On the Eve of the New Years, we often take time to think about the past year and also look forward to the year to come. The same should be true for our finances. Often times we get caught up in day-to-day finances such as an expected home repair and also long-term finances such as our retirement plans. However, we are most likely to make good decisions and change financial behavior somewhere in the middle - with 1 year goals and 90 day objectives.
Below, I would like to outline how to create a simple 1 page plan for the year ahead. On a sheet of paper, create the following sections.
Values – Ask yourself “What is the purpose of money to me?” The answer is your values. Examples include – time with family, security, giving, traveling, etc.
Financial Goals – List them in order from most important to least. Examples include retirement income, buying a beach house, buying a car, paying off debt, etc. Under each goal list the following
- #1 – Current savings for that goal
- #2 – annual amount saving for that goal
- #3 – goal amount
So for a car purchase, you might list $10,000 saved, saving $5,000/year, and a goal amount of $25,000. For retirement income, a simple rule of thumb is 4% of savings per year for income. So if you need $80,000/year from your portfolio, $2,000,000 is a good goal amount – although the actual amount can vary from person to person.
Risk Management – Outside of financial goals, we need to make sure outside risks have been reviewed. Put a check box by each item if you have reviewed them in the past year.
- Life Insurance
- Disability Insurance
- Long Term Care
- Estate Planning Documents (will, POA, medicare directive, trusts, Beneficiary forms)
Investments – Review how much you have in stock, bonds, and cash. Ask yourself at least three questions and put a “yes” or “no” by each.
- Do I know what I should expect to earn over the long-run based on historical returns?
- Do I know how my current portfolio could have done during past recessions?
- Am I comfortable with the potential risk/return tradeoff?
1 Year Goals – These are things that you need to do in the next year to put you on track for your goals. Some should be specific numbers and others might be tasks. A few examples include
- Save $25,000 in retirement accounts
- Save $5,000 in savings for a car
- Give $10,000 to charity
Others may be things like “review investment risk tolerance” or “review life insurance need” if the answers to your questions in the sections above were “No” or you weren’t able to check off an item.
90 Day Objectives – Breakdown your 1 year goals into 90 day objectives. Ideally, you will review these every quarter until the end of the year. Some examples may be “increase 401(k) contribution to 15%” or “identify charities to give to” or “schedule meeting with financial advisor to review investments.”
1 Year Goal Review – Put a box with the date for the end of the year. For example, if you are doing this for 2020, make it 12/31/2020. Then list your 1 year goals and put a check box by each. At the end of the year you will review each goal and put a check by the ones completed. I also suggest an empty box for notes so you can write down any thoughts.
Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting, insurance or tax advice. This information is not intended to be a substitute for specific individualized legal or insurance advice. We suggest that you discuss your specific situation with a qualified respective professional. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies may be appropriate for you, consult your financial advisor and other appropriate professionals.