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Five Financial Resolutions For The New Year


The new year has arrived and once again it’s time to make our New Year’s Resolutions. Of course, many will go with the proverbial eat healthy/exercise more, but here are some money ideas that may make 2022 a more prosperous year. Here’s a hint: to keep these close at hand, you can paste these directly into a note on your smart phone if you like.

Resolution One: I resolve to have an annual financial meeting on or around my half-birthday. It’s amazing to me how many people have responsible jobs that require annual or periodic meetings, budget review and legal overviews, but it’s more amazing that those same people often fail to do the same thing with their personal finances. Schedule a meeting with your significant other on your (or their) half-birthday (you’ll be busy on your birthdays) to go over the following:

·       Asset allocation in all accounts

·       Any orphan accounts?

·       Saving at correct levels?

·       Reviewed insurance coverage/pricing?

·       Legal/Estate Planning documents in order?

·       Debt of the right kind/right ratio?

·       Any big changes in family money?

Resolution Two: I resolve to start or build a Roth war-chest. It’s easy to be a major fan of Roth IRAs and Roth 401(k)s. If you don’t remember, Roth strategies are great because they are tax-free for qualified distributions; not subject to the Required Minimum Distribution rules; and can grow ten years beyond the death of both spouses. In other words: no tax, no forced distributions, and you can pass it on tax-free.

Here’s how to build a Roth war-chest. This will mean amassing a sum of long-term money that you don’t expect to touch for a long time, if ever. The advantage of the Roth is that its tax-free status lets you ignore tax friction of long- or short-term gains taxes. Consider this the spot to make your investment for the next decade or longer. Your first step would be your asset allocation. In the long-run, I’d choose equities. What do you think will be here and thriving in 2032? An obvious answer is an index, like the S&P 500 or SPY. The S&P 500 index is a market-cap-weighted index of 500 leading publicly traded US stocks. The largest holding in the S&P 500 will be the biggest company, or Apple

as of 12/29/21. Apple is about 6.89% of the S&P 500, compared to Fox Company, which is 0.127%. The survivor benefit of an index fund is that you always own more of the biggest stocks, irrespective of any decision on your part. For example, only one of the current top 10 stocks in the S&P 500 (Microsoft

) was in the S&P 500 in 2002. An index fund or ETF automatically resets the portfolio to what is increasing in value.

Of course, it is fairly likely that 500 leading publicly traded US stocks will be around in 10 or 20 years. It’s also pretty likely there will be a series of global companies. You could buy the S&P 500 and something like the MSCI All World ex US, which is an index of global companies not in the US. In addition, you might consider a small cap index, like VB. This way you have a global basket of big stocks and some US small stocks. There’s a pony in there somewhere. Some investors will add individual stocks they feel have great long-term potential. Of course, you could also do a blended strategy.

Getting money into your war chest requires you to have a Roth. To utilize a Roth, at least one spouse needs earned income. You can contribute up to $6,000 if you’re under age 50 and $7,000 if your 50 or older. Some good news is that you can set up a 2021 Roth all the way to the tax deadline (04/15/2022) and fund it for 2021. Then you can continue to fund it for 2022 (until 04/14/2023). More good news is you can take money out of a Roth before age 59 ½ using the ‘FIFO’ (First-In/First-out) method on your contributions. The easiest Roth option (if your income is on the lower side) is a simple contributory Roth. This works if your Modified Adjusted Gross Income (MAGI) is under $129,000 if single or $204,000 if you’re married filing jointly. If you have significantly lower income, don’t forget the Saver’s credit. If your income is above the limits, consider a ‘back-door Roth’. Brokerage houses allow you to set up a Roth on-line, so it’s easy.

Resolution Three: I resolve to look out for inflation. Inflation is going to be at the forefront in 2022. Whether it is transitory (likely not), or permanent (also likely not), you should have your money protected from inflation. Consider some of the traditional inflation hedges, like real estate or natural resources, as well as some overlooked ones, like small cap stocks. And don’t forget the wonderful I-bond for small investments: 7.12% (annual) until April 2022, readjusted for inflation every six months and guaranteed principal. $25 minimum/$10,000 maximum. While you are at it, this is a good time to lock in a low rate on debt. If you can save ¾% and are staying in the house for a while, this could be great as rates rise, since you’ve locked a low fixed rate. Consider a 30-year over a 15-year mortgage.

Resolution Four: I resolve to learn more about money. This is an easy one, why not read a book (OK, listening to an audio book or reading an e-book counts!) on money once a quarter? Shall I suggest some good ones? These are ten I’ve read and liked:

  • “The Richest Man in Babylon” by George S. Clason
  • “Your Money or Your Life” by Vicki Robin and Joe Dominguez.
  • “Think and Grow Rich” by Napoleon Hill.
  • “Rich Dad Poor Dad” by Robert Kiyosaki.
  • “The Bogleheads’ Guide to Investing” by Taylor Larimore, Mel Lindauer and Michael LeBoeuf.
  • “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko.
  • “The Psychology of Money” by Morgan Housel.
  • “Against the Gods: The Remarkable Story of Risk” by Peter Bernstein.
  • “Raising Financially Fit Kids” by Joline Godfrey.
  • “The Intelligent Investor” by Benjamin Graham

Resolution Five: I resolve to get my estate plan in order. Face it, many of us may get sick or temporarily disabled, but all of us will someday die. We all NEED an estate plan. Go see your attorney and get a power of attorney; a health care power, or medical power; a will; and possibly a trust. You need these documents, plus probably some good real estate deeds and a well-constructed beneficiary designation. Do it soon, because in the moment you actually need to use it, you won’t be able to do it.

Bottom line: These are five tips for a better 2022. Irrespective on how the year pans out, you’ll be better for being organized, saving on taxes, protecting your portfolio, getting smarter, and protecting your family. As always, I’ll take questions, and do my best to answer them at:

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