By Charles Crowley CFP®, AIF®

For some, 2021 flew by and it yielded little challenge. For others, the New Year’s confetti couldn’t come fast enough to usher in a new start for 2022. Regardless of which camp you fell into, what we all are staring at right now is that time of year where we must take inventory of what worked and what didn’t last year and make necessary adjustments.

When you sit down to evaluate where you are relative to where you want to be at year’s end and beyond, be sure to add the following five steps to your myriad of considerations for greater financial confidence in 2022:

1.  Take ACTION. A plan without subsequent execution is pointless, and, for me, it starts with commitment and intentionality. Start simple and look at areas where you can make the most impactful change for yourself and your family. A few examples of what I mean:
   • Review your cashflow plan and reset as needed according to actual, incurred [1]
   • Assign every dollar earned and saved a purpose, prioritizing the shortfalls. Commitment is more consistent when the goal is not arbitrary.
   • Save until it hurts, and continually challenge your “pain tolerance!”

These three actions alone I’ve seen have a substantial impact on a family’s financial confidence. I often cite the young couple with two children under 3 that I began working with several years back. They were able pay off over $100,000 in school loans in a little over 4 years AND build toward saving an extra $500/mo. towards college simply by tracking their spending and putting together a cashflow plan that addressed their problem areas. Yes, they had great incomes to support the efforts, but far greater was their commitment to the actions and sacrifices necessitated by their plan.

2.  AUTOMATE Though there may be the fortunate windfall from time to time affording the ability to knock goals out in chunks, the reality is that this is the uncommon exception. Savings goals are typically tackled over time and automating the habit generally will make the task more digestible.
   • Reverse engineer your spending plan- budget around your savings goals, NOT around your spending. Most get this backwards and save what is left if there is any.
   • Start with a number that is comfortable and then challenge yourself to increase that number at least every quarter if not every month. It is more about the habit than the number!
   • Understand that automating an investment plan carries the added benefit of risk reduction- it is effectively a way of dollar cost averaging, a method many wealth advisors use to spread out the inherent risk of market volatility and the impact of timing on investments.

3.  ASSESS your strategy. The single most common oversight I see when evaluating portfolios for prospective clients is a disconnect in strategy across accounts. There is typically very little strategic continuity and even less consistency in risk target, and most of the time is simply because of inattention.
   • Sometimes people have a different target goal for retirement funds over non-retirement funds, or there may be a “bucket” approach employed. Sometimes spouses have different tolerance levels or strategies. These nuances are ok if they are employed intentionally and reviewed frequently over time.
   • Be consistent with rebalancing. Many accounts, especially retirement plans, can be set up on automatic rebalancing schedules and those might very well be advantageous.
   • Be sure to pay attention to accounts likely NOT under direct professional management (i.e., your company retirement plans, educational savings for children, HSA funds, money tied up in bank products that auto-renew, etc.) Far too often these sums sit idle, un-optimized toward your goals, and the inattention can cost you money in the long run.

4.  AVAIL yourself of excess cash. Nothing wrong with having a little dry powder on the ready but be intentional with the cash you hold and the cash you deploy. The below is what I believe to be ideal to work toward:
   • Contingency Funds (short-term): have enough in actual bank savings to cover all deductibles on property & casualty coverages and health/dental policies. [2]
   • Emergency Funds (longer-term): 3-6 months while working (my standard is 3 months with two active income streams, 6 with one).
   • I like to see individuals deploy cash above and beyond these sums so that the cash is actively working for and toward your goals. It doesn’t have to be invested all at once, it can be done strategically over time. I’ll add that many don’t account for the fact that, when deploying this cash into say a taxable brokerage account it is still accessible if needed. That said, I strongly recommend working with a wealth advisor when deploying significant sums of cash especially if it might be needed within the next 2 years. [3]

5.  APPRAISE the services you subscribe to. It is critical to understand where professional assistance is essential for you and your family and where it isn’t, further prioritizing your resources accordingly… the most important of such resources is time. I come at this from the perspective of someone who has run a stingy budget my entire adult life. However, as I’ve gotten older and my family grew (thus my available time and priorities changed), the premise that you must assign a monetary value to the time and/or expertise you DON’T have has become increasingly evident. To illustrate what I mean, many employ wealth advisors to handle their investments, CPAs to prepare their tax returns, and attorneys to handle their legal matters because there is an expertise that the average person does not have in these areas. Further, most don’t have the time nor the desire to become experts and so they outsource the service as their energy is best spent elsewhere. When you couple this aspect with the added wealth, security or savings created by the professional assistance, this is typically money well spent.

Maybe the debate is simpler for you. Maybe it is whether to employ a fitness coach to get you in shape this year or not. Maybe it is subscribing to a yard maintenance service to free up your weekends for family time. Maybe it is earmarking some assets toward an after-school program or tutoring service for the kiddos covering a specific need. Whatever the situation may entail, the subjectivity and price placed on something not so easily valued is something we all should spend a little extra time on in the new year as we evaluate our finances and financial plan.

Hopefully, these concepts prove helpful as you undertake evaluating your financial situation in the early stages of 2022. As you do so, do not shy away from seeking the counsel of a wealth professional especially if you have been more in the “DIY” camp thus far. Whether it is peace of mind that what you’re doing works, OR actionable recommendations that can better your situation, typically the outcome is well worth the time and effort. Our incredible team of advisors at Veracity Capital is ready and eager to help in this regard, and we welcome the opportunity to assist your family in the year ahead with solidifying your financial confidence for the future!

Advisory services offered through Veracity Capital, LLC, a registered investment advisor.

[1]

Far too often, individuals create budgets based on hypotheticals and what they HOPE to happen with little attention given to what has happened. It is important to review your spending patterns and understand where changes are necessary vs where you simply have placed a higher level of financial priority- your money typically will tell you what you hold in high regard by where you deploy it!

[2]

I distinguish between short- and long-term savings because I want there to be cushion, or “margin” as I like to call it. If you have set aside proper contingency funds, you can ensure that you aren’t eroding the security of having proper emergency funds for random but common nuisance expenses. Typically, the contingency funds aren’t but a couple thousand dollars at most. For the longer-term emergency funds, I typically will recommend segregating these funds in a separate money market or brokerage account away from other operational cash just to ensure that they do not get tied up in cashflows.

[3]

I use a 2-year bogey for deciding whether to invest cash or not; based on the usual market cycle that can span 4-7 years, if you likely will need the cash within the next two years, you may want to consider keeping the sum conservative (possibly even in cash).