Checking The Boxes On Your Financial To-Do List: 10 Musts To Keep You On Track

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

But that dour report doesn’t mean you can’t find ways to help your financial situation. Doing so starts with devising and following an ongoing to-do list tailored to your priorities.

Typically, people assess their financial big picture only once or twice a year, such as at the end of the year and at tax time. But In these turbulent times – when things change rapidly, the markets are volatile and prices keep going up – it’s prudent to keep closer tabs on your monthly budgeting and whether you are on track in terms of your long-term financial objectives. That may mean reassessing and re-calibrating at different points of the year.

How should you go about doing that? These 10 tasks should be part of a comprehensive, ongoing financial to-do list:

• Do a deep dive into your spending and recast your budget. Review your monthly bank and credit card statements and look for excess spending and wasteful patterns that can be eliminated, leaving more for savings, debt reduction and investing. Rid yourself of anything superfluous, including subscriptions to music streaming services or online publications that you rarely use.
• Evaluate your debts. If your credit card debt hasn’t decreased, it’s time to commit to bringing it down. You can’t build your savings and invest more in your portfolio if much of your income is paying for the interest on credit cards. The best way to pay down credit card debt is to focus on the most expensive one first and pay as much as you can beyond the minimum payment each month. Also, see if you can negotiate an interest rate reduction on your credit cards. Another option is a balance transfer, which allows you to move debt from a high-interest account to a card with a 0% APR. The catch is that, generally, you’ll have to pay a balance transfer fee, sometimes up to 5% of the amount transferred. But you can potentially enjoy significant savings on interest charges.
• Increase your retirement contributions. Are you on pace with savings goals for retirement? Eliminating debt frees you up to increase your pre-tax contribution to a 401(k) and significantly build your nest egg while enjoying the yearly tax benefits. You’ll lower your taxable income even more and grow more money tax-deferred. A great feature of the 401(k) is that your earnings automatically roll back into your plan and compound interest goes to work. You earn on the initial investment, plus the investment gains, which helps your savings grow significantly over the long term. The 401(k) does come with some negatives, though. You pay a 10% penalty if you withdraw money before you reach age 59½.  Also, you are limited to the fund options the plan provides and the 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, a $1,000 increase from 2021. If you are 50 or older, you can make 401(k) catch-up contributions up to $6,500 in 2022 for a total contribution of $27,000.
• Consider opening an HSA. If you have a high-deductible health plan, a Health Savings Account can help you lower your taxes – contributions go into your account before taxes – and allow you to save for medical expenses that are 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. This is 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-qualified expenses before you turn 65, you'll owe income taxes on the money, plus a 20% penalty. At age 65, you can use the funds for any purpose without a penalty, but you will pay ordinary income tax as you would for withdrawing from a 401(k) or traditional IRA.
• Review your estate plan. It’s imperative to get your affairs in order so your family won’t be burdened with financial and legal problems after you die. 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 you are no longer able to make decisions because of illness or incapacity. You also need to designate 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. Talk to your financial advisor and your attorney to get these matters organized. 
• 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 that your life insurance should meet.
• Plan for life events. Any out-the-norm event requires financial planning when possible, whether you are buying or selling a house, getting married, having a baby, purchasing a car, receiving a big raise, changing jobs or undergoing surgery. You might need a restructured budget, more insurance coverage or guidance from a financial advisor. For example, buying a vacation home that requires rental income for you to finance can be complicated. So is combining finances and financial obligations when a couple gets married. Prenups are sometimes the best answer. When you have a child, you might want to open a college savings account and take out additional life insurance. A lot of people are moving to different states, and tax rates and the cost of living can differ significantly. All these life changes require a look at 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 if you have started a small business, you may be able to write off the expenses connected with using part of your home for work. Keep in mind, though, it must be your principal place of business. The tax rules for this deduction are complex, so it may be helpful to consult a professional familiar with home-based businesses. Use IRS Form 8829 to figure out the expenses you can deduct. 
• Build an emergency fund. Life gets in the way of a well-conceived financial plan, and suddenly a monthly budget can be severely stressed due to unexpected expenses. Building an emergency fund is a must, and at minimum it needs to be the equivalent of six months’ worth of expenses. Also, this emergency account should be separate from your personal savings. Set a monthly savings goal to build up your emergency fund and keep adding to it periodically; for example, when you get a tax refund.
• Evaluate your investments. Especially in volatile times, people should pay closer attention to their investments’ performance. 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 needs to be more conservative or more growth-oriented.

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

About Christopher Drew

Christopher Drew is an Investment Advisor Representative with Drew Capital Management, a member of Advisory Services Network, LLC. He is also the Founder and President of Drew Capital Group, a multifaceted financial services firm serving clients in the Tampa Bay area and throughout the country.