As we start the year 2022, now is a great time to either start or revisit a strategy about your financial planning. This does not have to be a highly complex plan but a plan nonetheless. Let’s start with some basics and work our way up to a nice plan that you can structure on your own. Of course, working with a financial professional should always be considered as they should have the experience to not just guide you in the right direction, but to kindly challenge some of your thoughts and ideas towards your saving and investment goals.
Set New Goals and Make a Plan
- Resolutions rarely last. Rather than setting lofty self-promises you might not reach, instead set realistic financial goals for yourself. Once you set an annual goal, break it down to a dollar amount per paycheck.
- Simply stating you want to save more or spend less isn’t specific enough.
- Make your financial goals specific and measurable, set deadlines, track your progress, and hold yourself accountable.
- If making a budget or saving for retirement feels overwhelming, ask for help! Sit down with a financial professional to review your goals.
Rebalance Your Portfolio
- As 2021 ended, the S&P 500 was up over 25% and since January of 2019, stocks were up over 77%! If you haven’t rebalanced, chances are your investments could be overweight, meaning you could be taking on more risk than you might be comfortable with.
- Your investments should be diversified and have appropriate risk for your age. Theoretically, the younger you are, the more risk you can take when saving for retirement. As you get closer to retirement, your risk level should come down. (Source: Forbes) (https://www.forbes.com/sites/kristinmckenna/2021/12/01/heres-why-it-might-be-a-good-time-to-rebalance-your-portfolio/?sh=ad36fcb49bfe, n.d.)
- If your account balance is down because of decisions you made during market volatility, now might be a great time to convert a traditional IRA or 401(k) to a Roth IRA.
- You will pay taxes on the money you convert, but you can withdraw your money tax-free in retirement. There are two rules: you must be over 59 ½ years of age and the Roth IRA must have been in place for 5 tax years. If you open a Roth IRA prior to the tax filing deadline of April 15, 2022, and designate that deposit for 2021, assuming you qualify to do that, your actual start date for that Roth account goes back to January 1, 2021!
- A financial professional can work with you to rebalance your portfolio and hold you accountable to your plan when your emotions take over.