Checking the boxes off your financial to-do list: 10 things to do to stay on track

Inflation is up, consumer confidence is down and two-thirds of US consumers don’t expect their personal finances to improve this year, according to a Bankrate survey.

But this austere report doesn’t mean you can’t find ways to improve your financial situation. To do this, start by designing and tracking a rolling to-do list that fits your priorities.

Typically, people only assess their overall financial situation once or twice a year, such as at year-end and tax time. But in these turbulent times – where things change rapidly, markets are volatile and prices keep rising – it’s prudent to take a closer look at your monthly budget and find out if you’re on the right track in terms of long-term financial goals. This may mean reassessing and recalibrating at different times of the year.

How should you do this? These 10 tasks should be part of a comprehensive and ongoing list of financial tasks:

• Do an in-depth analysis of your expenses and revamp your budget. Review your monthly bank and credit card statements and look for overspending and wasteful habits that can be eliminated, leaving more for savings, debt reduction and investment. Get rid of anything superfluous, including subscriptions to music streaming services or online publications you rarely use.
• Assess your debts. If your credit card debt hasn’t gone down, it’s time to commit to reducing it. You can’t build up your savings and invest more in your portfolio if a lot of your income goes to paying interest on credit cards. The best way to pay off credit card debt is to focus on the most expensive first and pay as much as possible beyond the minimum payment each month. Also see if you can negotiate a lower interest rate on your credit cards. Another option is a balance transfer, which allows you to transfer debt from a high-interest account to a card with a 0% APR. The catch is that usually you will have to pay a balance transfer fee, sometimes up to 5% of the transferred amount. But you can potentially enjoy significant savings on interest charges.
• Increase your pension contributions. Are you meeting your retirement savings goals? Eliminating debt allows you to increase your pre-tax contribution to a 401(k) and significantly increase your nest egg while enjoying annual tax benefits. You further reduce your taxable income and earn more money tax free. A great feature of the 401(k) is that your earnings automatically flow back into your plan and compound interest works. You earn on the initial investment, plus investment earnings, allowing your savings to grow significantly over the long term. The 401(k), however, has some drawbacks. You pay a 10% penalty if you withdraw money before you reach age 59.5. Additionally, you are limited to the fund options provided by the plan and 401(k) fees can be high. Retirement savers with a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan can contribute up to $20,500 in 2022, an increase of $1,000 from 2021 If you’re 50 or older, you can earn 401(k) catch-up contributions of up to $6,500 in 2022 for a total contribution of $27,000.
• Consider opening an HSA. If you have a high-deductible health insurance plan, a health savings account can help you reduce your taxes – contributions are paid into your account before taxes – and allow you to save for medical expenses that are not not reimbursed by your plan. HSA contributions are exempt from federal income tax, but they are not exempt from state taxes in some states. The contribution limit in 2022 is $3,650 for an individual account and $7,300 for a family account. It’s also another way to save for retirement, because an HSA earns tax-free interest, and you can invest a portion of your HSA balance in mutual funds, stocks, and bonds. One caveat: If you withdraw HSA funds for non-qualifying expenses before you turn 65, you’ll have to pay taxes on the money, plus a 20% penalty. At age 65, you can use the funds for any purpose without penalty, but you’ll pay ordinary income tax just as you would for a withdrawal from a 401(k) or traditional IRA.
• Review your estate plan. It is imperative to get your affairs in order so that your family is not burdened with financial and legal problems after your death. Important parts of an estate plan include both a will and a living will, which is a medical directive that gives your preference for treatment in the event that you are no longer able to make decisions due to a illness or disability. You must also appoint a power of attorney, which authorizes someone to manage your affairs when you are unable to do so. Finally, make beneficiary designations and leave instructions regarding burial, cremation, and other final arrangements. Speak to your financial advisor and lawyer to arrange these matters.
• Review your insurance plans. Look at all of your insurance coverage — life, home, auto — to determine if you have enough coverage or if deductibles need to be adjusted. Determining how much life insurance to buy can be complicated. One way to estimate your life insurance needs is to take the total of your long-term obligations and subtract your assets. The remainder is the minimum dollar amount your life insurance must meet.
• Plan life events. Anything out of the ordinary requires financial planning when possible, whether you’re buying or selling a house, getting married, having a baby, buying a car, getting a big raise, changing jobs. employment or undergoing surgery. You might need a restructured budget, greater insurance coverage, or advice from a financial advisor. For example, buying a vacation home that requires rental income to finance can be complicated. The same goes for the combination of finances and financial obligations when a couple gets married. Prenups are sometimes the best answer. When you have a child, you may want to open a college savings account and purchase additional life insurance. Many people move to different states, and tax rates and the cost of living can differ significantly. All of these life changes require a review of your finances to see if and how you need to adjust.
• Consider a home office tax deduction. If the pandemic has changed your work situation or you’ve started a small business, you may be able to write off the expenses of using part of your home for work. Keep in mind, however, that this must be your primary place of business. The tax rules for this deduction are complex, so it may be worth consulting with a professional familiar with home-based businesses. Use IRS Form 8829 to determine the expenses you can deduct.
• Build an emergency fund. Life gets in the way of a well-laid financial plan, and suddenly a monthly budget can be strained due to unexpected expenses. The constitution of an emergency fund is essential and must represent at least the equivalent of six months of expenses. Also, this emergency account should be separate from your personal savings. Set a monthly savings goal to build your emergency fund and keep adding to it periodically; for example, when you get a tax refund.
• Evaluate your investments. Especially in times of volatility, people should pay more attention to the performance of their investments. Review your investment goals, reassess your risk tolerance, and balance your portfolio in a way that makes sense for your current finances and future goals. Consider how close you are to retirement and whether your current allocation should be more conservative or more growth-oriented.

Think about investing, saving, and budgeting and how the three apply to your goals, from building your retirement fund to managing your taxes. Taking consistent action and staying mindful of these milestones throughout the year will keep you on track.

About Christopher Drew

Christopher Drew is an investment advisor with Drew Capital Management, member of Advisory Services Network, LLC. He is also founder and chairman of Drew Capital Group, a multi-faceted financial services company that serves clients in the Tampa Bay area and across the country.