Money Makeover

January 2017 View more

nmag0117_finance_istock-529682964_800pxNow is a great time to update your financial house

This month we’ll be bombarded with advertisements that remind us to clean and organize our homes now that the holidays are over. Financial experts believe we ought to take that same approach to our finances, as January can be an ideal time to reset goals and begin healthy new habits.

The tasks at the top of the list are updates of long-term plans—such as a 401(k) accounts, life insurance policies or a will—that we obsess about much less than, say, our monthly credit card balance.

Retirement Rewards

If you want to allocate the maximum amount on your 401(k) for 2017, now is a great time to start planning, said Kathy Byrne, a senior manager with DHJJ
Financial Advisors in Naperville. The maximum tax-free contribution for people younger than fifty years old is $18,000, while those fifty and older can put in $6,000 more.

If your cash flow has improved, such as through a raise and/or promotion, you need to take an extra step to make sure your per-paycheck allocation percentage increases. “I see clients often forgetting to do that piece—affirmatively saying they want to contribute more,” said
Byrne, who is both a CPA and certified financial planner. “The earlier you do it, the more beneficial it will be.”

Even if you can’t contribute the maximum, at least put in enough to earn the company match. “It is like finding free money on the sidewalk,” said Tony Lavarda of First Naper Financial Services, LLC.

Lasting Legacy

Creating or updating a will also ought to be a priority, Lavarda said. If you don’t draw one up yourself, a judge will distribute your assets after you die in a way that may or may not be to your liking. “It’s very important that a will is done properly,” he said. “If not, someone you don’t know will make decisions about your property.”

While you create the will, make sure you put together a power of attorney for health- and finance-related issues and a trust, if needed. If you have those documents already, make sure your dependents are up-to-date.

The same goes for dependents on your life insurance policy, which should also  be reviewed to ensure it reflects the income you’re earning right now, Byrne said. For home insurance, check with your insurance agent if you’ve added anything valuable to your home, whether it’s an expensive piece of jewelry or a major addition, she said.

If you’re saving for a child or grandchild’s education, you can start to contribute to a 529 or, if you already have one, increase your allocation. If you invest in a plan run by the state of Illinois, you can get some income tax benefit from it.

Allocation Alteration

For investors, make sure your long-term planning is on track, and consider resetting your goals. “It’s a great time to get a meeting scheduled with an investment advisor or financial planner to review your risk tolerance, what’s going on in the short-term and long-term, and make sure your overall plan fits with your needs as they are today,” Byrne said.

For example, be sure that your portfolio is truly diversified, Lavarda said. “Don’t be fooled into thinking just because you’re in a wide number of mutual funds that you have diversified satisfactorily,” Lavarda said. “You have to get into the holdings of the mutual funds to find out what the top holdings are so you don’t keep piling on some of the same companies.”

Also, people often plan major charitable contributions in the beginning of the year, Byrne said. One structure that could be a win-win for the donor and charity is to plan to donate a stock that is a highly appreciated asset.

Taking the time to evaluate your will and investment/insurance accounts will be well worth the effort. Decluttering your finances at least once per year is essential to protecting the assets you’ll work all year to attain.