With the start of a new year, many of us will devote time to reflect on accomplishments during the preceding year and identify goals that we would like to achieve in the new year. In addition to identifying personal goals, this time also presents an excellent opportunity to establish financial planning resolutions. The following are examples of financial planning goals to consider:
- Increase your retirement savings. The maximum amounts allowed to 401(k) and IRA retirement plans remain unchanged for 2021 at $19,500 ($26,000 if over 50) and $6,000 ($7,000 if over 50), respectively.
- Replenish your emergency fund if necessary. Three to six months of living expenses is a good idea depending on factors such as whether you are in a single- or double-income household. If you found your job or industry affected by the pandemic, consider raising the fund to six to nine months of expenses.
- Lower your debt. Reducing and eliminating debt could mean making extra payments on a mortgage or auto loan. It may also necessitate refinancing your mortgage. With current rates as low as they are, it may be wise to refinance from a 30-year mortgage to a 15-year mortgage. By making extra payments or refinancing, you can greatly reduce the amount of interest you will pay over the life of the loan.
- Review your estate and ensure your beneficiary designations are up to date on all of your retirement plans, life insurance, and other accounts. Make sure your will is up to date and still reflects your wishes. You may also discuss and consider the powers of attorney and advanced medical directives.
- Reassess your property and casualty insurance to ensure you have enough coverage to rebuild your home at the current construction cost and if deductibles should be changed. You may look into an umbrella policy that extends the liability coverage on your house and autos. Umbrella insurance is inexpensive and can mitigate the impact of personal injury lawsuits related to your property. Review your life, disability, health insurance to see if any changes or additions are necessary.
The New Year also provides an opportunity to learn something new or improve in an area that interests you. If you commute to work, you can use this time to listen to an audiobook or podcast. The Libby App provides a way to check-out audiobooks from your local library for free. While financial improvement and stability are essential, we can use the opportunities that a New Year brings to focus on what brings purpose and fulfillment to our lives.
Happy New Year!