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How to Prepare Your Finances for the New Year?

Think where you are, and where you want to be

A new year is cause for celebration, much has passed, especially after the last couple of years, it feels like decades have passed. As time never feels like taking a break, the opportunities to plan, create or re-create yourself, your goals, who you want to be, and how you’d like to get there continue to present themselves. It’s never too late and also never too early, it’s always just right. The time to think about your money and more specifically how to use it correctly to enhance and add joy to your life is always now. As the new year is here, there’s never a better time to evaluate where you are financially and most importantly where you want to be. This exercise needs calm, serenity, relaxation of mind away from the mess, the screaming (literal or not) for your attention and the ten million things we want to do simultaneously, the open browser tabs, the kids pulling your leg, or the dog wanting to go out. It calls for alone time, with a cup of coffee or wine or favorite drink to think about who you are, what you’d like to achieve for yourself and your family and how money can get you there. 


What you want, goals to achieve, or just think about

Money is just a tool, and for many things not even the right tool. You cannot fix relationships with money, you cannot get people to really and genuinely like you or care for you with money, and you cannot genuinely feel complete and on-purpose just because you have money. But for many other goals, it is indeed a very useful tool, one to learn and use to your advantage. At the very beginning, you’d want to think about what goals, short-term or longer-term, you’d like to achieve, by when, and then what amount of money would make them achieve. It could be simply 2-3 goals or more, but nothing too complex at this point. Think about the big picture and what values will these goals satisfy, are they in alignment with your values? Lastly, keep them simple, nothing more that cannot fit on one page. Simple is always best and doesn’t mean easy or that you haven’t put much thought into. Simple means you can see what’s important to you and prioritize your efforts towards them. 


What’s most important, prioritize, simplify

After writing your goals, you’d want to review them and see if they still match your values. Well, first think about your values, what matters to you, and if the goals are in alignment with them. Then, most likely, we’d have to prioritize the goals based on their importance to you or what typical order the goals would want to be reached. Here, a financial planner or advisor could also help. For example, you’d want to buy a new car but you haven’t even set money aside for your emergency fund, those are goals that are not in order, you can do it, but not advisable. Then it is looking at your financial picture comprehensively and not piece by piece. Very often clients meet with an advisor with a particular topic in mind, like, ‘help me save for retirement or ‘help me save for a home, or something similar. While a good start, financial planning touches much wider than that. Other goals also exist that may need to be placed in order, like, getting out of debt, funding a kid’s educational fund, buying a home, or saving for retirement or financial freedom. But you can’t start any of those without an emergency fund, typically 3-6 months of your expenses in a savings account for the ‘what ifs’ of life. That advice (3-6 months) has most recently even moved to 6-9 months, if possible, due to our COVID emergency that continues to affect the whole world. 


Automate to avoid FOMO

A good rule of prioritization is to divide the goals into 1) Must have 2) Good to have and 3) A big wish. You’d really want to fund the “must-haves” and move down the line placing money to the other goals based on your priority and preference. Here again, a good independent advisor can provide feedback and even run the numbers with you to see what’s achievable or not. Funding a goal, the money either has to come from your existing savings/investing or you need to fund it periodically from your monthly income, there’s no other way. Well, maybe, if your long-lost uncle leaves you an inheritance or if you hit it big in Vegas, both low probability events you cannot sit around hoping for. There’s also a lot of talk recently, on all social media about investing in this or that ‘new thing’, crypto this, NFT that and there’s definitely a FOMO (fear of missing out) built around them. You can look into them, even try them out, but you cannot plan all your financial life around a ‘jackpot return’. All the goals you prioritize can also be automated so you’re less tempted to veer away from a well-established plan to “Ape into some coins” (crypto talk for going all-in or a big portion of your money into crypto without much research). 


If can’t avoid FOMO, assign a little and do it

But a good financial planner should also not discount the new, innovative, and sometimes real-life changing events happening right in front of us. Bitcoin and other crypto coins or tokens are creating communities around them, projects that have real use and some that are pure nothing, but still, the overall thought is that we’re in the beginnings of this new asset class. There’s a lot of unknowns and some knowns, and if you feel FOMO or really into it and have done your research then there’s nothing wrong with placing some money or investments with them. You avoid FOMO, as you’re participating, as well as hopefully you understand what you’re doing and what you’re supporting. Education is first here too, but assigning a little money (a small percentage of your assets) after funding your “must-haves” and your long-term goals, is OK in my book. 


Planning and mindset are key – focus there, not your specific investments

So, how do we put all the above down on one page, keeping it simple and actionable for the new year? 


Here we go, in summary:

  1. Develop & prioritize your goals – determine time/$ needed and if in alignment with your values
  2. Create a cash flow/budget statement, understanding where your money is coming and where it is going
  3. Make room for your savings and investing goals in your ‘budget statement’, spend some, save/invest some
  4. Calculate and build an emergency fund – 6-9 months of your expenses
  5. Start saving & investing for your retirement goals (401Ks, IRAs, etc.)
  6. Debt review, repayment plans, make sure you have no high-interest debt (credit cards) before starting investing
  7. Review your risks and insurance coverages (health, life, property, liability, etc.). Make sure you have adequate coverage.
  8. Think educational planning (529 accounts for kids)
  9. Investing outside of your retirement accounts, if additional money (taxable accounts)
  10.  Having basic estate planning docs (Will, Living Will, POA, update beneficiaries), it’s for everyone, not just the rich.


It seems a lot and every point needs some thinking, and sometimes more thinking, but still not that complex unless you really don’t address them. It’s better to know about it and not be ready to apply it (yet) than not know about it at all. A new year is your chance to write this down and make a plan for your money and how to best serve you and your family. You got this, you just need to start it, and remember ‘it’s never too late and never too early’. Hope this new year brings health, joy, and purpose to you all.