For most people, it is not hard to come up with ideas for New Year’s resolutions—things like starting an exercise program, eating healthier, reading more books, or getting more sleep. The key is knowing HOW to make those things happen.

Financial resolutions are no different. Once made, how would you achieve the following goals?

GOAL 1: Stop being so disorganized with my finances

The first step in accomplishing this goal is to make a list of all your investments; you must understand where they are, what they are invested in, and whom you listed as beneficiary(ies).  You cannot create a proper plan for your financial future without knowing what you currently have. Note that part of getting organized is also updating your beneficiaries, if applicable.

Each investment should have a purpose such as providing income or growth or possibly leaving a legacy.

You can compare this to a visit with the doctor.  They require that you fill out a medical questionnaire. The doctor needs to know if you are allergic to anything, the types and quantity of the medications you take, and if you currently have any symptoms.  The reason the physician asks these questions is simple: he/she cannot properly diagnose you without knowing your current medical status.  The same goes for financial planning. An advisor needs to know what pieces apply to you, how to fit all the pieces together and how they affect your plan.

GOAL 2: Take the time to understand what I’m invested in

You need to do some homework and understand what is going on in your investments. Some people will look at the bonds they have in their portfolio and think they are safe. This couldn’t be further from the truth.  Bonds can lose money in a rising interest rate environment. The longer the maturity of the bond you hold in your portfolio the more risk of losing money.

You must understand that diversification doesn’t always work. Diversification helps with lowering risk but is not 100% fool proof. Had you been diversified in 2008, it really did not help as the proverbial tide was out on all ships.

If you need income, then are your investments should be invested for income. This is where a lot of people make mistakes and invest into a growth portfolio when they should be in an income portfolio.

GOAL 3: Stop taking too much risk – or no risk at all

The suitable question here is how to determine how much risk you can afford to take. You must take the time to understand the risks in your investments; and make sure risk is in line with your expected return. In other words, if you take x amount of risk you should get x amount of return.  If you are taking a lot of risk but your expected return is low, then changes should be considered.

When you speak with an advisor, they typically want to know your risk rating. The advisor will ask you to determine, on a scale of 1 to 10 (with 1 being conservative and 10 being aggressive), where you are comfortable. If your answer is 8, then that advisor will probably build you a portfolio with a lot of risk, just based on your answer.

Instead wouldn’t you rather know what rate of return you must earn on current investments so that you don’t run out of money? Knowing this rate, you can build your investments on what you need (objective) vs some hypothetical assumed rate (subjective). This is what a Simplictree™ plan will do for you. It will provide you a very specific number, the rate of return you need to earn so you will not run out of money. Let’s say you need to average 2% per year.  Once you know this, would you rather have your investments based on this average or a hypothetical or assumed rate?

GOAL 4: Nail down a retirement date

This might not seem so obvious, but no planning can be done unless you know when you are going to retire. Ideally you should start to plan at least a year in advance of your retirement date. This will give you and your advisor time to do the proper planning. You will need to make difficult decisions such as at what age should you take your social security benefit, and will you take a lump sum or pension from your employer, just to name a couple.  Our Simplictree™ plan will help guide you to make smart financial decisions.

GOAL 5: Get on the same page with my spouse, financially speaking

Financial health is a team effort if you are married. Whether this is your first or second marriage, it is important to be working together. You both need to be involved in the decision making because you each may have social security, pensions, rental income or other revenue which needs to be considered. A well laid out plan will show how all your assets will be utilized in retirement.

Occasionally, we will see one spouse, usually the husband, take care of all the household investments and decisions. A problem occurs when the husband’s health deteriorates, or he passes away, putting the wife in a position that creates a lot of stress because she has not been involved in the planning process and has no idea what the plan involves. She is now forced to make decisions that will impact her financial future. Remember this is a team effort as you embark on an adventure that could last 30 or more years.

If you would like to schedule an appointment to get your personal Simplicitree™ plan, please contact us.  As always, if you have any questions please call and we will be more than happy to assist in any way we can.