How To Create a Solid Financial Plan for the New Year

With the New Year comes new resolutions and promises to save more money, spend less, and get in financial shape. These goals are admirable but can often be difficult to maintain throughout the entire year, especially as life gets in the way. Research shows that the easiest way to achieve resolutions to approach the goal with a plan^1,2. At Aviance Capital Partners, we focus on financial planning. Whether you have a current financial plan or not, here are six ways you can get started on achieving your goals for the New Year.

How to Create a Financial Plan [2022]

Identify & Define Your Goals

Before you can pursue your goals, we think it’s important to make sure they are well-defined. This can help keep you motivated at times when sticking to a plan is the last thing you want to do. It can also help you to see tangible results along the way. To begin, we want your goals to be SMART:

Specific – take some time to brainstorm the details of what you want to accomplish. The more you can visualize the end result, the more likely you can be to set realistic benchmarks along the way.
Measurable – goals should be trackable so that results can be seen along the way. For financial goals, figuring out the true cost of the plan is a great way to get started.
Achievable – as fun as it is to dream big, your goals should be realistic to your specific situation. Falling short of unattainable ideas can demotivate you and derail your entire plan.
Relevant – the goals you develop should be relevant to your internal values and long-term financial objectives. When your morals and your goals align, staying motivated to achieve your plan can be easier.
Timely – goals should have a time frame for achievement so that you can work toward it with the right mindset and pace.

Cover Your Bases

The next step is to make sure all your bases are covered. This includes things like building an emergency fund with enough money to cover 3-6 months of nondiscretionary expenses, as well as paying off high-interest consumer debt, and ensuring your life, health, disability, and property insurance coverages are all up to speed. Your long-term goals should be a guide when assessing whether you are properly prepared.

Other financial bases to consider include establishing a detailed estate plan, especially if you have significant assets you hope to pass on to your children or grandchildren, or if you are the parent of a special-needs child. Additionally, documents like wills, powers of attorney, health care proxies, and trusts are essential to keeping you and your family protected in the event you become incapacitated, or you are unable to handle your own affairs.

Align Your Investments with Your Goals

After you develop your goals and covered your bases, the next step is to build an investment plan. We believe the best way to do this is to invest based on your time horizon.

Short-Term Goals – These are goals that will be accomplished within the next two years. Because they are right around the corner, we usually suggest you save for these goals using highly liquid assets like high-yield savings and money market accounts. While you wouldn’t realize the highest return, the point is that the money will be there when you need it.
Intermediate-Term Goals – Between 3-10 years away, these goals give you leeway to take a little more risk with your investment plan. We’d often suggest you consider CDs and short-to-intermediate high-quality bond funds for this portion.
Long-Term Goals – These are goals that will be accomplished in 10+ years. Because of the long time horizon, the focus is on growing your funds so that they can keep pace with inflation. This usually involves investing in assets like stocks, which are intended provide growth and income over the long term. Keep in mind that investing in the stock market is inherently risky and never a one-size-fits-all solution. Any investment decisions should be made in the context of your entire financial plan.

When you are investing, we also generally suggest that your portfolio is well-diversified to mitigate overall risk.

Don’t Forget About Taxes

Taxes are one of the only guarantees in life and they will greatly impact your investment returns as well as your ability to meet your long-term goals. Proactive tax planning is one of the best things you can do to create a solid financial plan. It’s important to understand the tax characteristics of your income, investments, retirement accounts, and how they will affect your tax bracket, and your ability to qualify for deductions and credits.

To learn more about what you can do to prepare for tax season, read our upcoming article here.

Avoid the Set-It-And-Forget-It Mentality

It can take a lot of work to create a solid financial plan and there is often a common misconception that once it’s in place, there’s nothing more to do. This couldn’t be further from the truth. Life changes constantly, and so your plan will need to adapt if it is going to keep you on track. Whether it’s a new job, a new business, getting married, or having a child, there are many life events that can affect your ability to save and invest. Changing legislation is also another key factor as decisions by Congress can greatly impact your overall financial plan, especially when it comes to taxes. In the last two years alone, we’ve seen significant legislative output in the response to the pandemic. We believe changes like these should be fully incorporated into your financial plan if it is going to be effective.

Work with a Professional

Having a second set of eyes reviewing your plan can be invaluable to helping you stay on track for the future. A financial advisor can identify key areas and potential pitfalls to consider as you build your financial plan, providing the expertise needed to navigate complex areas like estate planning, business succession planning, and advanced tax strategies. If you do not already have a plan in place, or if you would like to review your existing plan, we would love to connect with you! To learn more about the Aviance WealthPlan™, reach out to us at (239) 598-4747 or wealthrelations@aviancepartners.com to get started today.

¹Schippers, M. C., Morisano, D., Locke, E. A., Scheepers, A. W. A., Latham, G. P., & de Jong, E. M. (2020). Writing about personal goals and plans regardless of goal type boosts academic performance. Contemporary Educational Psychology, 60, 101823. https://doi.org/10.1016/j.cedpsych.2019.101823
²Latham, G. P., & Arshoff, A. S. (2015). Planning: A mediator in goal setting theory.