New Year’s resolutions for wealth management

    Some opportunities come along only once in a lifetime. If you hesitate, they’re gone forever. Other opportunities, however, come along more frequently, and we get plenty of chances to take advantage of them.

    Take New Year’s resolutions, for example. They afford us an opportunity every year to set goals and to realize the potential that lies within each of us. You know the story. January rolls around, and we make promises to ourselves to do things differently, to do things better, to be smarter.

    But how often have you reached December only to realize, much to your chagrin, that last year’s resolutions have become nothing more than a series of broken promises? That’s where setting firm and realistic goals becomes so important, especially when it comes to financial planning.

    If you’re serious about achieving financial independence for your family and meeting all of your objectives, setting goals is a must. Over the last 15 years, we have assembled a list of the top five most important goals that people need to address regarding their finances. If you can achieve these five goals, you are ahead of the curve in managing your wealth and reaching financial independence. 

    1. Pay yourself first: If you wait until the end of the month, after all of your monthly bills are paid, to save for your retirement or other goals, you are limiting your potential for success. By paying yourself first, you will keep your savings plan on track and your consumption habits will change to reflect available cash flow. Once people begin saving consistently, it becomes an addictively positive habit that creates additional financial opportunities. To increase your probability for success, utilize payroll deductions into 401k or 403b accounts, or simply authorize automatic deductions from your bank account towards your savings account. This savings plan must be set-up to occur automatically, on a consistent and frequent basis.

    2. Get Organized: How often do you receive financial statements in the mail, and simply set them in the ever-growing pile on your desk? Financially successful individuals organize their information, throwing away the material that is easily retrievable electronically or that is not important. Get a simple filing system to save important statements, and other financial documents. In the event of your incapacity or death, your loved ones should be able to easily find and understand your records. With good organization, you will be able to review what is important and make better decisions.

    3. Damage control: Accidents happen, and the loss of your income, coupled with high health expenses, is a major cause of bankruptcy. Having proper insurance coverage is critical to ensuring your financial independence. We have seen way too many families suffer financially because of inadequate insurance. Anticipate the unexpected, and take immediate steps to protect your family from a financially devastating accident or situation. Review all of your insurance policies, including: life, health, automobile, disability, and home owners’ policies. Going through financially challenging times is difficult. However, knowing that you put your family into that situation when you could have avoided it is devastating.

    4. Investment check-up: Take an inventory of your investments to find out how your money is allocated. Be certain that the mixture between stocks, bonds, real estate, international and cash investments suits your situation. Frequently, people take on too much risk, or too little risk, and reduce their probability for growing their assets at an optimal rate. If a security has grown to become a large component of your portfolio, consider reducing or hedging the position. If a significant amount of your assets are sitting in money market or CD instruments, consider equity investments that historically outpace inflation. Be certain you know what you own and why. Review it when those statements come in every month. 

    5. Cut the fat: We live in the wealthiest country in the world and the media is constantly telling us to consume, consume, consume. The sizes of our houses have increased as the sizes of our families have decreased. Certain "necessities" of today such as cell phones, cable television, computers, Game Boys, heated car seats, GPS, iPods, etc. weren’t even luxuries 20 years ago because they didn’t exist or weren’t prevalent.   

    When thinking about retirement, many people are quick to realize that it isn’t how much money one makes or the size of their assets that is most important. What really matters is the amount they spend relative to their income or assets. Identify what is truly important to you, and leave everything else behind.

    Sit down and write out your goals. Share those goals with your family, friends, and advisors. By writing down our goals, and sharing them with others, we are creating a support network that will help us accomplish those goals. 
    Circle July 4, Independence Day, on your calendar.  This marks the halfway point of the year. If you aren’t on track to accomplish your goals, re-double your efforts to get back on course.

    Remember, the more difficult the journey, the more rewarding is the finish line. We want you to sit back in December 2008 with a feeling of accomplishment and pride, knowing that you have taken the steps towards financial independence.

    It sure beats looking back at a string of broken promises!

    Kevin Reardon, CFP, is a financial planner and president of Shakespeare Wealth Management in Brookfield.

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