ColumnistsFinancial Health

7 Steps to Financial Fitness in the New Year

By Jim Terwilliger

Setting goals for the new year is a popular activity. Unfortunately, for most of us, our goals tend to be long forgotten by the end of the first quarter. Don’t let this happen when it comes to your personal financial well-being. Maintaining strong financial health is critical to enjoying a satisfying quality of life.  Financial health is not about wealth. It is about:

  • Articulating your financial needs and goals;
  • Understanding where you are today;
  • Developing and following a plan to achieve your goals;
  • Having and following an integrated investment strategy;
  • Protecting your plan with appropriate choices of savings, insurance and estate planning strategies

Seven of the most important steps include:

1 Living below your means. This can be just as difficult for wealthy folks as it is for the rest of us. The concept is simple. The “doing” is not so simple. Make saving a priority by paying yourself first. Make helping others a priority through charitable giving. Learn to live on the remainder. The primary benefits are financial freedom, financial flexibility to manage unexpected challenges and opportunities, and most important — peace of mind.

2 Preparing for retirement. Lifetime company pensions are becoming extinct. With the exception of Social Security benefits, a large portion of retirement income will come from accumulated savings through employer retirement accounts, investment accounts, and IRAs.

It is important to understand the level of accumulated wealth necessary to support a desired lifestyle for some 30 or more years of retirement. As we noted previously, a rough rule of thumb is that a retirement nest egg is likely to last a lifetime if no more than 4 percent is withdrawn the first year, allowing for future years’ withdrawals to index upward with inflation. A nest egg of $1 million would allow for a safe first-year withdrawal of $40,000.

The above depends on following a solid investment strategy that includes a broadly-diversified portfolio consisting of 50-70 percent stock-related securities, rebalanced regularly. Avoid trying to time the market. Stay disciplined. Not following these principles may result in running out of money in retirement or in reducing the distributions you can expect to extract from your nest egg.

3 Reviewing and updating your insurance. A primary purpose of insurance is to protect your plan in the event that an unexpected, financially-catastrophic event confronts you or your family. To do so, the level of coverage must be consistent with your needs and goals. Excepting permanent life insurance, we all hope that a claim never has to be made.
In addition to the standard life, auto, and homeowner’s insurance protection, disability, umbrella liability, and long-term care insurance protection are also important to consider.

4 Reviewing and updating your estate plan. Many wills are out of date or, for some folks, do not even exist. Ongoing changes in estate tax laws and changing life conditions have made the need for regularly updating wills a priority. Again, the purpose for doing so is to protect your plan. A good plan will survive you, providing for your family and other important people or institutions in your life.

Associated activities include updating your healthcare proxy, living will, durable power of attorney, and life insurance and retirement plan beneficiaries. The latter need to be consistent with your will and with the estate plans of family members.

5 Attacking credit card debt. Wipe your credit-card slate clean. Add up how much you owe and create a plan for paying off your debt over time, starting with the card with the highest interest rate. Call your card issuers to try to negotiate a lower rate or work with a reputable consolidation organization, such as the Consumer Credit Counseling Service of Rochester, Inc. Going forward, resolve to make all purchases with cash, a debit card, or a credit card which you will pay in full monthly to ensure you spend only what you can afford.

6 Making tax planning a year-round activity. While some tax-saving activities can be executed at year-end, most require ongoing planning and implementation. Examples include minimizing taxation of Roth conversions by staying within a current marginal tax bracket; limiting long-term capital gains to 0 percent taxation territory; contributing to a tax-deferred retirement plan; utilizing NYS tax breaks from long-term care insurance premiums and 529 college savings plans; and balancing the timing of distributions from tax-deferred retirement plans vs. taxable investment accounts.

7 Start now. Financial wellness does not just happen. Take action now to make it happen. Better yet, partner with a trusted fee-only financial planner to help you to develop and manage your financial roadmap.

James Terwilliger, CFP, is senior vice president, financial planning officer at Wealth Strategies Group, Canandaigua National Bank & Trust Company. He can be reached at 585-419-0670, ext. 50630 or by email at