By Carrie Schwab-Pomerantz, Charles Schwab & Co., Inc.

Key points

  • Want to make smarter financial decisions? Start by focusing on the key elements that should comprise your financial knowledge base.

  • Help raise your personal financial IQ by zeroing in on just 10 important details of your own financial situation.

  • Instead of making resolutions you might not keep, set up a support system that can help sustain you throughout the year.

It’s that time again. And while you may have promised yourself to be smarter about your finances in 2017, we all know that New Year’s resolutions are notoriously ineffective. Despite our best intentions, the vast majority of us simply don’t follow through. So this year, instead of making an overwhelming list of things to do, I’m suggesting that you focus on a few concrete things you need to know. In other words, if you educate yourself about your finances, you’ll be laying the foundation for success by building the right financial knowledge base.

Improve your financial knowledge base by raising your financial IQ

The financial world is filled with numbers and details, many of which you don’t really need to think about. I believe you can improve your financial knowledge base in 2017 by just zeroing in on the following 10 things — all practical information that only require simple math:

1. Your net worth

Simply add up your assets (what you own), and then subtract your liabilities (what you owe). This will show you whether you’re in the black or the red, so you can plan and prioritize your savings and spending. You can also use it as a measuring stick for progress throughout the year.

2. Your cash flow

What comes in each month? What goes out? Once you’ve double-checked your income, track your spending for 30 days. This will also help you determine which expenses are essential and how much discretionary income you have. If you regularly spend more than you earn, it’s time to clean up your act.

3. How big an emergency fund you need

Everyone’s situation is different, but bad things — an illness, the loss of a job — can happen to anyone. Ideally, keep enough cash in an easily accessible account to cover three-to-six months’ essential expenses. If you’re retired, it’s wise to keep enough cash handy to cover a couple of years.

4. How much you’re saving each month

Whatever your goal — retirement, college, the down payment on a house — be honest about what you’re regularly putting toward each. Need to save more? Add savings as a line item in your monthly budget.

5. Your credit rating

Don’t guess. Go to for your free report. Most credit card companies will give you your credit score for free. If your score isn’t where you want it to be, fix it!

6. What your debt is costing you

Interest, annual fees, late fees — they all add up. Are you carrying credit card balances? Think about the interest you’re paying over time. But realize, too, that not all debt is bad. If it’s low-cost, tax deductible and for something like a mortgage or education, debt can work for you. Just understand what it’s costing.

7. How much money you need on the day you retire

Will you need $500,000? A million? Maybe more? It depends on what you plan to spend. Chances are, you’ll want an income equivalent to what you had before your retired. A quick rule of thumb suggests you should save 25 times what you think you’ll need to withdraw from your portfolio the first year of retirement (in other words, if you want to withdraw $40,000 a year for 30 years, you’ll need to have saved $1 million). Are you on track? Again, don’t guess.

8. Your marginal and effective tax rates

To understand how much of your earnings you actually get to keep, there are two tax rates to be aware of. Your marginal tax rate is the amount of tax you pay on your last dollar of income. For example, in 2016 if you’re married filing jointly and in the 25 percent tax bracket, you’ll pay $25 in taxes for every $100 of taxable income above $75,300 and up to $151,900. Your effective tax rate is the average rate you pay when you take all of your income into account and is likely lower than your marginal rate.

9. Your deductibles and copays for insurance

Premiums are only part of the cost of insurance. Review what you owe before your insurance kicks in, i.e., co-pays, deductibles and out-of-pocket limits. If your current policy isn’t working for you, shop for different insurance!

10. The basics of your estate plan

When was the last time you reviewed or updated the beneficiaries on things like retirement accounts and insurance policies? Do you have a basic will that names a guardian for your minor children? Have you completed an advance health care directive and given it to your doctor? All good questions — and smart actions to take. An estate planning attorney can guide you through the process.

Now set yourself up for success

With this information in front of you, you can more easily decide what you want to accomplish or what you might want to change. Then, rather than making empty promises, focus on ways to change your behavior.

For example, set up technical support systems such as auto pays and calendar reminders. Another effective strategy is to find a financial buddy, whether a spouse or trusted friend, that you can talk things over with and check in with periodically on your progress. Make a mutual commitment to help each other achieve individual goals.

Then, with the right information, a solid support system and a realistic attitude, you’ll be in the best position to make smart decisions not only for the New Year — but for the rest of your life. Here’s to a happy and financially rewarding 2017!


About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or or visit the firm’s website at Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.

Additional Important Disclosures

The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. Brokerage Products: Not FDIC Insured • No Bank Guarantee • May Lose Value.