) and 403(b) went up $1,000 to $20,500. Have you made the necessary adjustments to max out? Also, does your retirement plan offer a Roth option? If so, can you convert the current after-tax contributions to Roth? It might be worth considering for some or all of your contributions in 2022 and beyond to be put into that Roth option.

You may also want to adjust your overall strategy based on current market conditions. For example, you should always be on the lookout for tax-minimizing opportunities, such as harvesting investment losses to offset current capital gains in your taxable portfolio.

3. Plan to avoid ‘Lifestyle Creep’

As our income and net worth increases, it can be easy to lose sight of the basics that keep long-term financial planning on track. Sometimes, it can lead to spending more money than is actually needed. Such ‘lifestyle creep’ may include upgrading to a larger home, taking more frequent vacations, and spending money on more extravagant pleasures. If you don't have much left at the end of the month to contribute to your savings or retirement accounts, then it's probably time to evaluate your spending habits.

Financial success is hard-earned and should be enjoyed. However, personal expenses should always be recalibrated based on income increases. Even though you have more money to work with, don’t lose sight of important disciplines like setting aside a set percentage of your funds every month for saving, reducing debt or investing. Keep an eye on any revolving debt, and try to avoid increasing your balances. Unchecked debt balances and high interest payments can prevent you from achieving your longer-term financial goals.

Conclusion

Staying on track to meet your long-term financial objectives is not only rewarding, but also necessary to lead the life you deserve. The most important step is understanding what’s right (and achievable) for your personal circumstances. Remember to be precise. Instead of saying, “my New Year’s resolution is to cut expenses”, put a percentage number on it. If you want to contribute more to your 401(k) account, determine an exact amount. The key to successful resolutions is to clearly define them, make them achievable and don’t quit or be discouraged if they aren’t meeting expectations right away. Stay with it. Your financial well-being and peace of mind are well worth it.

Happy New Year.

This material has been provided for general, informational purposes only, represents only a summary of the topics discussed, and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice or recommendations. Rather, they simply reflect the opinions and views of the author. D. B. Root & Company, LLC. does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation. There can be no assurance that any particular strategy or investment will prove profitable. This document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such sources, and take no responsibility therefore. This document contains certain forward-looking statements signaled by words such as "anticipate," "expect", or "believe" that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that the expectations, beliefs, views and opinions expressed in this document will come to pass. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. All investment strategies have the potential for profit or loss. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The impact of the outbreak of COVID-19 on the economy is highly uncertain. Valuations and economic data may change more rapidly and significantly than under standard market conditions. COVID-19 has and will continue based on economic forecasts to have a material impact on the US and global economy for an unknown period.

Steven Kohler

CFP®, CPFA®

Chief Planning Officer

Nancy I. Kunz

CFP®, CPFA® ChFC®, CLU®

Senior Financial Advisor

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