How to Organize Your Finances: 6 Essential Areas of Financial Planning
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How to Organize Your Finances: 6 Essential Areas of Financial Planning
Prepared by Michael Menninger, CFP®
January 9, 2025
If organizing your finances was your New Year’s resolution, we applaud you. However, we also hope it doesn’t fade away quickly. In this article, we present 2025 financial planning ideas that you could initiate to organize your finances and plan for the future. Thus, we structured this article to follow the six areas of financial planning:
- Cash Management
- Tax Planning
- Insurance Planning
- Investment Planning
- Retirement Planning
- Estate Planning
It’s important to understand these areas are interconnected. A change in one can impact the others—so a holistic approach to comprehensive financial planning is key.
1. Cash Management: Gain Control Over Debt and Build Your Safety Net
Cash Management – We believe the best (and easiest?) way to improve your financial picture is to identify and control your debt. Begin with a list of your assets and your debts, which essentially creates your personal financial statement. When doing so, understand that credit cards are only considered a debt if you don’t pay them off each month. If you do pay them off, we congratulate you on sound financial management, as you are simply using your credit cards as a convenient method for paying bills and maybe collecting “points” or cash rewards on your card. If you don’t pay them off each month, record the total amount carrying over and its corresponding interest rate. For each debt, it is important to understand the balance, interest rate, monthly payment, and when it will be paid off. If you have high-interest debt, but also low-interest-bearing savings accounts, it may be prudent to pay down that debt to save on interest costs. Alternatively, you could also use equity in your home by utilizing a Home Equity Line of Credit (HELOC). Also, if you are overpaying a low-interest debt each month, it may be worth considering taking that extra cash and applying it to higher-interest debt.
For assets, we recommend establishing an emergency reserve. Financial guidelines suggest three to six months of expenses, and that is usually established to cover expenses in the event one or more earners lose their ability to bring home a paycheck. Thus, the amount you reserve may also be impacted by how secure each job is, and how well your life and disability coverages are.
2. Tax Planning: Be Proactive, Not Reactive
Tax Planning – Tax Planning is not something you do on April 15th, as that is only when you turn in your scorecard – the 1040 tax return. At the beginning of the year, you may have the opportunity to contribute to an IRA or Roth IRA for the prior year, but you only have until April 15th to do so. No extensions!
This is also a good time to look at your pay stubs to ensure your employer(s) are withholding enough taxes from your pay. Nobody likes surprises in April, and if you’re not withholding enough for taxes, then you may also be subject to a penalty.
We are currently in historically low tax rates, but they are scheduled to change at the end of this year. Thus, you may want to consider ideas to utilize these low tax rates, such as switching from a Traditional 401k / IRA to Roth 401k / IRA. Further, it may also be advantageous to consider Roth IRA conversions as a long-term tax planning strategy.
3.Insurance Planning: Protect What You’ve Built
Insurance Planning – It is generally advisable to review your home and auto insurance coverage every few years, particularly since those rates have gone up significantly in the past couple of years. Thus, it’s never a bad idea to shop around, but remember, you get what you pay for. Be sure you speak with a qualified insurance professional and make sure you are adequately covered.
It may also be worthwhile to evaluate your life and disability insurance coverages, too. If purchasing through your employer, you typically cannot make changes, except during open enrollment, that usually is near the end of the year. Once again, it is important to make sure you have adequate coverage. If your company doesn’t offer these types of insurance, or not in the quantity you desire, you can purchase the insurance privately.
4. Investment Planning: Align Your Portfolio With Your Goals
Investment Planning – It is always a good idea to monitor your investments to ensure they are consistent with your short- and long-term goals. Further, it is also important to measure the risk of those investments compared to your risk tolerance, and to ensure your investments are well-diversified. You may also find this to be a good time to take capital gains or harvest losses.
Individuals should also look at their employer-sponsored investment plans. For example, many large companies offer their employees stock options, restricted stock units (RSUs), or an Employee Stock Purchase Plan (ESPP). Each of these plans have their own nuances, but the ESPP is the one that is typically voluntary, and is usually an excellent savings and investment program, because your company usually offers the stock at a discounted price.
5. Retirement Planning: Get Ready Years in Advance
Retirement Planning – If you are thinking of retiring within the next five years, you should focus your attention on the details. Specifically, it is important to understand your desired cost of living in retirement so that you can calculate if you have or will have enough saved to pay for it. You may want to analyze your expenses to see what will go up and what may go away when you retire, so you can better estimate your living needs. Further, you may be relying on your company for benefits, so you may need to be prepared to drop those benefits and/or purchase them on your own.
As for Social Security income benefits, there are many nuances that you should know and understand before making a decision regarding when you begin to collect your benefits. For example, if you haven’t yet reached full retirement age (66-67), then do you expect to earn income? If you are married, there are also strategies to help you maximize your benefits, which can be based on the respective ages of the spouses and their individual benefits. If you are divorced or widowed, there are also provisions to increase your benefits.
6. Estate Planning: Create a Legacy and Avoid Probate
Estate Planning – Do you have a will? If yes, you are off to a good start. If not, then you are taking a BIG risk. Ask yourself these questions. Who do I want to decide who cares for my dependent children, and who do I want to decide on where my assets go? Do you want the State/courts to decide or would you prefer to make those decisions yourself?
In addition to the asset distribution and care of dependent children, an estate attorney will also provide additional documents, such as a durable Power of Attorney (POA), a medical POA, a living will, and possibly even trusts. The POA documents allow for someone else to make financial and/or medical decisions on your behalf if you are incapacitated. Trusts can be established and funded now, or not until after death. Either way, trusts can be a very effective way to avoid probate, to control the disposition of your assets long after you passed away, and to also protect those assets from creditors.
Be sure to check the beneficiaries on all your retirement accounts, annuities, and life insurance policies. While this sounds pretty obvious, we have seen assets distributed after death to an undesired individual, such as an ex-spouse. Or, your goals may have changed since the last time you named or reviewed your beneficiaries. Lastly, it’s a good idea to share your plan with a trusted individual, such as your children, in the event you die suddenly. This enables them to be able to administer your estate more easily by finding where you keep everything.
Need Financial Guidance? Menninger & Associates Is Here to Help
In summary, the most important thing you can do is get organized. Nobody plans to fail – they just fail to plan. If you see the advantage of any of these ideas, but they are overwhelming or just over your head, then you should seek the advice of a professional. In our opinion, we believe you would benefit from meeting with a trusted and qualified Certified Financial Planner® (CFP®) practitioner. A good CFP® will be able to help you understand all these topics, and help you navigate your way through them. Also note that CFPs® are also bound to serve as fiduciaries, which means they are obligated to put your best interests first. Seems obvious that financial professionals should behave that way, but it sadly isn’t the case.
At Menninger & Associates, we are a group of CFP® professionals dedicated to assisting our clients in all areas of financial planning. If you have any questions or if we can assist you with any of these ideas, please feel free to call us at (610) 422-3773.
Need Help with financial planning? Reach Out To Menninger Today
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal.
