New Year Financial Checklist 2022

2022 has arrived and we are all hopeful for a great year! While many new year resolutions will be made, perhaps the most important is getting your finances in order. As you are gathering the information to complete your tax return, the first quarter of each year is the time to solidify your financial planning checklist. By doing so you will help to ensure you and your family are set up for financial success for the year to come.

At Buttonwood, our Family CFO Process dives deeper into comprehensive financial strategies than most financial planners. We do this because we know scratching the surface of financial strategy by just managing investment assets doesn’t provide accurate, actionable opportunities. As we move into 2022, the following is a list of items we are proactively implementing for clients.

Five years ago, you knew what you wanted out of life. As we have lived through Covid we have seen core values remain steadfast, but many of our clients’ vision for their financial futures has transformed. It’s important for your financial team to remain aware of the details so your strategy can reflect those changes. Work with a holistic financial advisor, like the Buttonwood Team, to build a ‘financial foundation’ designed with the flexibility to pivot based on changes in your objectives.

The first couple of months of a new year is the perfect time to think about your spending! When there is more money coming in than going out, exciting opportunities present themselves. From simple things like shifting from traditional bank accounts to a cash management strategy including online banking options, you can more than double or triple your rate of return. Beyond your paycheck, what other income streams are contributing to your monthly cash flows? Perhaps you have investments, real estate, a pension, or maybe it’s your side-gig that’s bringing in extra cash. Regardless, it’s important to capture and compare to your list of expenses.

By comparing income vs expenses, you will have a strong understanding of what amount can be allocated to positively impacting your financial objectives. For example, you may be able to contribute more to retirement accounts, charity, a business, unique investments, or to future generations investment assets. From there, it’s important to work with your financial Team to create and implement a plan that meets your goals yet keeps your personal balance sheet strong. Keep in mind, your team should include a tax professional to review the tax implications of strategy.

Take a good look at your retirement plan contributions and employee benefits. Are there opportunities you have not taken advantage of? Does your employer offer a 457 plan? Will your 401(k) allow for an Employee After Tax contribution (in addition to Pre Tax)?  Based on the simple impactful concept of compound interest , the earlier you save, the more your financial nest egg will increase. Are you fully funding an IRA or Roth IRA in January? Did you know you can fund an IRA even if you have high income? Additionally, if you are over age 50, are you taking full advantage of catch-up contributions ?

Part of our Family CFO Process includes development of comprehensive strategy based around your unique income, employee (or self-employed) benefits and your tax situation. We have developed many unique strategies we adjust and implement in January for our clients.

It’s amazing how much change happens over the course of a few years; both good and bad. You’ve likely experienced a change or two since you last adjusted your estate documents. As you are gathering information for your taxes – looking at each of your accounts, cash flows and more, it’s a great time to review your estate plan.

The most common mistakes we see with estate documents is incorrect titling and beneficiary designations. Tax law changes in 2018 materially impacted how assets are distributed from retirement plans to beneficiaries. If you have assets in an IRA, 401(k) or similar, you should review your estate documents to address these changes. An integral piece of your estate plan is ensuring that your assets are titled to the correct entity and beneficiaries are reviewed for impact after major events: Tax law changes, death of a beneficiary, or spouse, divorce, marriage, the birth of a child and more.

You’ve likely heard something about tax law changes, but do you know how changes will directly impact you? What changes do you need to make and when? Our Team at Buttonwood serves as your central Family CFO and stands ready to coordinate meetings and strategy between your CPA, estate and business attorney and others – ironically many who are not talking to one another! And if you are missing needed resources, we can make an introduction to our Trusted Network.

Are you taking on more risk than needed? While the markets are in a “risk on” mode as we move into 2022, history proves our economy will continue to go through up and down economic cycles. We’ve seen investors take much more risk than needed due to recency bias. Essentially, this means people tend to think what they are living through right now, will continue into the future.

When thinking about investments, we recommend defining and adjusting your investment allocation to coordinate with your current balance sheet and cash flow requirements. If the market were to fall in 2022 as much as it went up in 2020-2021, would your financial life still work?

Insurance may be one of the ‘boring’ items that falls by the wayside, especially if you haven’t had to make any recent claims. Regardless, it should be on your financial planning checklist. While we don’t directly offer any of these, Our Family CFO Process includes a comprehensive review of your Life, Health, Disability, Long Term Care, Home, Auto, etc. policies. We often work with your current insurance providers to ensure you are covered in the event of an unexpected occurrence.

Annually, look back on the previous year. Review your roles and responsibilities and how they have changed. If a new baby has joined your family, if you have added or adjusted your mortgage, if your kids have an eye on a more expensive college, you may want to increase your life and/or disability insurance to ensure your dependents are taken care of in the event of the unexpected. If your balance sheet has grown, or if debts and obligations have decreased, you may be able to decrease the amount of life and/or disability insurance you are carrying.

No one ever plans for an accident or illness, but disability insurance ensures you still have income in case you are unable to work for an extended period. While they are relatively inexpensive to insure, we regularly see younger generations ignore disability coverage because they never think it could happen to them. “More than one in four 20-year-olds will experience a disability for 90 days or more before they reach 67,” says Carol Harnett, President of the Council for Disability Awareness.

Keep in mind these policies can and should be reviewed regularly. If a family member has medical issues, often employer benefits offer life insurance coverage without medical underwriting. Employer plan benefits can save families thousands of dollars and often go overlooked.

It can be easy to forget about reviewing home & auto policies, but an annual check-in can save you in the long run. When reviewing auto policies, be sure you have sufficient coverage for all drivers, not only yourself. You may have a new driver on your policy, which may mean it’s time to increase your coverage. It’s also important to think about your driving habits and what the upcoming year entails. If you are planning a long road trip, now may be a good time to increase coverage!

Even if you haven’t made any major changes or improvements to your home, we still recommend regular review of your homeowner’s policy. If 2021 was unlucky for your home, you may have seen flooding, wind damage, hail damage or damage due to large amounts of snow and ice. These are all events your insurance agent and Family CFO should know about sooner rather than later.

Generally, we’ve found the addition of long-term care (LTC) insurance can be based on a combination of your personal balance sheet and cash flow needs. Similar to life and disability, generally the more assets and cash flow you have, the lower the need for LTCi.

It’s 2022 and credit fraud and identity theft are more prevalent than ever. At Buttonwood, we take the position that ALL of us have had our information stolen. Now it is just a matter of time until the thieves try to use the data. Rather than trying to defend against something we have no control over, we recommend a proactive approach to monitoring the situation. At the very least, you should monitor your credit with a free site such as https://www.annualcreditreport.com/index.action. The next step would be to use a more proactive service like https://www.creditkarma.com/. The next level is to add a paid service like https://www.lifelock.com/. It’s unfortunate that these things happen, and yes, you will likely have to endure some ‘junk / spam” from service providers, but with a proactive approach, you can stay in front of potential misuse of your data.

What are your assets doing for you? Could they be doing more? In today’s world, so many dollars are spent chasing opportunities. Let 2022 be the year you step out of your box and take advantage of creative financing! There are many additional ways to work with your balance sheet. One simple example; if you have higher interest loans these may be able to be consolidated into a lower interest home equity or mortgage loan.

Even with a good credit history, if you have a business, it’s likely a bank or creditor has asked you to personally guarantee business loans or lines of credit. As your balance sheet has grown, you may be able to limit risk to your full balance sheet by using margin at a brokerage firm or pledged assets limiting loss exposure to just the assets in a specific account rather than including your house as well.

While these steps combine to be a big project on your task list, this is what we do. This financial planning checklist only scratches the surface of the services we provide for our clients. At Buttonwood, we know as wealth builds, life doesn’t get simpler; it becomes more complex. Having wealth doesn’t mean much if you don’t have the time to enjoy it. It’s part of our Family CFO Process to implement these strategies. If you are interested in learning how our Process can benefit you and your family, contact us today for an informal conversation.

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