8 Steps to Create Your 2022 Financial Plan

Creating a financial plan allows you to set goals and track financial benchmarks throughout the year. Creating an annual plan can ensure you stay on track to achieve your short and long term goals. Each year I provide a checklist to help you create a plan. There will definitely be other things you want to cover; however, putting these 8 financial priorities in place is a good start.

Short and long term financial goals. Whether you want to be debt free in 10 years or own a home in 3 years, you are more likely to save if you have specific goals. Factor those goals into a budget and figure out where you can get the extra money to make those goals a reality.

Budgeting. Any effective financial plan starts with a budget. Identify necessary expenses and savings items. Give yourself a little wiggle room, but try to stay disciplined to your budget.

Emergency fund. These can be a financial lifesaver! A sudden job loss, a major surprise expense or an unexpected health problem can quickly change your financial situation. The general rule is to maintain an emergency fund equal to 3 times your monthly living expenses if you are a two income household and 6 months of monthly living expenses if you are a single income household or if the income of a person is used to ensure the standard of living of the family. During the COVID-19 pandemic, it’s a good idea to bolster these funds with an extra month or two of savings.

Debt reduction. Look to see if there are any high interest debts (like credit cards!) that can be paid off. With interest rates near record lows, investing extra cash in low-interest debt may not be the best idea. If you think you can earn a higher rate of return than the interest charged on your debt by investing that extra money, you should come out ahead in the long run. Certain forms of debt, such as a mortgage on a house, may also be acceptable due to the tax deductibility of interest.

Pension plan contributions. If you already contribute to an employer-sponsored plan such as a 401(k) or 403(b), continue. The Internal Revenue Service has increased the maximum contribution amount to $20,500 per year ($27,000 per year for people over age 50). You should max out 401(k) and 403(b) before using other tax-advantaged retirement accounts because they are protected by federal law if you are ever sued and have a judgment against you. If you own your practice, consider whether you are using the best type of retirement plan for your particular situation.

Traditional and Roth Individual Retirement Accounts (IRAs). If you’re already maximizing employer-provided retirement accounts and want to save additional money for retirement, consider contributing to a traditional or Roth IRA. These accounts also offer excellent tax-advantaged growth and are protected in most states from lawsuits. The contribution limit remains unchanged at $6,000 per year for 2022 ($7,000 for people over 50). Please note: deductibility and ability to contribute is determined by your income, so it is important to be aware of the limits.

Disability and life insurance. Often overlooked, disability and life insurance are actually very important components of financial security. Disability insurance supplements part of your income in the event of illness or disability and incapacity for work. In the event of a long-term disability, this could ensure you stay in your home and/or still be able to save for financial goals like retirement. All eligible physicians should have comprehensive disability coverage that provides at least 60% of their pre-disability income. Life insurance is slightly more situational, but if you own a home with a mortgage or have other debts that would not be exempt upon your death, have children whose college education you would like to guarantee, and/or have a or organization that you would like to provide for in the event of your death, then life insurance should be considered.

Estate planning. The complexity of an estate plan can vary depending on your assets and needs, but it’s important to have some basic estate planning strategies in place. Work with an estate planning attorney to determine if you need wills, powers of attorney, trusts, etc.

Having these 8 important things in hand will give you a solid foundation to start moving towards a financially secure future. We recommend talking to your financial advisor about other areas of your financial plan that could be improved.

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