CONNECTICUT MONEY: New year is time for annual financial checkup

This article was published in the New Haven Register on January 2, 2021.

The start of a new year is a good time to take stock of your financial picture and rededicate
yourself to your financial goals. Now that you’re past the New Year’s Eve celebrations, sit
down with a clear head and evaluate where you are and where you’re headed.
This could be particularly crucial following the disruption caused by the COVID-19 pandemic
in 2020. Were your financial plans thrown off?

Here is a step-by-step process to get back on
track:

First, calculate your net worth. Understanding your net worth gives you a context for
decisions on budgeting, spending, saving and investing. It’s also a good way to gauge your
progress toward your financial goals over the past year. Your net worth equals your assets
(savings, investments, real estate) minus your liabilities (mortgages, credit card debt, auto
loans). Seeing the big picture in this way will guide you in making New Year’s resolutions to
improve your finances during 2021.

Review the past year. Are you near the goals you set last year, or did you fall short? Look
back and figure out what happened. Was there an unexpected major expense, or a loss of
income? Reset your annual goals for 2021 with these issues in mind.

Maximize your retirement accounts. Make sure you are taking full advantage of any
employee matching funds you are entitled to through a 401(k) plan or other retirement plan.
Be sure to contribute any “catch up” contributions if you are over 50. When possible, take full
advantage of tax-advantaged IRAs.

Make a plan to tackle debt. Did you reduce your debt load last year or increase it? Either
way, paying down debt must be a major priority for your retirement planning. Schedule
monthly payments toward any credit card debt and consider sending extra money in your
mortgage payment. A financial planner can help you balance paying debt with saving for
retirement.

Rebalance your investment portfolio. Staying on track for an enjoyable retirement
requires you to keep abreast of your investment results. It’s important to rebalance your
portfolio to keep your asset allocation in line with your needs. You also may need to consider
adjustments related to changes in your life or in the economy.

Create a tax strategy. Stocks plunged early in the year then roared back. You can offset
capital gains by taking losses on under-performing assets in taxable accounts. Consider
seeking help from a financial adviser, since there are many IRS regulations to consider.
Be realistic. Your resolutions need to be reachable: Don’t vow to double your income and
buy a personal jet unless you are a multimillionaire. Make goals that are specific and
measurable, then measure your progress throughout the year.

Take advantage of technology. Today it’s easier than ever to save money and keep track
of your finances. First, arrange automatic deposits to your savings account so that you “pay
yourself first” without any effort. And use a digital app for tracking your finances. Bonus tip:
If you are paying off debts, set up automatic payments to your creditors — and pay more than
the minimum payments required!