New Year’s Financial Actions for Federal Employees
By: John Jilek, Certified Financial Planner
Published: January 20, 2017
Start with a personal budget. Your goal in budgeting is to identify where your expenditures are being made relative to your “bring home pay”. If you do not like the idea of a ‘budget’, view the process as the beginning phase of financial independence. In other words, you are determining your monthly cash flow. Monthly cash flow is the”bring home pay” less your minimum monthly expenditures.
List all your debt from lowest to highest balance and plan to reduce the total balance significantly in 2017. Focus on paying off the lowest amount first and build some momentum as you reduce the number of bills you pay each month. If debt and expenses are greater than income, consider lowering your personal contribution to 5% to TSP temporarily. You will still get the full 5% agency match and you can use the extra money to your paycheck to pay down your debt. After your debt is gone, you can increase your TSP contribution to the maximum.
Calculate your net worth and set a goal for increasing it for 2017. “Net Worth” is defined by all assets minus liabilities. Assets include funds in your checking account, value of your TSP, value of your home, value of your automobile, etc. Debt includes money you owe, mortgage, auto loan, personal loan, etc. To do this, subtract what you owe from the value of what you own. It is that simple!
Review and reallocate your TSP holdings. Do not overlook the value of utilizing all five TSP investment options G, F, C, S, and I. Think of the individual investments like lanes of traffic on a highway. The lanes move at different rates, and slow down and speed up differently depending on traffic conditions. It is never good to have all your money in one fund unless it is an L fund which invests in all five funds for you. The closer you get to retirement, the more cautious you should be. However, prices will continue to rise throughout your retirement years and you need to be invested to keep pace.
Review your basic legal documents: Will, Power of Attorney, Advanced Directive, and Health Care Power of Attorney and check for necessary changes. If you do not have legal documents, consult with a local attorney and have them prepared. Hiring a competent legal professional practicing in your community gives you a set of documents consistent with the laws where you reside.
Meet with a tax professional. If you are preparing your own taxes, consider meeting with a tax professional, a Certified Public Accountant who specializes in personal income tax or a Certified Financial Planner who specializes in income tax planning and preparation. Often times, your friends are great sources of professional referrals. Also, consider having your prior years’ filings review for tax savings ideas. The cost of missing legitimate deductions compounds over the years. It is always good to get a second set of eyes, especially those of a professional tax preparer.
Review your insurance needs including Life, Long Term Care, Automobile, Fire, and Umbrella Liability. Your need for these insurance coverages will change throughout your career and life. One important milestone to address is the opportunity to reduce your life insurance coverage IF the need has diminished. For example: What if your house is paid for, do you still need the life insurance coverage? If not, maybe Long Term Care Insurance is something to consider.
Umbrella Liability Insurance? What is that? It is an inexpensive policy you can buy to give yourself extra liability and legal expense coverage if you are at fault in an automobile accident or someone is injured on your property. Coverage is generally bought starting at $1,000,000 for about $10 month per person.
Sign up for a pre-retirement class at your agency. It is never too early or too late in your career, to get a mile high view of the Federal Benefits System and how you are positioned financially for the retirement years.
John Jilek, Certified Financial Planner, is a presenter for NITP, Inc. and has been a Financial Advisor since 2000, prior to this he was General Manager for Batching Systems, Inc. for 10 years. John has a BS in Education from the University of Maryland, College Park, and in 2009, completed the training to become a Certified Financial Planner by the Certified Financial Planning Board of Standards. John has been an active trainer in several fields for twenty-five years.
This newsletter is for informational and educational purposes only.