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10 planning tips you should work on now

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The amount of money you make or save will not guarantee wealth and prosperity. However, if you can manage to adjust, adapt and most importantly, plan, you’ll have a better chance.

1. Build an emergency account

There is no denying life will throw you curve-balls from time to time – a job loss, a medical emergency, or legal trouble. First, designate one FDIC insured account to hold your emergency funds. Now start saving a minimum of six to nine months’ worth of fixed expenses. This keeps you from having to charge up your credit cards or worst yet, tap into your retirement account when life’s emergencies come out of nowhere.

2. Pay down your debt

Create a methodical and manageable plan to pay down your balances. In order to save or grow your money, remove short term debts off your personal balance sheet. Whether it be student loans, auto loans, or credit cards, there is a good chance the interest rate you are paying on the loan or credit line will be higher than most, if not all, interest-bearing accounts. Sooner you pay off the debt, sooner you pay yourself the higher rate of return.

3. Consolidate your bank, brokerage, and retirement accounts

Look at your balance sheet. Don’t have one? Create one. This will help you list out all your assets from bank accounts to retirement accounts. You’ll start to identify duplications. For example, when you move from one job to the next, your old 401(K)s get left behind with your old employers. Consolidate your old 401(K)s and roll them over into one designated landing account: A rollover Individual Retirement Account (IRA).

4. Contribute to your 401(k), 403(b) or other employer-sponsored saving plan

Take advantage of tax deferred growth with higher annual contribution limits (e.g., $19,000 in 2019) and a possible match from your employer. This is free money you won’t see through your Individual Retirement Account. Did I mention you get to reduce your taxable income by the amount you contribute?

5. No employer-sponsored saving plan? Open an IRA

An Individual Retirement Account may not offer the same contribution limits and an employer match of a 401K plan, but it comes with its own suite of benefits: more investment options with lower expense ratios. You can deduct up to the max contribution limit (e.g., $6000 in 2019) on your taxes assuming you’re eligible to participate in a Traditional IRA. However, there is no deductions on a ROTH IRA.

6. Maxed out your retirement accounts? Open a taxable brokerage account

This account is like your 401(K) or an IRA, but without the tax deferment feature. In other words, you can still invest in your favorite stock or exchange traded fund, but the dividends and profits (from the sale) will be taxable each year. And best of all, if you hold onto your investments for at least a year and one day, your taxes are based on long term capital gains tax rates of 0%, 15%, or 20%.

7. Look at your overall portfolio and evaluate how your money is invested

Asset allocation, asset allocation, asset allocation. Perhaps you’re on the conservative side, yet your portfolio is designed to capture 100% of the stock market exposure. Or vice versa, you have an aggressive tolerance, yet you carry 100% treasury bonds. Evaluate your tolerance for risk and fees and allocate your portfolio accordingly. Indexes are a simple way to diversify. Most importantly, they’re cheap. If you have limited options, for example in your 401(k) plan, make sure that you diversify across a broad spectrum of investments with low-cost options.

8. Start tax planning for next April

Make it a habit of planning for your taxes the year before they’re due. Max out your employer sponsored retirement plan contributions, increase your charitable contributions, tax-loss harvest, defer your bonus for another year, to name a few strategies. You’ll not only save money by making these adjustments, but also be at peace knowing you’ve done everything you can to mitigate tax liability.

9. Update your beneficiary list and create a Will, Power of Attorney, and Medical Directives

Having an estate plan is important no matter where you stand on the wealth spectrum. However, for the majority, updating the beneficiary forms, drafting a will, securing a power of attorney, and completing the Medical Directive may not only be a great start, but may be all you need.

10. Discard your box full of outdated financial documents

There is no reason why you would want to receive paper statements if you own a computer, have internet access, and are under the age of 80. Electronic copies take up no space and can be accessible no matter where you are in the world as long as you have a device that can connect to the world wide web.

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