When you think about what resolutions, habits and goals you want to set for 2022, “wellness” in one form or another is likely on your list. Whether it’s physical, mental or financial health, enduring the pandemic for almost two years has pushed everyone to take better care of themselves and those they love.
One way to define wellness is to adopt healthy habits every day to achieve better physical, mental and financial results.
In order to make healthy choices, you must first assess your current situation. From a financial health standpoint, that means looking at your full financial picture and seeing if you’re on track to achieving your goals. What are your savings and spending rates? And where are your capital and credit levels? Once you’ve taken the pulse of these key financial vital signs, you can take a more comprehensive exam guided by the following four pillars of financial health. It will help you focus on what needs your attention in the New Year.
1. Build up and grow your wealth
Whether it’s having an emergency fund or developing various ways to save for the future, it’s important to focus on achieving long-term financial health. Just like good exercise and eating well, saving early and often certainly has long-term benefits, tax-efficient accounts, such as 401 (k) s, Roth IRAs / 401 (k) s, and health expense accounts. are smart savings tools for almost anyone.
As you move through the stages of life, there will be opportunities to accelerate wealth creation through events such as homeownership, inheritance, liquidation events, and spikes. of income. But, just as fitness experts recommend a mix of cardio and strength training, remember that diversifying your sources of wealth and managing market risk intelligently will build financial resilience. Investing for a more ambitious goal could be a new financial well-being goal for 2022.
Taking a values-based approach to your finances, including your investments, will help you stay more connected with the purpose and meaning of your wealth. Evaluating the health of the companies you invest in through an environmental, social and governance lens will help you make investment decisions that you may not only feel good about, but which are also likely to perform better over time. term.
2. Finance your lifestyle today and tomorrow
Again, just like exercising regularly and maintaining a healthy diet, spending within your means and avoiding bad debt are two important daily habits to adopt in 2022 and beyond. This is because how you view your spending needs today influences your future lifestyle choices. Focus on essentials versus discretionary spending, and if possible, save for expensive purchases like a car or vacations. Planning ahead to make sure your basic needs are always covered should be a top priority. For many, the pandemic has meant a pay rise thanks to a suspension of work-related costs. It has enabled many of us to catch up, pay down debt, or save more. Nevertheless, it is important to think about these expenses which reappear in the future. Keeping an eye on your credit score and using credit wisely are also two important financial routines.
As you approach retirement, examine the sources of secure income available to fund your essential expenses – this should be part of your routine wellness check. This requires a vision into the future and an understanding of the impact of the market, inflation, taxes, interest rates and other risks that could impact your plan, and how the impact. changes with age.
It is important to understand the impact of taxes on your nest egg. Your financial advisor can help you understand what your retirement salary will look like, including estimated taxes. They can also help you understand your Social Security options and help you assess whether a Roth conversion or an annuity might be a worthwhile strategy to consider.
3. Protect what’s important to you
Protecting your family and your wealth during your working years is essential to maintaining that heritage throughout your life. Having an appropriate level of insurance, including property and casualty insurance, should be high on the list of preventative financial care, but life insurance is another important protective measure to take. Many employer benefit plans offer basic coverage that is useful in the short term. However, once you have a family and your income and estate increase, you will likely want more portable and permanent insurance. Additionally, as you age and your wealth increases, it is important to review the purpose and amount of your insurance coverage, as well as explore other important considerations, including preserving your wealth for the next generation. Baby boomers, in particular, would benefit from an insurance review in 2022, as the level of wealth and life circumstances at stake when they first purchased insurance have likely changed over the years. years – or decades – since.
4. Create a lasting legacy
Tackling the essentials of the estate is another financial health ‘do’ that everyone should prioritize, regardless of age or wealth. Establishing key estate documents, including a current healthcare directive, will and power of attorney, are important first steps. It is also essential to ensure that your assets are properly titled and that beneficiary designations are essential.
The threat of a reduction in the federal estate tax exemption has put many investors on high alert. Regardless of what happens with the legislative agenda, we know that the current high federal exemption from inheritance and gift tax of $ 12.06 million per person for 2022 is set to expire on December 31, 2025 and is expected to return. at an inflation-adjusted level of $ 6 million. per individual. With the growing wealth of the baby boomer cohort, many more families will end up with taxable estates. Not to mention the fact that many states have inheritance and gift tax provisions with fairly low exemptions. Getting ahead of that timeline with a confident estate plan should be a priority for 2022.
Giving is often a part of our inheritance plans and it is most rewarding to do so during your lifetime so that you can witness the impact you are having. Whether you are giving your children to help them get their first home, starting a college grandchildren fund, or giving a meaningful gift to an important cause, gifts should be part of your balance sheet of well-being. . Research tells us that being generous and spending money on others makes us happier and gives meaning to our wealth. It also has the added benefit that the next generation sees generosity in action. What better healthy habit is there?
Happy, healthy, rich and wise
Take advantage of the New Year to feel more in control of your financial well-being. This should include a wellness checkup, routine healthy habits, sound decisions, preventative measures, and important life stage adjustments as you age and build your wealth. Being generous in giving and mindful of your investments will add to your happiness factor. While it might seem intimidating, you certainly don’t have to tackle everything at once or do it on your own. Work with your financial advisor to help you focus on what is most important to you and what will be most effective in 2022.
Angie O’Leary is Wealth Planning Manager at RBC Wealth Management-US RBC Wealth Management is not a tax advisor. All decisions regarding the tax implications of your investments should be made in consultation with your independent tax advisor. RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment advisor and FINRA / NYSE / SIPC member.