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Your Financial Plan in 2022

January 04, 2022

I’m a big fan of New Year's resolutions, and improving any area of our lives generally involves nothing more than a little focus and determination. Establishing a mindset and deciding to move forward is the fundamental pathway to succeed at nearly anything. Like all other fundamentals, the actions necessary for success are simple, but they are anything but easy.

For those dedicated to getting in shape, moving more and eating less is a simple and effective strategy, yet it’s not easy. Self-control, motivation, and perseverance are often difficult to muster when work and life gets hectic. The mindset of eating less doesn’t begin at dinner time when food is already on the table; the mindset begins at the grocery store.

Improving your finances in 2022 is no different than improving any other aspect of life: it’s simple, but not easy. You don’t have to be an expert to have a successful plan if you have some fundamental concepts engaged properly. Here are tips to refine your financial plan in 2022.

Know How to Habitually Save

A budget is important for many, but for many physicians, dentists, and business owners, a budget can become obsolete – at least for purposes of spending less. While I always recommend having a grasp on your monthly overhead, there can come a point where monthly income far exceeds basic monthly expenses. When that occurs, it makes sense to focus on maximizing savings, rather than to focus on minimizing spending. To excel in the fundamentals of a financial plan, you need to spend less and save more. A budget can help you track and potentially minimize and prioritize spending, but a budget doesn’t necessarily help you save more. When going through your budget, you often are attempting to minimize spending of one category to maximize another. In short, a budget can help you prioritize your spending, but it doesn’t help prioritize saving.

When you get your paycheck, save first. Calculate what you need to save to accomplish your financial goals and desires. Maybe the goal is to begin saving, where something is better than nothing. Save first, and then, if you have saved for your future goals, you can – in essence – spend the rest. If you still have some money left over after saving and spending, your future-self will thank you for saving even more!

Understand What to Protect

Insurance and risk management can be a tedious process in a financial plan, but it’s most certainly well worth the work. Not all insurance policies are created equal, so identifying a good insurance policy from a lesser one is one quality that makes a good risk manager. Cost and expense aren’t always a good indicator of a good insurance policy. I have seen many good insurance policies cheaper than lesser ones. There’s merit in reading an insurance policy, and you’ll be surprised by what’s inside, no matter the kind of insurance policy.

Understanding what kind of insurance policies to purchase is no small task in a financial plan. I always start with protecting income. Income is your financial plan’s most precious asset, and if your income gets interrupted, the results could be catastrophic. What incidents affect income? Death, disability, and lawsuits are the three main incidents that come to mind.

If you have a family, they depend on you to take care of them. To protect your family against your premature death, term life insurance is obviously a good start, but figuring out how much to purchase can be unclear. I don’t regularly suggest a blanket solution for everyone. Before deciding how much insurance to purchase, I recommend considering what your goals are for the insurance, and then a conversation about how much insurance to purchase is much more powerful. The good thing about term insurance is that it’s generally cheap for young and healthy individuals. Those with health concerns will need to consider seeking more expert advice, as there are resources available to communicate with life insurance companies to determine insurability prior to submitting a formal application.

To guard against lost income due to a sickness or injury, disability insurance is an easy answer, but it’s not the only answer. Disability insurance is a very tricky topic, and the ultimate value of a good disability insurance policy is the contract wording of each insurance policy. The wording ultimately manages the entire policy, determining what is and what isn’t deserving of delivering a claim. I suggest reading your disability insurance policy very carefully to see if you understand the wording. If you understand the definition of disability, and it’s agreeable, then you should be in good shape. If you were convinced into purchasing a bad insurance policy, the feeling of owning a weak insurance policy is bad. If you’re in the process of purchasing a disability policy from an insurance agent (especially if you’re presented only one policy), I recommend reading the definitions before committing to the policy. You can save yourself some frustration by seeking some clarity.

The area of income protection that isn’t as obvious as the other two insurance policies is protecting against personal lawsuits. If you have a high income, a prestigious title, or drive a nice car there’s a good chance you could have a personal lawsuit target on your back. The easiest (and cheapest) insurance to purchase (unless you have a sixteen-year-old driver at home) is umbrella insurance. The umbrella insurance policy quickly solves the problem of exposure to a personal lawsuit by providing added personal liability insurance to your car insurance policy. It protects against lawsuit judgements whether the issues stem from a car or not, so these policies are fairly dynamic.

Lastly, in deciding what to protect and what to skip in your financial plan can be a risky decision. One thing that should be considered thoroughly in 2022 is the need for an estate plan, especially if you have kids. An estate plan can be the ultimate lifetime decision that impacts your family for years after your life, defining your legacy. The purpose of an estate plan is not to make your kids rich, but an estate plan can certainly set your kids on the right path and teach them by example on how to get their own affairs in order. To establish an estate plan, I recommend seeking an attorney who specializes in estate planning. Finding the right attorney can give you a major advantage in your financial plan.

Don’t Be Afraid to Seek Advice

If you have chosen to prioritize your finances in 2022, then it is important to understand why. Why are finances important? Why weren’t finances prioritized before? What is it about money that’s important to you? Understanding these questions will help you begin to reflect on what you’re trying to achieve. As Socrates famously stated: “To know thyself is the beginning of wisdom.” Self-awareness is a very important aspect to financial planning. In fact, I would say that the most important components to financial planning are the philosophical components. Many of the technical aspects of financial planning have become somewhat commoditized in today’s world, but establishing and communicating a family’s goals, dreams, and desires isn’t something that can be prepackaged, managed, or manufactured and sold.

Developing a financial plan on your own can be daunting, and there’s no way one person can know everything there is to know about money, investing, taxes, probate law, and insurance. Many questions will likely arise, and you can find yourself second-guessing decisions or wondering what you’re missing. Finding a good advisor to track your course and bounce ideas off might not be a bad thing. Interview the advisor to see if he or she is a good fit. Learn how they get paid, who they serve, and what services they provide. M­any advisors don’t require transactions or investment management to help with a financial plan, so if you want to continue with your own financial management, you may be able to do so without conflict.

2022 might be the year you feel confident in your future. A lot has happened in the past two years to make us wake up to the realities of today’s world. Feeling confident in your future amidst an uncertain landscape might be the best thing you can provide for you and your family.