Alfa Pride Financial Blog
The rising cases of Covid-19’s Omicron variant has created much uncertainty and concern for 2022. Not knowing what to expect for the year makes it extremely important to reassess your situation, and update your financial plans. Keep reading for three recommendations on how to improve your finances.
Update all of your financial documents and accounts
You should first start by making sure your beneficiaries and designations are up to date if you have had any major life changes in the past two years such as a marriage, divorce, a new child, home purchase, or changed jobs. They should be updated on existing life insurance policies, wills, trusts, power of attorneys, medical directives, retirement accounts, savings accounts and brokerage accounts. It’s important to update these things so that when you eventually leave us, you ensure your accumulated assets are efficiently transferred to the people you intended without any issues.
Not doing so can mean serious heartache and financial struggles for your loved ones. There are countless horror stories of these situations happening. For example, a couple gets married and the husband takes out a life insurance policy on himself to provide for his then wife. The marriage doesn’t work out, and they get divorced. He remarries and has children in this new union.
Unfortunately, tragedy strikes and he passes away. In the process of his estate claiming and liquidating his assets to care for his family, it is discovered that he never updated the beneficiary on his life insurance policy. His ex-wife is now entitled to the entire tax free death benefit. His existing family is now forced to financially struggle, because his income has not been replaced to continue supporting them during the time they are dependent on him.
It is extremely important to have all of your accounts and beneficiary information updated. They should be reviewed on an annual basis or whenever you experience a major life event. Even if you are single without a spouse and children, you should determine what will happen to your assets when you pass away. You may want them to go to a parent, another relative or a nonprofit organization whose mission you support.
If your financial documents and accounts are not in order, when you pass away the state will step in and determine what will happen to your assets. This can take three to six months. If you have a complex financial situation it can take years. It can also be an expensive process. Probate attorneys can charge anywhere from $350 to $600 an hour. Knowing this, you must ask yourself, do you want your loved ones to go through this stress during their time of mourning?
Make your surplus funds work for you
If you have a large amount of money sitting in your bank account, anything above six to 12 months of emergency savings should be moved elsewhere to make more money for you. Savings accounts pay very low interest rates, even though the banks are taking your money and loaning it out at a higher rate, while paying you less than 1% from their profits. If your money is sitting in a bank account earning less than the inflation rate, it is losing value and buying power.
In 2021, the inflation rate increased to 6.8%, the highest it’s been since 1982. This means that things will become more expensive making it more difficult to obtain the things you want, and achieving your financial goals. Purchasing a new home, a new car, going on vacation and funding your children’s college education will become more challenging. This makes it even more important to ensure your surplus money is working overtime for you, earning competitive rates of return that are keeping pace with and exceeding inflation. Too many times, I’ve worked with clients who have hundreds of thousands of dollars just sitting in their accounts doing nothing for them. This is not an advantageous situation to be in.
Reevaluate the timeline of your financial goals
Whatever financial goals or milestones you have set in place for you, it is the perfect time to evaluate to see if you are on track to achieving them. Have you saved enough to purchase the new home or car you want? How on track are you to funding your children’s college education? Are you on track to securing your retirement?
Depending on where you are on your financial journey, you may be able to obtain many of those things sooner than anticipated. If you aren't on track, then you have to determine if you want to change goals, or change your timeline. When it comes to your retirement, you could decide that you are able to retire at 60 versus 65. However, if you are behind on your savings, you may decide to either retire with less money or delay retirement to further boost your nest egg.
No matter what you decide, it is best to do it sooner rather than later so that you can properly prepare for the transition. It is best to prepare today for both the expected and unexpected things of tomorrow. It will give you and your loved ones a peace of mind so you can enjoy life on your terms and live life worry free.
There is no better time to re-evaluate your current situation than the present. Connect with a licensed financial professional at Alfa Pride Financial and get a free financial plan to assess where you are on your financial journey and recommendations to optimize your assets.