Top 10 Things to do During the New Year Season!
As a CERTIFIED FINANCIAL PLANNER, there's always so much going on this time of year. It can be very hectic as Christmas comes and goes, the new year is just around the corner, and people are just starting to think about taxes for the year. While this time of year can absolutely be stressful, it's essential to think about and remember all of the things we should be grateful for! Of course, our friends, families, and loved ones are a massive part of that equation, and taking care of ourselves and our financial plans is just one way to quietly show our love and appreciation for those around us.
As a financial coach, I like to remind people of this. While it's easy to think that our financial plan and financial success are all for us, many of us are really in it to better the situations of everyone around us as well. With the New Year just around the corner (or just behind us, depending on when you're reading this), we have the perfect time and situation to check up on some fundamental aspects of our financial health, as well as make new goals to strive for in the coming year!
Update Your Financial Binder
I can't think of a better place to start than our financial binders on our list of things to do before or after the new year. Don't have one? Great! There's never a better time to try something new than the turn of the year. So… if you're not sure what I'm talking about, a financial binder is a method of organizing our financial lives so that things like bills, investments, credit cards, estate documents, income sources, etc., are all in one place and organized.
The best thing about having a well-organized financial binder is that you never have to question where something regarding your finances is (and neither does anyone else). While it's absolutely not a comfortable subject, all of us eventually pass on, and having our finances consolidated and organized in one place can help our grieving loved ones in their time of need. In addition to that, having this information well contained will make our day-to-day existence easier during our lifetimes.
A while back, I wrote a post about how to create and organize your financial information in a binder, and I highly encourage anyone to read it! One of the things many will notice is that not only am I encouraging you to keep well-documented records, lists, and information about your finances in this binder. I'm also encouraging you to create achievable goals for yourself and write them down in your binder! In other words, having a financial binder is an all-around great way to organize your life and encourage yourself throughout the year.
Examine Your Legal Documents
The start of the new year is also a great time to dust off some of those old legal documents that you try not to think about during the rest of the year. Now, this can be all sorts of legal documentation that you might need to sort through. However, I specifically want you to consider brushing up on your estate planning, powers of attorney, and medical directives. And if you don't have any of these things (or are lacking a few of them), it's the perfect time to tackle the challenge.
The hard truth is no one ever wants to look into this kind of thing. It's never comfortable and seemingly never convenient; however, having a will and legal plan in place following your incapacitation or death will ease a lot of tension that will arise within your family. Also, you don't want to leave it to other people to sparse out your belongings - if you have something special that you'd like left to someone special, you really need that written out. Otherwise, who knows who's shelf that special and meaningful trinket could end up on?
Update Your Beneficiaries
Sort of in the same vein - this time of year is excellent for dusting up on your beneficiaries! A lot can happen in a year! Unfortunately, sometimes friendships and relationships fall apart, and you may need to remove someone from being a beneficiary. But, on the flip side, new relationships with people from all the time! People and relatives are born; people you never knew come into your life and flip it upside down, and you may want to consider adding those to your beneficiary list!
Or perhaps the people in your life who you have listed as your beneficiaries never change! In that case, it could be time to rework a little bit of who gets what! For instance, if you've made a large purchase in the past year, you should consider adding it to your will and specifying which of your beneficiaries will inherit it. I repeat this time and time because it's important, but the last thing you want after your demise is for your loved ones to have a falling out over one of your belongings. So it's best for all parties if you specify who gets what.
If you're interested in reading more about the subject of beneficiaries, please check out my blog post Why It's Important to Review Your Beneficiaries. In it, I cover exactly what a beneficiary is, the prerequisites for being one, why it's essential to review them and talk a bit of general estate planning too.
Double Check Emergency Funds
Your emergency fund is one of the most important aspects of a financial plan. It's the safeguard that helps us operate daily with the confidence that should anything not go according to plan, we have enough stashed away and put back to get us through hardship. If you already have an emergency fund or emergency funds, the new year is an excellent time to double-check that everything's going more or less according to plan. If you don't have an emergency fund, creating one would be a great goal to carry into the new year.
An emergency fund should absolutely be a part of your financial plan. A proper emergency fund should have enough funds to cover around eight to twelve months of expenses. This is no small goal; having essentially a year's salary put back into savings takes a while to work up to.
To get an idea of how much you'll need in an emergency fund, you first start by looking at your necessary bills. In an emergency, we're not worried about things like Netflix subscriptions - we're more interested in making sure that we can pay our rent, bills and keep the lights on. Sitting on top of a small fortune can also be incredibly tempting. However, an emergency fund should be built, maintained, and used solely for emergencies.
Examine Student Loans and Prepare for Repayment
As much of a relief as it's been for many of us to put our federal student loan payments on the back burner for a while, there's no indication that they're permanently going away anytime soon. Most of us have been incredibly lucky over the past year to not have to worry about them while they've been in forbearance; however, payments are (or were) fast approaching. Earlier this year, I posted about coronavirus and student loan relief. In addition, the deadline for repayment re-starting has been set and pushed back a few times. Most recently, student loans were set to begin repayment again at the first of the year. However, things have taken a somewhat unexpected turn as the Biden administration has extended the pause until May 1st.
While most of us are likely relieved that our loans have been paused for a few more months - we can't forget that they're there. In fact, the time away from paying student loans has led to many of us readjusting our budgets to not include our payments. While it's nice to have extra money each month, it's time that we start readjusting our lifestyles to re-include payments each month.
Start Talking about College
If you have kids, it's never the wrong time to start talking about college. College planning is actually another specialty of mine, and from experience, I know that the earlier parents and students begin discussing college, the better the outcome. Whether that means talking about what college your student is interested in, what the plan is to fund their way through college, or talking about standardized testing and college requirements is up to you. However, making a move in discussing the future and your student's higher education is imperative.
If you're interested in creating a proper college plan to help guide you through the planning process, as well as all of the red tape and hoops that come with the admissions process, I'd highly recommend reaching out to someone like myself who's a college planner. One of the pros of working with a college planner is that while parents and students only handle going through the process once (maybe twice or three times), college planners handle it all the time. As a result, we know the ins and outs of the process and can help guide everyone in the right direction.
Pull Your Credit Reports
For some of us, pulling and looking at our credit reports fits into the same category as creating a will - it's just something we don't want to ever do. However, keeping track of your credit report, credit history, and recent credit activity is very important. For starters, your credit is tied to just about everything. If you want to rent a house, buy a car, apply for a mortgage, or increasingly get a job - a credit check will be run. And the best way to improve your credit score is to 1. See what it is, and 2. Improve where you fall short.
Some of the most common reasons your credit score may suffer are late payments and using too much of your credit. Luckily those are some of the most straightforward fixes to make. Making those small changes to your life could substantially improve your credit in a short amount of time. Also, when pulling your credit reports, make sure that you're doing a soft credit check. Making a soft inquiry won't impact your credit score, while making a hard inquiry will.
Update Your Budget
It's no secret that over the course of a year, a lot of things shift around. For example, you could get a raise, lose or quit a job, move, buy a car, or anything else. Well, chances are that these major life changes (that happen all the time) are going to impact either your expenses or your income. And if that happens, it's time to review and update your budget.
There are tons of ways to go about creating a budget! I'm partial to using the 50/30/20 rule. This rule means that fifty percent of your after-tax pay goes towards needs - this could be your house, insurance, food, bills. Thirty percent goes towards wants like vacations or going out to eat. The last twenty percent should go towards savings. This is a simple and elegant way to make sure that you're doing what you need to do while still having some flexibility and fun!
Update Your Buckets
If you're not familiar with buckets, then get ready to have your mind blown! Buckets are one of my favorite financial techniques, and they're incredibly effective for saving and planning your finances. Basically, a bucket is an account you keep funds in for a specific purpose. As a way of safeguarding your budget, emergency fund, or even vacation savings, you keep different funds in different buckets so that everything is neatly separated and organized.
Having buckets is also an easy way to track the progress of each of your financial goals! Say you have a bucket for your next big vacation, and you need $5,000 in it. By having this bucket separate from the rest of your funds, you can quickly check and see how close you're getting! Not only do budgets encourage great financial habits, but they also reward us by giving a crystal clear picture of our progress towards a goal.
Make a Financial New Year's Resolution!
That's right! New Year's Resolutions aren't just about hitting the gym and shedding off that extra holiday pie or Thanksgiving Turkey that you ate. In their essence, resolutions are just about getting out there and pushing yourself to be a little better. So do yourself a favor and make your resolution (or one of your resolutions) this year about improving your financial wellbeing! As far as specifics go, that's up to you! Whether you're dipping into money that should be allocated towards your savings, or you're just flat going over budget some of the time. Let's make a resolution to try and be just a little bit better about implementing our precious financial plans and budgets!
A great side-effect of this resolution is that you'll feel better about your situation come this time next year! You'll be happy that you did it and followed through. If you make your resolution about sticking to your savings, maybe you'll even save up enough for an extra family vacation (enjoy Christmas in Cancun next year?)! After all, one of the best things that you can give to yourself is a gift of self-improvement. Whether you're dieting, exercising, or practicing excellent financial practices this coming year - the returns will be that much sweeter when you're investing in yourself.
Are you interested in creating a new financial future for yourself? If you'd like help creating financial goals for yourself, investing, planning, or creating a financial new years resolution, please call or email to schedule an appointment with me. I'll work with you to create a financial plan that's optimized for you.
Until next time...this is Melissa Making Cents!
Melissa Anne Cox, CERTIFIED FINANCIAL PLANNER™, is also a College Planning and Student Loan Advisor and Financial Coach in Dallas, Texas.