As you think about the resolutions and goals you want to set for the new year, some form of “wellness” is likely on your list. Whether it’s physical, mental or financial, wellness is the act of practicing healthy habits on a daily basis to help attain better outcomes.
In order to make healthy choices, you first must assess where you are at. From a financial health standpoint, that means taking a look at your full financial picture and checking to see if you are tracking toward your goals. What are your saving and spending rates? Where do your equity and credit levels sit? Once you have taken the pulse on these financial vital signs, you can perform a more comprehensive exam guided by the following four pillars of good financial health. This will help you identify what needs your attention in the new year.
1. Accumulate and grow your wealth
From having an emergency fund to developing various ways to save for the future, it’s important to be proactive about your long-term financial health. Building wealth requires patience and discipline, so having clearly defined goals and measurable objectives can help you maintain motivation and focus.
As you step through life’s stages, there will be opportunities to accelerate wealth building, such as through homeownership, inheritance, liquidation events and income spikes. Remember that diversifying your sources of wealth and being smart about market risk will build financial resilience.
2. Fund your lifestyle today and tomorrow
Spending within your means and staying away from unnecessary debt are two important daily habits to adopt. That’s because how you think about spending today plays into your future lifestyle choices. Making sure your needs are covered should always be the top priority. Focus on essential versus discretionary spending and, if possible, save for big-ticket purchases like a car or a vacation. Keeping an eye on your credit score and using credit wisely are also important to your long-term financial health.
Once you are nearing retirement, examining the sources of secure income available to fund your essential expenses should be part of your routine wellness check. This requires an understanding of how the market, inflation, taxes, interest rates and other risks can affect retirement income planning, and how the impact changes as you age.
It also becomes increasingly important to anticipate the impact of these factors on your nest egg. Your financial advisor can show you what your retirement paycheck might look like in different scenarios. Along with your tax professional, they can help you understand your Social Security options and help you evaluate if a Roth conversion or other investment strategy might be helpful to consider.
3. Protect what is important to you
Protecting your family and your wealth during your working years is foundational to sustaining that wealth throughout your lifetime. Having an appropriate level of insurance, including property and casualty insurance, should be at the top of the list of financial preventative care, but life insurance is another important protective measure to consider. Many employer benefit plans provide basic coverage, which is helpful in the short term. However, as you have a family and/or your income and estate grows, you may want more portable and permanent insurance.
As you age and accumulate wealth, it is important to revisit the purpose and amount of coverage for your insurance, as well as explore other important considerations, including preserving your wealth for the next generation.
4. Create a lasting legacy
Tackling estate essentials is another financial health “to-do” that everyone should prioritize, regardless of age or wealth. Establishing key estate documents, including a current health care directive, will and power of attorney, are important first steps. It’s also critical to make sure your assets are properly titled and beneficiary designations are made.
Gifting is often part of legacy planning, and doing so while you are alive allows you to witness the impact of your gift. Whether you are giving to your kids to help them buy their first house, starting a college fund for your grandchildren, or providing a meaningful gift to an important cause, gifting can be part of your wellness checkup. Research tells us that being generous and spending money on others makes us happier and brings purpose to our wealth. It also has the added benefit of the next generation being able to see generosity in action. What better healthy habit is there?
Happy, healthy, wealthy and wise
Use the new year as an opportunity to feel more in control of your financial wellness. This could include a wealth checkup, routine healthy spending habits and important life stage adjustments as you age and grow your wealth. Being generous in giving and mindful about your investments can add to your happiness factor. While this may seem daunting, you certainly don’t have to tackle everything at once or do it alone. Work with your financial, tax and legal advisors to get focused on what is most important to you and what might have the biggest impact on your financial wellness in the coming year.