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5 Tips to Start the Year Financially Healthy

5 Tips to Start the Year Financially Healthy

February 15, 2022

As you think about moving from working for a living to living comfortably in retirement, there is a lot to consider. It’s easy to get overwhelmed. Now that the Holiday Season is behind us, I suggest you take a minute to review a few basics to be sure things are on track.

Whether you are planning to retire next year or 20 years from now, these five tips will serve you well.

Cash is King. Keep a Cash Emergency Fund

So far this year, the markets have been extra volatile. It’s a great reminder of the value of keeping adequate cash at hand. It’s a great comfort to have plenty of cash so that you will not need to sell investments during volatile market conditions.

Understand what you spend each month on your necessary living expenses. Keep six months’ worth of those expenses in cash in a savings account at the bank. Sure, it will earn no interest right now. But it’s federally insured and it’s readily accessible if you need it to tide you over in an emergency. It’s great insurance. Even in inflationary times. The security and the liquidity are worth the “expense” of low interest in a rising rate environment.

Save Some of What You Make

Experts suggest that most Americans need to save about 20 percent of their annual earnings each year to have enough saved to quit working at some point. You may feel like you are “saving” when you pay down your mortgage, but that’s an investment home. Odds are that you will never sell your home outright and use the proceeds to live in retirement. More likely is that you will trade your current home for a new home, or for a summer and winter home.

But money in your company 401(k) plan, in an individual retirement account (IRA) or a Solo 401(k) for your family business is a lot more useful as you transition into retirement.

Invest What You Save

If you are putting money away each year for retirement, you should invest it to grow faster than the rate of inflation. That way the money you save will allow you to buy more in retirement, even if the cost of things continues to rise. This means owning stock. Historically, the U.S. stock market has grown faster over time than bonds or cash.

Diversify What You Invest

Be sure your investments are prudently diversified across different investments. My retired clients generally own 12 different types of investments. This allows them to benefit from good market conditions, wherever those conditions appear. And, it allows them to avoid exposure to bad market conditions, wherever those conditions appear. An asset diversification strategy does not guarantee growth of principal and it is not without risk of loss. But history has shown that diversification generally leads to less volatility over time.

 Diversified investment account pie chart

Keep it Simple, Stupid

Use low-cost, broadly diversified investments to start. For example, funds like Vanguard Total US Stock (VTI) exchange-traded fund (ETF) owns all U.S. traded stocks or iShares Core Aggressive Allocation (AOA) ETF owns U.S. and International stocks, US and International bonds.  You get two important benefits.

    1. You reduce the investment expense. If you avoid 5 percent sales charge and the 1 percent or 2 percent internal expenses, it’s much easier for your investment to grow faster than inflation.
    2. You can understand what you own. If you choose funds like those mentioned above, a growth allocation fund that owns a broad selection of stocks, then every dollar in that fund owns a selection of stocks and bonds in many different industries and even different countries. This allows you to own one or two investments and still have a well-balanced portfolio. Until your account gets to be larger than $100,000 I don’t believe there is much reason to own more than two investments.

If you would like to talk about implementing any of these tips, it might be great to visit with an experienced, well-trained CERTIFIED FINANCIAL PLANNER™ professionals.

To find a CFP® professional near you, start your search here.

As you visit with financial planners, I suggest a couple things to check:

  • Is the advisor always the client’s advocate – a fiduciary advisor?
  • Is the advisor paid by clients, not financial product manufacturer or distribution network? That would be a fee-only advisor.

These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.

A fiduciary, fee-first, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.

Remember: All investing involves risk, including the possible loss of principal.  There is no assurance that any investment strategy will be successful. A diversified portfolio does not assure a profit or protect against loss in a declining market.