Financial Planning on a Schedule

I happened to drive by my local post office on April 15 and noticed more cars than usual around the post office. Then, I remembered that April 15 is the deadline for filing income tax returns. Why do people procrastinate on preparing and filing their income tax returns? Well, let’s face it. Preparing tax forms is not a fun activity for most people. So, it often gets left for the last minute.

Similarly, financial planning is not a fun activity for many people. Unlike income tax returns, however, there is no annual April 15 deadline for financial planning. So, I can understand how it would be easy to ignore financial planning until there is some triggering event, such as retirement. Some financial planning strategies are complicated. Many of the most successful strategies, however, are simple and just require consistency and self-discipline. To take advantage of these opportunities, I suggest using a tool that many of you already have – a calendar. There are no government mandated deadlines for financial planning. So, make some deadlines for yourself.

In the remainder of this article, I will provide a sample financial planning schedule. This schedule is meant to give you an idea of the concepts behind financial planning on a schedule. To keep the length of this article manageable, I will not provide a comprehensive list of every possible financial planning activity.

The first thing you need to do is to make an initial assessment and set some goals. Let’s say that it is January right now. Here are some topics that you may want to cover in your initial assessment:

  • What are your financial goals?
  • What are your assets and liabilities?
  • What are your cash inflows and outflows?
  • Set a goal on how much of your income you want to save each month
  • Plan where you want to direct your excess cash flow (e.g., emergency fund, debt reduction, 401(k) account, Traditional or Roth IRA contributions, 529 account, etc.)
  • Are you maximizing any employer matching on retirement plan contributions?
  • Does your employer offer a Roth option in its 401(k) plan? Should you take advantage of it?
  • Review your insurance policies – missing any necessary coverage? any unnecessary policies?
  • Review your investments (e.g., asset allocation, diversification, cost and tax efficiency)
  • Review your estate plan – do you have wills and other documents in place?
  • Check all of your beneficiary designations

Let’s say that you accomplished all of the above in January. Then, address the following questions in February as you get ready to prepare your income tax returns:

  • Are you using the most advantageous filing status? If you are single, do you qualify to use “head of household” instead?
  • Are you claiming all of the exemptions possible? Did you have a child born during the prior year? Did you recently start financially supporting your retired parents?
  • Are you claiming all of the deductions and credits for which you qualify?

Schedule the following activities for July:

  • Review your savings and/or debt reduction vs. targets during the past six months – are you on track?
  • Review your investment portfolio – do you need to rebalance or reinvest excess cash?
  • Check to see if you are maximizing your employer matching contributions to your workplace retirement plan
  • Check your payroll income tax withholdings – are you withholding too much or too little?

Schedule the following activities for December:

  • Review your savings and/or debt reduction vs. targets during the past year – are you on track?
  • Review your investment portfolio – do you need to rebalance or reinvest excess cash?
  • Check your workplace retirement plan account – did you contribute as planned?
  • Contribute to a Roth IRA if you qualify
  • Consider Roth IRA or 401(k) conversions
  • Consider tax loss or gain harvesting, depending on your situation, in your taxable investment accounts

I believe that financial planning on a schedule is effective because (1) it forces you to set goals and periodically check your progress and (2) it forces you to address opportunities that disappear with the passage of time (e.g., income tax opportunities, contributions to tax-advantaged investment accounts, Roth IRA conversions).