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Tuesday, March 5, 2024

10 Proven Financial Steps for Lasting Prosperity

The end of the year is always the best time to think and make plans. I’d like to share with you some financial steps you should take before the new year to protect your wealth and hopefully grow your wealth in a risk-adjusted manner next year.

Those of us who invested in stocks, real estate, and many other asset classes this year should feel lucky. Unfortunately, the good times rarely last forever.

Never forget the Armageddon days of the 1997 Asian Financial Crisis, the 2000 dot-com implosion, and the 2008 Global Financial Crisis. Those of you who haven’t invested at all better prepare to deploy capital when chaos returns , or else inflation will eat your wealth alive.

If you just started investing this past year, you’re in luck! Do not worry. Your defeat will happen eventually. Losing money is inevitable when you invest in risky assets. But like most beat downs, things get better with time.

10 Sensible Financial steps to take

Here are the top 10 sensible financial moves you should make this year. This goes a little further than just maximizing your tax-advantaged retirement accounts.

1. Review your Asset Allocation

One of the most important financial steps is to review your asset allocation. Set it and forget it is not a good strategy if you want to stay sufficiently diversified.

For example, you can use an asset allocation of 50% stocks and 50% bonds. But if your stocks are up 35% while your bonds are down 10%, and you want a 50/50 balance, you’re out of alignment because your portfolio is now 60% stocks and 40% bonds.

Investors should rebalance their balance sheets at least twice a year, no matter how small the rebalance is. Taking the time to rebalance can help you focus on your investments so they don’t get too far out of control.

2. Review your Income and Expenses

You will be surprised at how much you spent and how much you THINK you spent. Chances are you’re spending more than you think, which is detrimental to your health net worth construction target.

It’s the same idea as withdrawing money from an ATM and then wondering a few days later where all the money went. Add up your total annual income and spending amounts. Then divide the numbers by 12 to make the numbers more detailed. Adjust your expenses accordingly.

I’m more focused on earn more money because there is only so much I can save. I have set detailed limits for spending on housing, food, transportation, entertainment, travel, etc., and rolled these numbers up into a monthly amount that I will not exceed.

It’s exciting to stick to a fixed spending amount and at the same time try to earn as much as possible above that threshold. The spending number is high enough that I feel free, but responsible with my money.

Track your expenses with Empower

3. Clean Up and Donate to Charity

Not only is donating good for those in need, you can declutter your home and get a tax write-off of up to $500 per donation without having to fill out a form to declare where the item came from.

We all tend to collect a lot of things over time. It feels great to get rid of “excess inventory” so that people with low inventory can be helped. You can also donate other assets, such as stocks, your car and other valuables. Consider setting one up Donor Advised Fund.

Also consider cleaning up your lifestyle. Our finances and lifestyles tend to become more complicated as we get older. If you’re nearing retirement, consider simplifying for less stress and more happiness. Minimalism and early retirement go together perfectly.

When I last moved, I donated about a dozen bags of clothing to Goodwill, the Salvation Army, and SF Smiles. It felt great to clean up and help others.

4. Update your Resume

Now it’s time update your resume and make sure it is the most beautiful document on your computer. You’ll be surprised how much you’ve accomplished in just one year that you can add to your resume.

Create different versions of your resume for different types of industries or jobs you are looking for. Late January through June is peak job search season.

5. Keep yourself and your Family safe

I don’t care if you’re worth $5 million in liquid assets. Any illness can wipe you out if you don’t have the right insurance. In addition to health care, make sure you get your home insurance, car insurance. And personal property insurance coverage are sufficient.

If you have a lot of assets beyond what your home and car insurance can cover, that too get an overarching policy.

Finally, if you have debt and dependents, I recommend getting affordable term life insurance. The closer to age 30 you can get a 30-year term policy, the better.

6. Control your Estate

Along the lines of taking financial steps to keep your loved ones safe, you can prioritize real estate planning. In any case, make sure you have a will, or have an updated will if your financial circumstances have changed significantly.

You don’t want to raise $20 million, die, and then have your entire immediate and extended family start a civil war because they don’t know who gets your millions. Money brings out the bad side of people especially for those who have never had much money.

Do your heirs a favor and be organized. Create a death file and inform your beneficiaries where all your most important documents and instructions are located.

Make it as easy as possible for them to arrange your estate. Here’s a very useful one checklist for preparing for death – your loved ones will thank you.

When I first wrote this post, I only had a living will. Fortunately, after the birth of our son, my wife and I met with an estate planning attorney and got our estate plan in order. We didn’t just set up revocable living trusts we also have death files with detailed instructions.

7. Predict your future Tax Obligations

I have already written an extensive piece about it make end-of-year tax movements. Now you need to plan your future tax obligations by conducting a pro-formal analysis of your expected income and expenses.

If you invest a lot private funds, take the time to estimate what your future benefits could be. Is a company your fund has invested in possibly planning to go public? Is your fund in the last year of its estimated life cycle? If so, much more investment income may be due, which could increase your overall taxes.

The greater your expected investment income, the less you would need to earn in consulting or day-care income to reduce your tax liability. The more you should also max out your Solo 401(k), SEP IRA, Traditional IRA, and Regular 401(k). The deadline to contribute to the employee portion of the 401(k) is December 31.

I expect some capital gains taxes after selling shares in 2023. In addition, one of my private real estate funds is in the last two years of its life cycle. Therefore, I expected to receive some important benefits. With a potential new consulting job, I will max out my Solo 401(k) and reduce my FS salary.

8. Tie up loose ends

Use the end of the year to finish strong by completing all the things you should have already completed. The idea is to start the new year with as little baggage as possible, so that you have maximum momentum to achieve your new goals.

Have you used up all your gift cards and expiring points? Have you sold some stock losers? harvesting tax losses? How about selling all your excess inventory of stuff? Maximize what you have and throw away the baggage.

One of my loose ends is hanging all of our photos and art in our new home. I want to decorate my office so that the background looks good during video calls. My other loose end is obtaining birth and death certificates from my relatives to prove that my children have Hawaiian ancestry.

9. Run your Investment portfolio through a Fee checker

Do you know why some money managers are so rich? It’s because they have a huge amount of fees. It’s frustrating when your employer only offers actively managed mutual funds with high fees. But you should continue to contribute as much as possible to your pre-tax retirement accounts.

I review my investment portfolios at least once a year Empower’s Retirement Cost Analyzer. Simply link your investment accounts, click the Investing tab in the top right, then click Retirement Fee Analyzer.

I have optimized my two portfolios so that my annual fee is only estimated at one amount 0.18% compared to the benchmark of 0.5% due to my selection of ETFs, index funds and specific stocks. The other nice feature is the Investment Checkup feature that shows your current versus target allocation.

Retirement Benefit Analyzer Personal Capital

10. Breathe New Life into Neglected Relationships

Do you know what happens at the beginning of every year for working professionals? They are inundated with LinkedIn requests and messages from friends on LinkedIn, FB and wherever else. Why? Because more and more people are networking to find a new job.

This is problematic because people only try to contact you when they need something. While this is natural, it is not ideal. It’s better to reach out to people throughout the year, check in, maintain relationships, and then ask for help when help is needed.

Spend time going through your connections that you’ve been neglecting and at the very least leave a “Happy Holidays” or “Happy New Year” note and a quick summary of what you’ve been up to.

I’m going to spend at least two hours going through my connections and wishing them a happy holiday. Life is always busy and we tend to neglect the majority of the people we know.

When I was still working, I sent more than a hundred Christmas cards a year. Today, unfortunately, that number is below twenty. People tend to help people who have been there for a long time.

Visualize Success with your Financial Steps

There’s a reason why people make vision boards. They work. Everyone should visualize themselves in a more successful financial position twelve months from now. You are more likely to complete the above financial steps if you expect success.

For example, if you want to stop doing your crappy work that doesn’t require thinking, visualize yourself doing something new and exciting at another company.

If you want to stop being in a boring relationship with a partner who takes you for granted, visualize yourself spending a great vacation with someone else.

Are you tired of living paycheck to paycheck? Visualize yourself having a huge bank account, thanks to the positive steps you have taken to create wealth.

If you don’t believe in yourself, you have already failed.

Readers, what other financial steps do you recommend people take at least once every year?

Sources & Idea Inspirations:


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