New Year, New Time to Reassess Financial Goals

Many of us have made New Year's resolutions to save more money, pay off debt, make more money as well as any number of variations on that theme – but truthfully, have you really developed a plan to achieve your objective?

In making your new goals attainable, here are some areas and basic guidelines where most of your efforts should be focused.

• Emergency savings: Prepare for your future even if you aren't expecting any major financial challenges. The rule of thumb is put away enough each week to accumulate at least one year of your current income. Important note – this should be step one for any savings plan. Money can be put into a account where you have easy access but do not plan to use for luxury items only things that immediately necessary to your well-being.
• Short-term savings: This is the account you will use to put money away for planned purchases and kept separate from your emergency funds. Have a wish list of things you want buy such as cars, TV's, vacations, gifts, and other items that are not necessary but give you satisfaction of being able to have the cash to buy non-essentials and target a percentage of your income to go into this account.
• Retirement account: Either you are putting away the maximum you can into your ROTH IRA, tax-deferred IRA or 401k. I believe that putting away the maximum amount into a Roth account gives you best return for your money in the long run. The Roth gives you tax-free accumulation on the amount you earn in the account while the tax deferred accounts gives you tax-sheltered accumulation on everything that goes into the account. Some companies also have Roth 401k and 403b accounts. Though you have to pay ordinary income taxes now on money going into Roth accounts, after 5 years and age 59 ½, the money all comes out tax-free whereas in the tax-deferred accounts, you will still have a tax obligation to comply with.
• Education: This really the last savings account families should be concerned about having. As much as I understand the education of our children is important, it has become more important to put emphasis on retirement first. Rules are changing across the board for everything and our children coming out of school with loans in the hundreds of thousands and the ability to get a position with a starting salary that covers the repayment will certainly have to be addressed. Section 529 plans and UGMA accounts have some great advantages to them is you can utilize them but many middle income earning families will never be able to use the real advantages. I try to encourage my family, friends and clients to have an account available when receiving cash gifts, or ask the gift-giver to open an account making the child the beneficiary.

As always, I encourage you to check with your financial professional, tax advisor or finance coach to help you make the right decision for your specific situation. In personal finance, one size does not fit all.