As we enter 2019, some may be left wondering “where has the time gone”? For many of us, taking stock of the previous year, vision planning, and goal setting for a new year is par for the course. The first of the year is when we tend to get serious about mapping out our physical health and fitness or becoming more involved with our communities and families. For those of you thinking about assessing your financial wellness, this article is for you! This topic can seem overwhelming and complicated, seeming like an intimidating goal to set in the new year, but we assure you, that is not the case.
When you find yourself at a point where life is kicking into high gear, i.e., your career is taking off, income is growing, children develop busy schedules; these competing priorities can really take a toll on you and your budget.
It’s the perfect time to make sure you are taking care of the basics that will take your finances to the next level. If you are examining your spending in the New Year or creating/re-setting your budget, follow this simple tip: The 20/60/20 Rule. Allocate your income as such: 20% savings/investments, 60% essential expenses (housing, insurance, debt), and 20% discretionary expenses (entertainment, clothing, personal care). Any time you find it difficult to save the allocated 20%, your essential or discretionary spending may be off. The rule can be applied in most households, no matter your household income.
When considering goal-based investing, break your goals down to how much money you will need and when you will need it. This will allow for more strategic investing options. Goal-based investing also allows you to more closely monitor progress and adjust your approach as time goes on.
Short-term goals (1-2 years): Safety is important. You want to know your money is accessible when you need it. Such as an emergency fund or a medium-sized purchase.
Mid-term goals (2-10 years): Safety is important, but to reach these goals, you need your money to work a little harder and grow for you. Think: new furniture for the house, a new car, or a new home.
Long-term goals (10+ years): Growth is critical since these goals are often the most expensive and the most important. Starting now and leveraging the power of time to compound your money can help maximize growth. Most commonly funding college tuition or starting a business.
Retirement: Maximizing your savings is critical to ensure you can fund a retirement that may last more than 30 years. No matter how you envision your retirement, with a clear vision of your goals, you’ll be more likely to achieve them. From a saving perspective, your greatest tool is time. You’ve likely heard the phrase “save early and often”. What you probably haven’t heard is “diversify where you are saving”. A 401(k) and IRA, in our opinion, are staples in any retirement plan, but relying exclusively on them can leave you short if you look to retire prior to age 59 ½ or with too much taxable income in retirement. When saving for retirement, consider working to balance into Taxable, Tax-Deferred, Tax-Deductible, and Tax-Free accounts.
It’s time for a gut check: are you on track to achieve your goals? Even if you’ve been diligent about saving, it can be hard to measure your progress against specific goals, especially if you save mostly in one giant investment “bucket”, such as your 401(k) or a general savings account.
A good financial plan will map out all your goals and should show you not only how you are tracking to meet your goals, but also the options available to you if you are short on meeting them.
A solid financial plan should focus on protecting what you’ve built so far while also planning for the future. Lack of protection can put your entire plan at risk and you’ve worked too hard to get you and your family where they are today. Think about the goals you have. They likely require money, and most are funded by your income; the biggest asset you have in your working years. Here’s how you can help protect it:
Protect your Growing Paycheck: Having disability insurance coverage through your employer is a great start, but group plans may offer only a fraction of the benefit you need to protect your lifestyle. Evaluate your current coverage and consider closing any gaps with individual disability income insurance.
Revisit your Life Insurance: Review your coverage to make sure it is right for what you want it to protect. Work with a financial professional to help you understand what amount is appropriate for you and what type of life insurance best fits your needs.
Update your Estate Plan: Take time to review your beneficiaries, wills, trusts, and powers of attorney to make sure they’re still appropriate. Especially if you have:
Married, had kids or accumulated significant assets
Divorced or become widowed
Become part of a blended family
Received an inheritance
Started a business
If stepping up your financial wellness is your New Year’s resolution, you have already won most of the battle. Financial planning is not just about sacrificing fun and money today so that you will have more later, but rather a holistic approach to balancing your need for future goals and your desire to “Spend Your Life Living”. Focus, surround yourself with a good team and be patient because the financial goals you set today will build and maintain your future financial wellness.
Devin Greer and Andrew Snyder are Financial Advisors in The Woodlands. Both native Texans, they serve their clients and help them dream their best life, define it precisely, and deliver them into reality through a premier financial planning and wealth management experience.
This publication is not intended as legal or tax advice. Financial Representatives do not give legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor. All investments carry some level of risk including the potential loss of principal invested. No investment strategy can guarantee a profit or protect against loss.
Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) and its subsidiaries. Devin Lacy Greer and Andrew Michael Snyder are Insurance Agents of NM and Registered Representatives of Northwestern Mutual Investment Services, LLC (NMIS) (securities), a subsidiary of NM, broker-dealer, registered investment adviser and member FINRA (www.finra.org) and SIPC (www.sipc.org).
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