I realize it’s often more enjoyable to dream about new Keto inspired food plans and all the new clothes you will need to buy with your improved waistline compared to dreaming about what your balance sheet will look like at the end of the year. But let’s face it, you clicked on this article and you knew what you were getting into when reading an article about getting your finances in shape.

Let’s look at a few key items to concentrate on when trying to help improve your finances in the year ahead:

1. Take stock in how you are spending simply and easily

The first step is reviewing what you currently take home each month, and then look at how much you had leftover at the end of each month and then ultimately at the end of the year. Did you save a bunch? Did you spend too much? You really need to understand how much you saved last year both in terms of what went into your retirement accounts, and what you were able to save in other accounts. If you didn’t save, or save enough, we need to establish this first so we can set accurate goals for the next 12 months.

2. Pay yourself first

When coming up with a priority on which bills to pay first, we automatically think of paying housing expenses, then food, then transportation. And then what? You need to pay yourself as a top priority and direct those personal payments towards your long-term savings. Everyone asks for the rule of thumb we use and there are many of them. But here’s the one we like best: if you start with a 30-year total savings horizon, save 10-15% of your pretax income. For every ten years you subtract from your 30-year savings duration, add another 10% of your annual pay to save. This means, if you are saving for only 20 years, you need to save between 20-25% of your pretax income. If you are saving for only 10 years, get ready because you need to save 30-35% of your total pre-tax income! Yikes!

3. Get your arms around your big-ticket spending items

Nothing can ruin a perfect plan like an appliance blowing out, or a roof in need of a major repair.  Take stock in all your associated big-ticket items including the next car upgrade/purchase, upcoming college tuition or even wedding or big vacation. Then think backward once you identify the big expense and its cost. You can figure out how much you need to save today in order to afford these items tomorrow.

4. Who do you owe?

I find that most every client comes to us unwilling to look at and really take ahold of their total indebtedness. We recommend that your total debt payments be LESS THAN 30% of your pretax income. Well, is it? Do you have credit card debt balances each month? If so, stop reading this and pay those balances off so we can focus on the rest of your personal plan.

5. How much are your investments growing?

At the start of each year, it’s wise to look back at the year and figure out how much your portfolio grew. You certainly want to spend time figuring out if you are adequately diversified across asset classes and be sure to rebalance your portfolio as needed. If you didn’t understand what I just wrote, you need to hire an advisor to do this work for you! As a part of this action plan, be sure to spend time understanding the expected returns of your investment as well as the potential level of risk you are facing.

6. Review all your insurances

It’s a great time to review your property/casualty coverage to make sure you have all the right coverages and coverage amounts. The best way to do this is by obtaining a competitive quote from another property/casualty agent at a different provider than your current one. Similar to life insurance. Be sure to get a second opinion to understand the types of coverage you have and figure out if there is a more cost-effective way to protect you and your family.

Just remember, you don’t have to do everything on this list in one weekend! Take your time and be sure to spend some time going through each of the above items one at a time. There is an endless amount you can do to improve your financial health and wellbeing. As you take your steps forward, should you need support, let us know and we are happy to help in any way we can – any time.

Michael Carlin, AIF®, is the President and Founder of Henry+Horne Wealth Management. He can be reached at (480) 483-3489 or MichaelC@hh-wm.com.

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