Along with an investment plan, you should keep an “emergency fund” in savings or money market accounts. I frequently hear that an emergency fund should equal three or six months of expenses. I’m comfortable with the lower number providing that some of the non-emergency investments are allocated to high quality, highly liquid bond funds which have a minimal market downside.
Although I recommend creating a system of automatic investing, you still need to create an asset allocation, and periodically rebalance your investment portfolio back to that asset allocation. Rebalancing requires discipline as it involves selling asset classes that are doing well and purchasing asset classes that are not. There are many resources available for a more thorough discussion of asset allocation and portfolio rebalancing.
Property and Casualty Insurance
Now is a good time to schedule an appointment with your insurance broker to evaluate and perhaps update your coverage. Along with considering the upper limits of your homeowners and auto coverage, you should discuss whether the deductibles make sense. I’ve seen many instances where the deductible, essentially the portion of first-dollar self-insurance, is needlessly low and your insurance dollars can be better utilized towards increasing the upper limits of coverage or adding on an umbrella policy. At the same time, discuss the specifics of your coverage, available riders, and how you can take steps to lower your premiums (alarms, automatic water shutoff devices, etc.).
For many, a resolution that seems to get rolled over from year to year is creating or updating your will (along with ancillary estate documents). See Non-tax Reasons To Revisit Your Estate Plan Now. During the estate planning process, you should discuss with your attorney the proper titling of your assets. Having current estate documents is important, and is the responsible thing to do.
Everyone starts off the year with resolutions that reflect the best of intentions. But good intentions fade quickly unless you create a plan that leads to actions; and only actions, not intentions, bring about results. Although my focus has been on financial resolutions for the new year, the broader context is financial literacy — a “resolution” that encompasses all other financial resolutions. Let 2022 be the year when you acquire the level of financial literacy that will serve you and your family beyond January, beyond the year, and will lead to a lifetime of smart financial decisions. Good luck, and best wishes for your financial success.
The author does not provide tax, legal, financial or investment advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, financial and investment advisors before engaging in any transaction.