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Jan 25, 2018

Your Financial Wellness Checkup

By Jarrod Upton

Just as most people have an annual physical check-up with their doctor, it’s also a good idea to have an annual financial check-up with your financial advisor or another accounting or tax professional. And there’s no better time to conduct your financial wellness check-up than at the beginning of a New Year. It is the time for resolutions and fresh starts, when people are generally more motivated to set goals and initiate plans in order to make their year ahead more productive and successful.

A Look Back

A good way to begin your annual financial check-up is to conduct a thorough review of the year just passed to measure how well you did in meeting your prior goals. Did you meet your spending and savings objectives? Were you able to retire any debt, especially high-interest credit card debt? Did you increase your contributions to your 401(k) or did you launch an IRA? Were you able to add to your fund for a home down payment? Did you successfully buy the car of your dreams or did you take an exotic vacation? Whatever your goals might have been from the previous year, it is important to know how you did, to see where you succeeded, and to see where there still might be room for improvement.

A Commitment to Budget

I’m well aware that most people are budget-averse. The idea of creating a monthly budget – and then sticking to it – is like fingernails scraping across a blackboard. It sends shivers down their spine. But there really are some terrific, user-friendly, personal finance software programs that make this dreaded task as easy as pie. With just a minimal amount of time invested, you can track all your spending, savings and fixed expenses, and you can easily compare actual results versus planned goals, so if any adjustments are necessary, they can be easily corrected.

It has been my experience that having a financial plan in place with clear, specific goals in mind (and implementing a budget is a large part of that process) is a recipe for success and a major contributing factor for achieving financial wellness.

Tax Reform Act

Having a budget in place is especially important this year, due to the tax reform act that was recently passed by Congress. It is not my intention to go into all of the details of this 500-page document, but I would like to mention a few ways these new laws are likely to affect the average taxpayer.

Additional Take-Home Pay – Many taxpayers are going to find additional take-home pay in their paychecks, due to some changes in tax rates and tax brackets. How much additional pay will vary from taxpayer to taxpayer, but the general question is – what are you going to do with that additional money? Will you make arrangements to have that extra money flow directly into your 401(k) or will you finally launch the rainy day fund you’ve been intending to create? Whatever decisions you make about that additional income, it would be wise to budget for them.

Deductions Review – There have been a few changes to long-held deductions that might affect some taxpayers. One is the amount of interest that can be deducted from a home mortgage. Previously, interest on a home loan up to $1,000,000 dollars could be deducted from your taxes. With the new tax changes, that number has been reduced to $750,000. Obviously, some home owners are going to be negatively affected.

Also, under the previous tax law, taxpayers could fully deduct the amount they paid in state and local taxes—such as property taxes and income taxes—from their federal tax return. However, the new tax law eliminates those deductions, with the exception of a state and local property tax deduction, which is capped at $10,000. Again, this is going to negatively affect some taxpayers.

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My recommendation is that as part of your financial wellness check-up, you conduct a thorough review of your deductions to see how the new tax laws will affect your personal situation.

Cut the Fat

Most of us are guilty of spending money frivolously in one way or another – whether it’s fueling our morning Starbucks addiction, or frequently dining out, or not using the gym membership we’re paying for, or maybe paying excessively for our cable programming. Wherever the fat might be in your monthly expenses, make a commitment to reduce or eliminate it, if you can. You would be amazed at how quickly those expenses add up and how much more productively that money could be spent on real financial goals that have longer-term benefits.

As part of getting a handle on your expenses, some banks and credit card companies offer an annual report showing all of your expenses and what specifically you spent them on. Like lab reports that inform your doctor about the state of your physical health, a comprehensive expense report will also go a long way to contribute to your financial wellness.

Here’s to your good financial health and wellness in 2018!

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