At the beginning of 2021 and 2022, I published the below article as guidance to start your financial year off in the right direction.  Since much of the information below still applies, I’ve decided to recirculate with minor updates that consider 2023 tax laws. Having a well-thought-out plan can pay dividends (pun intended) in 2023 and beyond. Lastly, as a bonus, if you make it to the end of this article, you’ll find results from my 2022 goals and my new goals for this year.

1. Set Short-Term Financial Goals for the New Year

• Many of us have longer-term goals (like retirement or buying a vacation home), but it is also important to set shorter-term goals. These goals can include accelerating payments on a mortgage, paying down student debt, saving for a house down payment, funding a vacation, or buying a new car.

2. Revisit your 401(k) strategy

• If you recently received a raise, it might be a good idea to increase your contribution rate and save at least a part of your pay increase while following the IRS’s maximum contribution limits.**
• Revisit whether your contributions are made on a pre-tax (traditional 401(k)) or after-tax (Roth 401(k)) basis and consult with your advisor to see what is best for you.
• Note that many of our clients benefit from a “self-directed” option that is available in some plans. This essentially allows you (or your advisor) to manage this account along with the rest of your portfolio instead of your 401(k) being invested in a silo. This feature typically provides access to alternative investments and other investments not offered by traditional 401(k) plans. Examples of these alternative investments include, but are not limited to, private credit, private real estate, structured notes, and certain limited partnerships

3. Maximize Your Roth IRA Contributions Before Tax Filing

• For some people (depending on income level – see next point), a Roth IRA contribution** can be made in addition to a work 401(k).  These contributions are made with after-tax money and will grow permanently tax-free as long as you meet certain rules.  Note that you have until April 18^th of 2023, to make your 2022 contributions.
• If your income is over a certain threshold ($138,000 if you’re single and $218,000 if you’re married and file jointly), you cannot contribute directly to your Roth IRA. However, there are workarounds to maximize tax-free growth, and you should consult your SWP advisor and/or CPA for the best solutions.

4. Review Your Portfolio Asset Allocation

• 2022 was a difficult year in both traditional stock and bond markets. While we expect these down periods for stocks over time, bonds have historically been more cautious investments that help smooth portfolio volatility. Historically, when stocks have gone down, bonds have either gone up or held their value (on a relative basis). However, last year was the worst for bonds in about 100 years. The Federal Reserve has been raising interest rates at a fast pace, which has, in part, caused a historic downturn in the bond market. Given the volatility across all parts of the market, you should revisit your strategic asset allocation and make sure that your current investment mix is aligned with your goals.
• While stock and bonds had a difficult year, alternative investments helped provide diversification and non-correlated returns to portfolios. We’d recommend talking with your advisor about how certain alternative strategies (like the ones mentioned in Point #2 above) may be helpful to your portfolio moving forward.

5. Make Sure Your Beneficiaries are Set Up Properly on Your Retirement Accounts

• In most cases, naming your spouse as the primary beneficiary is a prudent strategy.
• If you aren’t married, we typically recommend naming beneficiaries (children, siblings, etc.) outright to ensure that they can take the inherited distributions over an extended period of time. But it’s a complicated topic.  In 2020 we published the article It’s Time to Review Your Beneficiary Designations which may be helpful.

6. Adjust Automatic Savings to Align with Salary Changes

• While you can (and should) celebrate any salary increases and/or year-end bonuses, it’s also smart to increase your savings rates (set a goal to do so, as discussed in number one above). Failure to do so may result in not progressing toward your long-term goals.

7. Create (or Revisit) a Net Worth Statement

• Keeping your net worth statement updated is key. If you don’t have one, it may be time to create one. A net worth statement is a “financial snapshot” that lists your current assets (what you own) and your current liabilities (what you owe).  You then deduct your liabilities from your assets to determine your net worth.
• Revisiting your net worth statement at the beginning of each year can help monitor forward progress over time. If the results aren’t what you hoped for, it may be time to sit down and develop a plan for future growth.

8. Review Your Estate Planning and Documents

• Make sure all your accounts are correctly titled. Are they named in your trust?  If you don’t have a trust, do you have a TOD (Transfer on Death) designation applied to your account(s)?  These easy adjustments can help your loved ones avoid probate court in the event of your death.
• If it’s been more than a few years since you reviewed your estate plan, consider calling your attorney to confirm your plan is up to date with any new laws and regulations.
• If you don’t have an estate plan, there’s no better time to start than now. While working with an attorney to draft documents may not be “fun,” it’s an excellent way to ensure that all of your assets will be distributed according to your wishes and that someone can step into your shoes if you are unable to manage your affairs. We have a tremendous network of estate planning attorneys that can fit your unique needs.

Taking the time to review these eight items is the best way to start your year off right financially.  Please contact your team at SWP if you would like to discuss any of the items above.  And now, without further ado, here is a recap of my 2022 goals along with a new, short-term objective for 2023: 2022/2023 Goals and Results

• (2022) I’d like to do a better job of giving back to the community. While I feel like I do a great job of making financial donations, I wanted to donate more of my time to a charitable organization.
  • 2023 Update: I did continue to donate financially, but I did not (meaningfully) donate more of my time to charitable organizations. By 12/31/2023, I’d like to sit on the board of a charity.
• (2022) I want to start taking strides to earn my pilot’s license. Yes, you read the right! This has been a bucket list item for years, but I’ve never really sat down and developed a plan to make it happen.
  • 2023 Update: I didn’t do this either. I’ve found it hard to find time to do this, but hopefully, I can set aside some more personal time outside of work this year to accomplish this long-time goal.
• (2022) I’d like to see a Bears Super Bowl, Illini Men’s Basketball Championship, or White Sox World Series win.
  • 2023 Update: This was completely out of my control, but I also did not accomplish this. At least we had a pleasant year of Illini football. Disclaimer: I am writing this blog before the ReliaQuest Bowl Game vs. Mississippi State on January 2^nd, so hopefully this doesn’t backfire.
• (2022) I’m looking forward to getting married to my Fiancée, Emily, in May. She’s done an amazing job with wedding planning, and I need to finalize the details for our honeymoon.  This should be an easy (and exciting) thing to knock off the list.
  • 2023 Update: We did, in fact, get married, and it was amazing. 8 months in, and we’re still going strong!
• (2022) Since I entered the workforce, I’ve always tried to increase my savings year over year. I take great pride in working hard to achieve this goal.
  • 2023 Update: I’ve continued to do a good job of this. It’s helpful for me to first put savings aside and then use the rest for living expenses.
• New Goal for 2023: I’d like to learn how to make pizza from scratch. As a wedding gift, we received a wood-fired pizza oven. I’m hoping to achieve a crispy tavern-style pie that rivals the best (Barnaby’s).

I’m hoping in this new year, I will be able to see these milestones through.  On behalf of the entire SWP team, we wish you a happy, healthy, and prosperous new year.

** Annual contribution limits for 2023 below. Please work with your Strategic Wealth Partners team to optimize your contributions.

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