We’ve made it through the disaster of 2020. It’s a new year, which means it’s time to set our goals … [+]
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We’ve made it through the disaster of 2020. It’s a new year, which means it’s time to set our goals and resolutions for the months ahead.
Here are my recommendations on what to do now to help you have a successful year financially.
Did you get a raise?
Many companies were unable to offer raises to their employees this year, and many employees felt fortunate if still employed. However, if you were lucky enough to get a raise for 2021, make sure you’re continuing to save or invest money at the same rate you were last year.
If you’re currently saving 15% of your income—whether in a bank account, retirement account, or anywhere else—continue saving that percentage of your higher income. You’ll be putting more away without noticing the change.
New employee benefits
You may have received new employee benefits for the year. While enrolling in those benefits happened in December, you can still plan for how you want to use them.
Specifically, if you were offered a Health Savings Account (HSA), you can start maximizing your contributions to that account. If you can afford to cover health expenses out of pocket—like deductibles, co-pays and prescriptions—you can let the account grow untouched and invest it for further growth.
Consider refinancing
If you have any outstanding personal debts—like car payments and student loans—it may be time to consider refinancing to reduce your monthly payments. You can also consider taking out cash for home improvements.
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Money is cheap right now with historically low interest rates, so take advantage of the current opportunity to refinance or to cash out, if needed.
Check your liability umbrella
Your personal liability umbrella should have a policy limit roughly equal to your net worth.
If your net worth has grown, you may need to adjust various insurance and liability plans in order to protect your additional assets from lawsuits.
Age-specific options
If you were born in 1971, this is the year for catch-up contributions to your 401(k)s and IRAs. Starting the year of your 50th birthday, you can make additional contributions over the regular limits to take advantage of your high-earning years.
If you were born in 1966 and are turning 55 this year, you can do the same for your HSA. Catch-up contributions do not happen automatically, so you’ll need to elect them yourself.
If you were born in 1949 and are turning 72 this year, you may be required to start withdrawing from your IRA. Plan for it. Remember also that charitable gifts can be made directly from IRA accounts for people over age 70 ½ and that can amplify the tax benefits you receive for being philanthropic.
Update estate documents
If you haven’t updated your estate plan in the last five years, do it now. Make sure your chosen responsible parties are still who you want them to be-in your will, your durable financial power of attorney, your living will and your advanced medical directive.
Also, check your beneficiary designations. Maybe you chose your first-born child and have since had two more kids. Maybe you still list your ex-spouse. These are things you want to make sure get updated regularly in case something unexpected happens.
The lesson:
2020 was a hard year for everyone. Start 2021 on a good note by making smart financial decisions. For ways to save income taxes in 2021 and beyond, go to www.lowtaxbook.com for a free resource to help you get started.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regards to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Brotman Financial Group, Inc. and BFG Financial Advisors are not affiliated with Kestra IS or Kestra AS.
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