The new year is here, and it is an excellent time to look back on this past year and work on your new year financial checklist for 2022. Although you might not believe in setting resolutions for the new year, it’s a good idea to review your financial plan and make sure it is optimized for the new year. Creating and following your new year financial checklist for 2022 will help you stay on course with your money and promote economic security and peace of mind.
Personal Considerations
Have you identified new goals for the coming year? If so, take some time to assign a priority list and solidify a time horizon so that you may incorporate them into your overall plan. A large part of the process will include looking at and assessing your previous year’s goals and your progress. Doing this will allow you to look at what allowances for time are reasonable for your specific situation and what strategies did and did not work.
Next, do you need to look at whether or not you or any family members will reach a milestone age this year? For example, your adult child may no longer be eligible to participate in their parent’s insurance plan upon turning 26 under the Affordable Care Act. Also, if you or a family member turns 50 this year, they are eligible to make catch-up contributions to their retirement accounts, such as their 401 (k) or IRA. You would need to look at whether or not they are necessary for you, given your particular retirement perspective and tax deferment standpoint. At age 50, you also become eligible for social security benefits as a disabled widow or widower. If someone in your family is turning age 72, then they will also need to be aware of RMDs, required minimum contributions. This is the minimum amount you must withdraw from your account each year. Overall, it’s essential to be mindful of these and other milestones’ impacts on your plan.
Cash Flow Considerations
As we begin 2022, take some time to consider projected changes in income, be it an increase or a reduction. If you foresee a decline in incoming cash flow, you may want to pay attention to spending habits so as not to disrupt your emergency fund. It would be best if you looked at the probability of success for some of your long-term goals related to areas such as college, retirement, and business. Considerations will need to be made regarding whether cash flows and their directions should be adjusted to ensure successful goal attainment.
Also, now would be the time to review benefits to ensure that you are taking full advantage of what is available to you from your employer or what you may provide yourself if self-employed. Finally, if you plan on making annual gifts in 2022, create a plan to strategically fund and track the exclusion amounts allowed for these annual gifts.
Asset & Debt Considerations
The start of 2022 is a prudent time to assess your emergency fund and replenish or adjust it as needed. It is not unusual for the expense of the holidays or the unpredictability of life as we know it during the COVID pandemic to cause some ripples in our savings plan.
Are you planning to buy or sell assets in 2022, such as a home or business? Outlining the optimal route with your fiduciary financial advisor will be essential to maintaining your current plan’s success.
The beginning of the year is an excellent time to see if you need to adjust your asset allocations or rebalance your investment portfolio. Equities had a great year in 2021, so it will be necessary to reassess your risk tolerance and see if you are currently taking more risks than you’re comfortable taking. This will entail reevaluating your goals with the prudent risk necessary to achieve them.
Tax Considerations
Now would be a good time to review your portfolio and make sure you are allocated in the most tax-efficient location? Again, these types of decisions are unique to your particular situation and are best discussed with your fiduciary financial advisor in the context of your entire plan. Using internet guidance and general “rules of thumb” to decide important investment positions could lead to costly and long-term mistakes.
Assess your gains and losses for 2021. Speak with your advisor about your tax-loss harvesting planning. For example, Cryptocurrency assets do not fall under a wash sale rule. This means you may sell, take the loss, and put the position back in place without being impacted by the wash sale rule.
Legal Considerations
For many, this is a simple question. Do you have an estate plan in place? If not, what is holding you back? While it can seem daunting and macabre to plan for the years after your passing, in reality, it does not have to be very difficult and will save your family the pain of figuring everything out on the back end. Whether it means establishing a special needs trust and even a basic will, taking the time now to get your affairs in order with certainly pay dividends with your family in the event of your passing.
Insurance Considerations
The beginning of the year is a great time to assess your insurance needs, and more importantly if adjustments need to be made. For example, has your income increased, or do you project that it will? If this is the case, you may need to revisit the topic of how much disability insurance coverage you may need. You may also want to think through whether long-term care insurance is the right choice for you. Again, your fiduciary financial advisor can help you look at your current plan with projections and assess whether this type of insurance versus planning to self-insure works best for you.
When you reflect on 2021, did you have any financial tasks you intended to manage during the year? Were you able to take care of these tasks, or did you miss some of these planning opportunities? The good news about a new year is a fresh start. So take the time to read through this financial checklist for 2022 and discuss these items with your fiduciary financial advisor.
Happy New Year!
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