To Your Wealth: 3 Smart Money Moves for 2024
As we enter the New Year, dedicating an hour or two to your financial well-being is time well spent. Rather than focusing on long-term goals, let’s identify some more immediate tasks you can accomplish that will better position you to achieve your future goals. Three urgent items include understanding your current situation, fine-tuning your investments and preparing for the inevitable decline in your health.
Simplify Your Finances
Over time, it’s not uncommon to accumulate a collection of financial accounts spread among different institutions whether they’re old retirement plans from previous employers or bank accounts you opened because they were paying more interest on CDs. It’s easy to start to lose track as life gets more complicated or you’re no longer as astute at managing your financial affairs. The first step is to assess your current situation which can be done with a blank piece of paper to create a net worth statement.
On one side of the paper, list your assets with their current value including bank accounts, retirement accounts, real estate or anything else of significant value. On the other side of the paper, list your debts which could include a mortgage, car loans, student loans or credit card balances. The difference between your assets and debts is your net worth which becomes the starting point for simplifying your finances.
The next step is determining whether any accounts can be closed or consolidated so there’s less to manage in the future. Before closing bank accounts, review prior statements to confirm there aren’t any automatic deposits or withdrawals that need to be changed first. Most retirement accounts can be consolidated as long as you’re the owner of each account. I recommend contacting the current institution to confirm fees or penalties involved. Directly moving the money from one institution to another is important to avoid taxes on retirement accounts.
If you’re still manually paying your bills, you may also want to see if they can be automatically paid via your bank account or credit card. An hour or two spent on this step will save you significantly more time in the future.
Review Your Investment Allocation
After the positive returns in the stock market in 2023, it’s quite possible you have more in stock funds than you had 12 months ago. If you had 60% in stocks at the beginning of 2023 but find you’re closer to 70% now, it may be worthwhile to shift some money out of stocks. Without a crystal ball, predicting the future returns of the stock market is extremely difficult. While it’s most likely to increase in value, if you can’t stomach the inevitable decline with a higher stock allocation, now is a reasonable time to make some adjustments.
If you’re contributing to 401(k) retirement plans through an employer, the limit increased for 2024 to $23,000 if you’re under age 50 or $30,500 for those age 50 or older. While contributing the maximum may not be feasible, increasing your contributions by even 1% can make a positive impact towards achieving financial independence.
Prepare an Estate Plan
While the New Year is often associated with new beginnings, it’s also worth considering the inevitable decline we’ll all experience towards the end of our lives. Several actionable steps to consider now include reviewing your estate documents and discussing your intentions with someone who will be involved in your future care.
Several estate documents everyone should have include the health care power of attorney, financial power of attorney, living will and a final will. There are additional documents available such as revocable trusts so if you have questions, I recommend working with an experienced estate attorney to answer your questions and draft the actual documents. The power of attorney documents are relevant when you’re alive but unable to make decisions for yourself due to incapacity or incompetence. The living will addresses your preferences around life support and feeding tubes. Upon your death, the final will outlines who will settle your affairs and how your assets will be distributed.
One common misconception around wills is the interaction they have with your retirement accounts and life insurance policies. If you have named beneficiaries on these accounts or policies, they will supersede the instructions in your will. In other words, if your retirement account beneficiary names one person which is different than what your will says, the retirement account will go to that particular person. It’s important to review the beneficiary designations on a regular basis to make sure they align with your intentions.
The final step of a well-designed estate plan is to discuss your intentions with whoever you’ve named in the various roles. Often, there’s information not reflected in the legal documents that would be worth sharing. For example, end of life care preferences are not typically outlined in estate documents. Explaining to someone how or where you’d like to live if you needed care can be very helpful guidance.
While none of these steps are particularly innovative, clients who have addressed all three often experience more financial peace of mind than those who haven’t taken action. I encourage you to determine the step that resonates the most with you or would be the easiest to start with to create some positive momentum for the New Year.
