5 Financial Planning Resolutions for 2019 - Adviser Investments

5 Financial Planning Resolutions for 2019

January 25, 2019

Episode Description
Interview With Victor Colella, Andrew Busa and Josh Jones

Many of us avoid taking inventory of our financial affairs, but it isn’t as complicated as it may seem. And we are here to help! Two of our financial planners join an Adviser Investments portfolio executive to detail five financial planning resolutions for the new year.

As discussed in this episode, we’ve created a handy companion document with information on tax planning, retirement savings, Social Security and much more for 2019. Get your copy of this useful reference guide by clicking here.

Episode Transcript

Victor Colella: Hi, everyone. This is Victor Colella and I’m a financial planner here at Adviser Investments. Welcome to another Adviser You Can Talk To Podcast. Our topic today is resolutions. It’s that time a year. Specifically though, we’re talking about financial resolutions—not spending more time with your kids, improving your eating habits or even reading books, but we’re talking about getting your financial house in order. We’re going to give you five easy to follow, hopefully, but very important financial resolutions that we think could get your year, and perhaps even your financial future, started out on more solid footing.

Victor Colella: Today, I’m joined by two colleagues of mine: I have Josh Jones, who is a vice president here at Adviser Investments. He serves our clients in a relationship management capacity. He helps individual clients achieve their financial goals, and has these sorts of conversations on a regular basis. On my other side, I have Andrew Busa, who you all know and hopefully love from prior episodes. He is a financial planner who I work with in our Central Planning Group on a regular basis. Let’s kick things off. I’m going to jump right in with the first resolution.

Victor Colella: Our first financial resolution is to understand your spending. It’s important for a variety of reasons, but really we want to say it’s not important to stick to a budget dollar-for-dollar or know where every dollar is going. We’re focused on sustainability with this one, but also making sure that you know what you spend at least enough to understand how much you’re saving, or how much your money is going to last in retirement. What do you think, guys?

Josh Jones: Victor, the way I think about it, and this might be a little unusual especially to hear it coming from a financial planning firm, is to invert it. In other words, instead of focusing on your budget, or your cash flow or where is all my spending going, immediately save 10, 15, 20% off the top. So you know, for example, if you’re saving 20% off the top you’re putting a ton of money away on a regular basis. It’s sustainable because you’re not looking closely at what am I spending every month. I’ve just found over the years in working with individuals and families that by inverting it, as we like to say, this allows them to stick with a long-term savings plan.

Andrew Busa: Yeah, Josh. I do like that approach quite a bit, especially if you’re in the middle of your working career. You’re accumulating assets. I think thinking about it that way makes a whole lot of sense because saving towards your retirement goals, your short-, medium- and long-term goals that’s what’s probably most important to you financially right now. If you’re hitting that 10, 15, 20% savings number than you’re good. You don’t have to worry as much about what you’re spending. But if you’re approaching retirement, or you’re in retirement, I think it becomes a little bit more important to actually really understand your expenses—maybe live on a budget because, let’s face it, you aren’t saving anymore, right? You now don’t have a regular paycheck that you’re receiving, so you need to understand more what you’re spending.

Victor Colella: That’s true with retirees, and we work with a lot of retirees who are running financial plans to say, ”How long is this money going to last now?” You unfortunately can’t take that same approach of figuring out what you’re saving at that stage. But it is sustainable. I mean everyone said at the beginning of the year I’m going to go to the gym seven times per week, and then you get discouraged after the second day that you missed. It’s the same idea with a budget. Everyone has probably tried to make a budget and fallen off the wagon, so keep it as simple as possible. But in retirement that may mean actually making and sticking to a budget.

Victor Colella: The best way to get started here is to figure out what stage. If you’re still working and saving actively maybe you take the most simple approach. But figure what stage you are in and maybe look at a month’s worth of expenses, instead of thinking how much do I spend in a year. It’s a little bit easier to think of a month, which is four weeks of spending than it is to think of a year. Don’t sweat the small stuff. Don’t get discouraged. Keep it as simple as you can.

Victor Colella: Our next resolution, the second resolution, is be systematic about planning your cash flow for the year.

Andrew Busa: Yeah. This one ties back into our first resolution of understanding your spending because we’re going to have you look out over the next 12 months and think about whether you have any large one-time expenses coming up. Maybe you’re thinking about buying a car, taking a big vacation, maybe you’re putting a down payment on a house. These are big one time goals that you should start to think about and plan for. That short-term money—money you’re going to be using in the next one, two, three years—really shouldn’t be invested aggressively. Once you figure out those next 12 months think about if there is a gap between what you have to meet those goals and how much those goals are going to cost.

Josh Jones: You make a great point. Long-term investing makes all the sense in the world. You’re buying good businesses and holding on to them for a long period of time. Short-term the markets can be totally random and psychology, I think, plays a big role. The last thing we ever want any families that we help to have to deal with is selling a stock, or selling an investment that’s temporarily down in price. That’s why it’s so important to have your cash reserve separate from your investments.

Victor Colella: Yeah. That’s the easy to forget after a long market that really only goes up for the most part. I think in times of volatility in the market it’s a quick reminder why that rule of thumb exists. And then if you do have a gap, so if you have a gap in the amount of cash that you have available for the next 12 months, you do have options other than selling a temporarily down investment. Sometimes, you can use debt to temporarily bridge the gap, so either a home equity line of credit or different debt sources like that. You can have a yard sale. You can cut your expenses. You do have a lot of options. The first step really here is talk it out with your family. Think about what the next 12 months look like. Now Josh, you have a client who does this. You said you can expect a call in the first week of January each year?

Josh Jones: Yeah, it’s really important to them as it is to us to understand what the needs are as far as cash flow for the year are concerned. There’s a family literally the first week of every year, a number of families, I have this conversation with. It’s important.

Victor Colella: Okay. Number three, so our third financial resolution is to cover your risk. It is a dark time of year in January. A lot of people have some depressed energy around, so let’s channel that to thinking worst-case scenario. It’s a good time of the year to think about what could happen. If you lose your job or if the worst happens, so you get sick, hurt, can’t work or get hit by the proverbially bus. We’re talking about making sure that you have your emergency fund sufficiently built. A good rule of thumb is have three to six months of expenses basically sitting in a bank account that you can access in a couple days. It’s a good time to check your credit report. Make sure that nobody is fraudulently accessing your credit, so you can go to annualcreditreport.com, or you can set alerts with many of the agencies. What else? What am I missing?

Josh Jones: Victor, another really important topic is estate planning. It can sound complex and feel a little overwhelming, but at the crux of it estate planning can be really simple. It’s things like do you have a basic will—God forbid something happens, or other documents like a healthcare proxy or power of attorney?

Josh Jones: The other thing that I think is really important is making sure on retirement accounts, or even individuals accounts, that beneficiaries are up to date because what a lot of people don’t realize is that beneficiaries on retirement accounts take precedence over a will. There are just a couple of simple things you can do to make sure you’re up to date.

Victor Colella: Yeah, we have way too many stories of folks who, when we’re doing a financial plan and we take a look at their beneficiaries just to make sure everything is tight, we’ll see an ex-spouse or a sister or brother who was the beneficiary before they had children and they had no idea this was the case. If anything were to happen it doesn’t matter what their will says, if that’s updated it’s all up to the beneficiaries.

Victor Colella: And then, finally, I do want to mention maybe it’s a decent time to pull out those homeowners, auto, life and disability policies. It’s tough reading, and it can be overwhelming, so pace yourself. Just make sure that you have the coverage that you would need should the worst case happen. A good way to start here is to take a look at that emergency fund. How much do you have available? Get your credit report. Take a look at any activity. You can help identify opportunities there to improve the report as well. And then make sure your insurance beneficiaries, your retirement account beneficiaries and your estate-planning documents are all in order.

Victor Colella: The fourth resolution is a quick one, to take full advantage of your tax-advantaged opportunity. These are gifts from the IRS.

Andrew Busa: In case you missed it, the IRS recently announced increased contribution limits for retirement accounts. We’ll be releasing a key financial data piece that we’ll list all those specific numbers for every account. But the IRA contribution limit has actually been raised for the first time since 2013. We want to make sure you’re aware of these.

Andrew Busa: Another thing to keep in mind here is that it’s not too late to contribute to last year’s retirement accounts under the 2018 contribution limits. You can look at your Roth IRA, your traditional IRA. You can still make contributions under those 2018 limits. You also may be able to contribute to your 401(k) under last year’s limits, depending on your employer plan. Another thing here is your FSA, your Flexible Spending Account.

Victor Colella: I was going to say, not just your retirement accounts: Your health savings account (HSA) as well as you may have money from your Flexible Spending Account that you can still spend in the first couple of months of the year. Make sure if you have money left don’t let that go to waste. Because, remember, that gets wiped away for a Flexible Spending Account.

Andrew Busa: Correct.

Josh Jones: With all these savings accounts for most people we help, I think the ones that are most successful are the folks that automate the process. In other words, if you’re going to contribute to your 401(k) literally make the contributions every pay period. You don’t even think about it. Or for IRA contributions, do it once a month or once at the very beginning of the year. Automate, it really makes it a heck of a lot simpler. We all have enough on our plate on a day-to-day basis, so if you can automate it you don’t even think about it. Plus, too, I think during times of market stress when we are going through temporary declines it’s a great way to stay disciplined. Keep investing and having the ability to buy more investments on sale.

Victor Colella: Yeah. Josh, you’re great at this. Josh’s office is pretty much completely bare, but there’s one quote on the wall. I’m not sure who said it, but it is, “Simplicity is the ultimate sophistication.” I think that’s a good point to simplify this process, too.

Victor Colella: I think I’ll move on to our last—but certainly not least—final resolution: To get organized around your financial goals. Talk about intimidating sounding resolutions, but really this one’s fairly simple. Goals drive everything. They determine what you’re saving for. They determine why you’re saving it. And really it’s just a process of setting your intentions and figuring out what you want to do, perhaps between now and retirement, what you want to do for your children’s education. Do you want to buy a vacation home? Do you want to travel the world in your retirement? It’s just setting intentions. We usually have clients separate this into short-, medium- and long-term to help make it a little easier to digest. But the real first step here is to just get organized, which can be more daunting than the actual goal-setting process sometimes.

Josh Jones: But you know what’s interesting too, Victor, is the organization part. In my opinion, without a doubt it’s the most important part. It’s amazing how many people we sit down with that just getting on a piece of paper their assets, their various accounts, their income, their debt is such a beneficial experience. Just before the holidays we sat down with a couple, a young couple, and just going through the organizational process, I didn’t even put together the plan, per se…

Victor Colella: Yeah, we hadn’t even done anything yet.

Josh Jones: Right.

Victor Colella: Yeah, exactly.

Josh Jones: But just organizing really opened their eyes and is leading us down a path to be able to help them in a way that they weren’t entirely sure was possible.

Victor Colella: Yeah, and this couple was about 45. I think there’s a great benefit in doing it sooner rather than later. It’s always a beneficial process, but we do it oftentimes with our clients who are about ready to retire for the first time, which they would’ve been able to alter their situation 20 years ago a little bit easier than doing it just in retirement for the first time. I guess the sooner, the better is my point there.

Josh Jones: Right. We try and make it really, dare I say, fun? Can you make financial planning fun?

Andrew Busa: I think it’s fun.

Victor Colella: It’s not like going to the dentist, at least that’s what we like to say.

Andrew Busa: Right. A lot of people do dread the process or just thinking about getting started with it, but once they’re done with it they’re often so happy that they did it. It feels like a huge weight has been lifted.

Victor Colella: All right, so Andrew what’s the best way for us to get started?

Andrew Busa: I think the best way for you to get started as a listener here is to just sit down and have a conversation with your spouse, your family, your loved ones. Just think about what’s important to you. What do you want to accomplish for those short-, medium- and long-term goals? If you’re closer to retirement start to think about what you want your retirement to look like. How are you going to spend your time now that you’re not going to work? These are the kinds of goals that you should get out on a piece of paper the old-fashioned way: Just start writing some down, brainstorm and see what you like. Really also think about is there anyone in your family—kids, other loved ones—who should know more about your financial situation? Start thinking about any legacy planning that you’d like to start to do. It’s never too early to begin thinking about things like that.

Victor Colella: Okay. Well, I think we’ve covered them. Our five suggested resolutions for this year, just to review briefly. A good time to figure out what you’re spending, but really to Josh’s point, figure out what you’re saving, especially if you’re still earning income.

Victor Colella: Number two is to take a look at your cash flow for the year and figure out if you have any gaps for this year’s spending that you need to bridge. Third is cover your risk. Number four was make sure you’re taking advantage of those tax-advantage savings vehicles, both retirement accounts as well as some of those advantage healthcare or even educational savings vehicles. And then number five, last but not least, is sit down and finally get organized about your financial goals. If any of this sounds good and you’d like to hear more we do this all day with our clients and we’re happy to help.

Victor Colella: This has been Josh Jones, Andrew Busa and Victor Colella from Adviser Investments. We all thank you for listening to another The Adviser You Can Talk To Podcast. If you’ve enjoyed this conversation, please subscribe or view our show. You can also check us out at adviserinvestments.com/podcasts. We really love your feedback and oftentimes we’ll receive suggestions from listeners to do episodes for a specific topic. We really enjoy getting those suggestions because we can talk about this stuff all day long, but we’d rather talk about what’s valuable to you. If you have questions or topics you’d like for us to explore, please email us at mailto:info@advisorinvestments.com. Thanks everyone for listening.

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If you’re approaching retirement or in retirement, it becomes a little bit more important to actually understand your expenses.


Andrew Busa, CFP®

Financial Planner

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