7 Ways to begin the New Year on a strong Financial Footing

Welcome to the New Year, 2018! There is no better time than now to reflect on how you have been managing your finances, and perhaps begin the New Year with a commitment to do a deep-dive financial analysis.

Do You agree? If you do, here are seven ways to get you on a firm financial footing. Let’s discuss.

1. Organize Your Finances

I recently met a couple who are in their late forties. Each had a 401(K) account with his or her current employer. Husband had three traditional IRA accounts and one ROTH IRA account. Wife had two traditional IRA and one ROTH IRA account. Each had individual taxable accounts, a joint account, and several Bank saving accounts. Finally, they had 529 accounts for the benefit of each of their two children. To top it off, these accounts are scattered across several Brokerage firms.

Does this sound too familiar? Welcome to the world of complexity! So, what to do? Here is one recommendation.

Keep it simple – Consolidate. Yes, it does demand time and energy for you to do so. However, it is worth it – will make your financial life much easier to manage.

In other words, prefer to keep all your financial accounts at one brokerage firm. Realize that there is little or no benefit at all to hold accounts at various firms. Secondly, consider combining your traditional IRAs into one. Similarly, ROTH IRAs into one ROTH. Lastly, try to keep as few taxable accounts as possible per family.

2. Maximize tax saving/deferring opportunities

If you are a high-income professional, it is likely you are exposed to the hefty tax burden. So, any opportunity that helps you to save or defer taxes is a welcome sign for a bright financial future. Here are some options to consider.

Make sure to maximize your pre-tax Retirement savings – such as your 401(K), 403(b), 457 plans, IRAs. For example, a 55-year old physician client of mine who works for a Government hospital saves $48,000 per year in his 403(b) and 457 plans. Considering his 39.6% marginal tax bracket, this is a tax savings close to $19,000 per year for him!

Secondly, look to see if your employer offers a High Deductible Health Plan (a.k.a. HDHP) which in turn allows you to save significant pre-tax dollars in a Healthcare Savings Accounts (a.k.a. HSA). In fact, the advantage of HSA is that unlike IRAs, even the distributions are tax-free when used for medical expenses.

Finally, if you are a business owner, consider setting up a Retirement plan for your business – such as a 401(K), a SEP-IRA or a SIMPLE IRA. These business plans provide you an opportunity to save significantly more pre-tax dollars than you could do as an employee.

3. Invest in a low-cost, tax-efficient, globally-diversified ETF portfolio

Many people assume Estate Planning is all about saving on taxes when we pass assets to heirs. This is a myth. It is, in fact, much more than that. For example, Estate Planning also involves ensuring several other legal documents are in place to help make decisions on your behalf in case of your death or incapacity.

At a minimum, work with your Financial Advisor and attorney to have the following documents.

  • A ‘Will” to facilitate your assets are distributed to your heirs per your wishes,
  • A financial power of attorney so someone you trust could make financial decisions for you in case you are incapacitated,
  • A healthcare power of attorney (a.k.a. Healthcare proxy), so someone else could make healthcare decisions on your behalf in case you are incapacitated.

Yes, I understand it is hard to think of these scenarios and plan for them in advance. However, waiting on them does no good for you or your loved ones. So, time to act is now to ensure your Estate Planning documents are all in order.

5. Plan to cover long-term care expenses p>>According to a U.S. Department of Health and Human Services report, 70% of people turning age 65 can expect to use some form of long-term care during their lives. Moreover, Genworth’s 2017 survey suggests the cost of a semi-private room in a U.S. nursing home is approximately $85,776 a year.

Based on these statistics, a couple planning for retirement, and assuming three years of long-term care for each, would incur more than $500,000 just to cover their long-term care needs. In other words, long-term care expenses could become the most significant Retirement expense for most Americans.

Yet, many of us fail to plan at all for this expense and those of us who do want to plan, fail to do it timely. So, planning to cover long-term care expenses, is, in fact, a great way to begin your New year on a strong Financial footing!

6. Save for your kids’ education

Uncle Sam has traditionally been kind to parents saving for their kids’ education – I mean, in the form of tax incentives. For example, when you save post-tax money in a 529 plan, you are allowed to grow the money tax-free, and use the funds for kids’ college education without paying a dime of capital gains on the growth. This is a huge benefit.

If you are not taking advantage of this, time to start is Now! Consider beginning the New Year with establishing a 529 plan for your child’s education, and reap significant tax benefits in the process.

On the other hand, if you are already saving in a 529 plan for your kid, there is more good news – the brand-new Tax Reform Bill, now allows 529 money to be used for K-12 education as well. Yes, tax-free. In other words, you are no longer limited to use these funds only for a college education.

7. Work with a Fee-only Financial Advisor

If you are a busy professional, time is your biggest enemy when it comes to effectively managing your own financial life. If you have spare time, perhaps you would want to spend with your family or take those vacations which have been long overdue.

So, begin your new year looking for a qualified Financial Advisor who could help you achieve your financial goals. After all, finding a trustworthy professional who works in your best interest is more readily available and more affordable now than ever before. Here are some tips.

Start looking for a Certified Financial Planner™ (a.k.a. CFP). These professionals have completed extensive training and experience requirements and are held to rigorous ethical standards by the CFP Board. Then filter out for the CFPs who are Fee-Only. i.e., those who receive no commissions, who have absolutely no conflicts of interest, and who work in your best interest and your best interest only. A great place to start is NAPFA Find An Advisor.

So, what do you think? Are you committed to taking control of your financial future? If so, hope this article provided some food for thought. For a customized advice, please consult with your Financial Advisor. Good luck!

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of UNIQUE FINANCIAL ADVISORS LLC, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

About the author

Vid Ponnapalli, MS, CFP®, MPAS®,CRPC®

I am a Fee-only financial advisor dedicated to working with individuals and families that are keen or organizing their financial life. I believe today’s financial planning need is under-served by traditional financial planning methods, mainly due to minimum income or net worth levels requirements. My goal is to contribute and change this paradigm. So, after a 20+ years career in financial services industry, I launched Unique Financial Advisors in 2014. I am eager to guide you through life’s financial decisions!

I am a CERTIFIED FINANCIAL PLANNER™ practitioner with an MS in Personal Financial Planning. I hold Master Planner Advanced Studies (MPAS®) and Chartered Retirement Planning Counselor (CRPC®) designations. I am a current active member of:

NAPFA (country's leading professional association of Fee-Only financial advisors)
FPA ( Financial Planning Association)
XYPN (A Financial Planners network focused on Generation X and Generation Y clients)

“My Mission is to help you achieve financial security by providing Fee-Only Financial Planning services with a relentless focus on Personal Attention and Trust.”

1. Fee-Only: I do not accept sales commissions; I do not sell financial products such as Investments and insurance. I work solely for you!

2. Personal Attention: I take pride on providing personal attention. I take the time to answer your questions and explain matters in simple, clear terms.

3. Trust: I strive for ethical long term relationships. Your peace of mind and exceptional client service are at the forefront of my agenda.

My wonderful wife, Maha and I live in Holmdel, NJ. Our three young boys are on their path to settling down in life. When I am not working on Financial Planning, I enjoy hiking, skiing, and spending time with family.

To learn more about me and my services, please schedule a free consultation TODAY!

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