Take an honest appraisal of your current financial situation versus where you hope to be in 12 months… What will it take to reach your goals?

High-net-worth individuals know that developing a robust financial plan is never a set-and-forget procedure—it’s a process. As the financial landscape evolves, so too do circumstances and financial goals. Employing a proactive approach to financial planning can make the difference between accomplishing your long-term financial goals or having to sacrifice the things that are most important to you.

Take an honest appraisal of your current financial situation versus where you hope to be in 12 months. Examine everything from the present state of your assets and liabilities, to smarter ways to save, invest, and plan for retirement. Even the highest-net-worth individuals have money set aside for emergencies or unforeseen expenses so they don’t have to pull money out of their investments during downturns in the market. What will it take to reach your goals?

man drawing a financial planning diagram

What better way to welcome the New Year than with a practical and effective agenda for your finances? Here are some actionable steps you can take to realize your financial planning goals in 2022.

Evaluate Your Current Financial Health

To map out where you’re headed, you first need to know you’re starting from.

Net worth—the extent to which assets exceed liabilities—is the basic measurement of financial health. It reflects the sum of all your financial decisions up to a set point. If the trajectory is positive, pat yourself on the back. On the other hand, if it isn’t, you may need to conduct a thorough evaluation of your wealth management strategy to secure your short- and long-term financial objectives.

One of the more complicated aspects of evaluating net worth relates to the value you place on each asset. For example, some wealth managers consider a personal residence an asset while others do not—their argument being, if you sold your property you would still need to either rent or buy a new place to live. (At Polaris Wealth Advisory Group, we do consider this a relevant asset; however, we believe it comes to your discretion whether to use this asset to support your retirement needs).

Personal financial statements are useful for creating greater awareness around not only income and expenditures, but also net worth. Some examples of this documentation include:

  • A personal balance sheet giving an overview of assets and liabilities to determine net worth.
  • A personal cashflow statement to keep track of what comes into your account (salary, interest and dividends from savings and investments, capital gains, sale of assets), and what goes out (mortgage/rent, utility bills, groceries, gas). When income is greater than expenditure, your cashflow is positive, and vice versa.

Having a current snapshot of your cashflow and asset situation is extremely helpful in guiding the decision-making process. Perhaps you will discover you need to cut back on spending in some areas, use lower growth accounts to pay off higher-interest debt, or make bolder moves in your savings and investment strategies.

As you run your numbers, keep some basic guidelines in mind. It’s recommended that high-net-worth individuals (HNWIs) allocate 20% of their income or even more toward savings. And of course, keep liquidity in mind—about a year’s worth of living expenses should be easily accessible should you need a spending buffer.

three men doing their financial planning on an ipad

Set (and Update) Your Financial Goals

It’s important to periodically reassess short- and long-term financial goals as our needs, priorities, and interests change. The new year is the time for making personal resolutions. Shouldn’t the same go for wealth management plans?

Financial planning isn’t one-size-fits-all. It should be tailored to your specific needs, and executed efficiently and strategically. What steps should high-net-worth individuals take to first identify and then establish these goals?

Wealth management isn’t exclusively about risk tolerance. It’s about identifying what really matters and crafting the appropriate investment strategies to achieve it.

What is most important to you? Enjoying your lifestyle to the fullest? Retiring at a specific age? Helping your family achieve their goals? Setting up a college fund for your children’s (or grandchildren’s) education? When you match these objectives with the assets in your portfolio and smart investment planning, you put yourself on the path to financial and personal success.

For example, when planning for your children’s and grandchildren’s education, you might compare a number of different investment opportunities and decide which works best with your assets and their goals. Is a state-sponsored 529 investment account the right ticket? 529s grow on a tax-deferred basis, which means they outperform traditional savings accounts. Although contributions are not tax-deductible on a federal level, withdrawals are tax-free, provided funds go to education expenses. Perhaps there are ways to restructure your budget so you can allocate more to your 529 plan. Or perhaps college is not quite a certainty in your child’s or grandchild’s future. In this case, a Uniform Transfer to Minors Act (UTMA) custodial account, trust, or other transfer option may prove better.

While planning for your children’s future, don’t forget your own goals. Consider maxing out your retirement accounts, like 401(k)s and IRAs, as soon as possible. Life expectancy in the U.S. has risen substantially, and you want to ensure funds for the full length of your retirement. To make the most of your 401(k), consider contributing as much as your budget will allow—and if you’re over 50, it’s time to take advantage of catch-up contributions!

two retirees at the beach

Similarly, the 2022 annual contribution limit for a traditional IRA is $6,000, with an extra $1,000 leeway for those over 50 (subject to some restrictions). You should aim to hit contribution limits regularly if your goal is to stash plenty away for retirement. But no matter how you choose to save for later years, always review your contributions and assets regularly to ensure that you’re on the right path to reaching your retirement goals.

The point is, take stock of your goals and how they change regularly. Ideally, your plan should accommodate fluctuating economic markets along with changing personal priorities. Monitor regularly, and adjust if and when circumstances change. That means scrutinizing all aspects of your portfolio, including investments, retirement plans, taxation, and risk management.

Revisit Your Portfolio and Update Your Strategies Regularly

In light of market unpredictability over the last few years, it’s essential for HNWIs to revisit investment strategies in 2022 as a part of their ongoing financial planning.

Historically, stocks outperform most other investment classes. The market has been bullish since March 2020: by October 2021 the S&P 500 had more than doubled. Nevertheless, investors whose portfolios are stock-heavy might be vulnerable to future market overcorrections. Strategize accordingly.

Forecasts indicate U.S. economy will continue its rebound into 2022. However, this depends on accelerating economic activity and further recovery from the effects of the COVID-19 pandemic. Increased consumer spending, along with supply shortages in some major sectors, has driven inflation rates higher than expected in 2021. However, these are expected to eventually ease. Fiscal support provided by the $1.9 trillion American Rescue Plan of spring 2021 has resulted in a record debt-to-GDP ratio, and will continue to underpin economic growth throughout 2022. However, further stimulus in coming years will likely be partially financed by tax increases, as opposed to direct government aid.

Another area likely to impact markets in 2022 involves regulation. The Federal Reserve has begun tapering bond purchases, and there’s the possibility of the Securities and Exchange Commission (SEC) banning the payment-for-order flow (PFOF). Restriction of this practice may disrupt the business models of many brokerage firms, which could stifle retail investor trading and speculation.

Rebalance Your Portfolio and Readjust Tax Strategies As Needed

Portfolio rebalancing is key to protecting your assets against potential risks. This entails scrutinizing your current asset mix and understand the overall risk in your portfolio. Consider your mix of growth stocks versus value stocks, and your sector mix. Make sure you are positioned properly for the current market and not chasing the “hot” areas of the market that could reverse quickly.

Also bear in mind that risk tolerance tends to be age-dependent. The younger you are, the more you should focus on growth, as there’s likely more time to survive short-term volatility and realize a substantial return on investment (ROI).

One way to manage risk is by investing according to your financial objectives. For instance, if you need to pay for any big-ticket items soon such as a college education or new home, consider the timing of liquidating assets to pay for them. You might want to raise cash sooner than expected if the markets have shown strength. However, if you have more leeway and can retain your investments, one of your best options will be a smart stock market investment.

Bonds offer fairly predictable and stable returns, but given the current inflation environment are providing negative real returns. Many investors have looked to investing in real estate in our low interest environment. The easiest way to invest in property is usually via publicly-traded real estate investment trusts (REITs).

a computer with planning charts

Smart tax management is also critical for maximizing earnings and growing your asset base. Considering changes in the market and Biden administration proposals (many of which are likely to increase taxes for higher-net-worth households and businesses) wealthy individuals would be wise to reevaluate their tax strategies for 2022.

For example, with the expectation of rising income tax rates, the traditional practice of deferring income until the following year (while maximizing deductions in the current year) might not be as advisable. Instead, you may find it more profitable to do the opposite. Or perhaps set up grantor trusts to allow assets to grow tax-deferred. This helps aid estate transfer, as taxes paid by the grantor reduce the taxable estate—but are not subject to the gift tax.

Furthermore, there is a likelihood that legislation may soon pass which would reduce the $11.7 million per person exemption from federal gift and estate taxes. High-net-worth taxpayers should take advantage of this valuable wealth-transfer opportunity as soon as possible. The point is, proactively readjusting your portfolio and tax strategies is key to keeping your investments in line with current and future realities.

Hire a Financial Planning Expert

The complexities of financial planning can prove a major headache. Even for the financially adept, finding time to research and manage wealth for the best-possible return can be a monumental task.

A financial expert applies their acumen and experience to handle the diverse aspects of your portfolio—from trusts and tax strategies to investments and estate planning. Along with this expertise come services such as personalized and customized investment portfolios, as well as assistance liaising with lawyers, lenders, and other agents. Regular reviews of investment plans and ongoing support are critical to achieving success—particularly with frequently changing legislation to consider.

Polaris Wealth Advisory Group has the expertise to steer your financial future and help you achieve your ambitions and goals. Find out more about the solutions we offer to fit your unique needs: contact Polaris Wealth today.

This website is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Polaris Wealth Advisory Group unless an investment management agreement is in place.