It is a New Year and time to give your finances a personal checkup!
See the list of items below that should be done at the beginning of each year:
1. Set Financial Goals or Create A Financial Plan
It may be big items such as retirement, college for the kids or saving for a down payment on a home; or smaller items like increasing your savings. It is important to set goals and write these down to make yourself accountable.
A financial plan includes creating a net worth statement that lists all the assets you own, minus what you owe. It’s helpful to have it in one place in case something happens to you. The plan will also help you determine how long you need to work, how much can you spend and any other missed opportunities.
2. Check/Update Beneficiaries
- Retirement Accounts (e.g. 401k, IRA, pension plans, etc.)
- Life Insurance Policies
- Divorce/Loss of Loved One
3. Check Your Will and/or Trust
Confirm the current selection of beneficiaries, executor, and guardian/trustee (if you have minor children).
- Create a will, durable power of attorney, durable power of attorney for health care and living will if you don’t have one.
- Notify someone you trust (executor) of the location of these important documents in case something happens to you.
Consult with an estate attorney if you have questions.
4. Set up Savings or Withdrawal Targets for the Year Based on Your Financial Plan
If spending too much, track spending with an online tool or manually track it.
Mint.com is free, and a relatively easy way to track your spending and savings against targets you set at the beginning of the year in a financial plan.
5. Take Inventory of Your Emergency Fund Access
Make sure you have ACCESS to money in case of an emergency. This should be at least 3-6 months of your expenses and be in cash or short-term investments with limited risk of loss of principal. Whether 3 or 6 months depends on your personal situation (both spouses working or single) and job stability.
Tip: A home equity line is also a source of cash for an emergency.
6. Increase Your 401(k)/403b/457 Plan Contributions
Contribute to your 401(k) plan or similar type of Qualified Plan (e.g. 403b, Simple IRA, etc.), at least up to the amount the company matches.
If you have already been contributing, try increasing the amount by 1%, especially if you received a raise.
2023 employee contribution limits for a 401k – $22,500 + $7,500 if over 50.
7. Consider After-Tax 401k Contributions for Super Savers
If maxing out 401(k) see if your 401(k) offers an after-tax option. The total 401k contribution limit (employee, employer, and employee after-tax) for 2023 is $66,000 if under 50 and $73,500 over 50. This is otherwise known as the Mega back-door Roth and can be a nice tax-free savings account in retirement.
8. Make IRA or HSA Contributions Before Your Tax Filing for the 2022 Tax Year
- Roth or Traditional IRA
- SEP or Solo 401k (self-employed)
- HSA – favorite retirement account. Don’t spend it.
Contribute to a Roth or Traditional IRA if your income is within the IRS limits. You can still contribute for 2022 until April 15, 2023.
9. Pay down Credit Cards or High-Interest Debt
Pay down high interest rate credit cards. The longer you take to pay off the card, the more money it costs you.
Evaluate whether it makes sense to pay down low-interest mortgage debt early (<3%).
10. Check Your Credit
It is a good idea to check your credit report for errors once a year and it is free using Equifax, Experian and TransUnion. This is especially important if you are considering buying a home in the near future and will need a mortgage. It’s better to remove errors now than later.
Another Option is Credit Karma which has online access.
11. Review your Investments
What is your strategy?
Are your investments set up to reach your lifetime financial goals?
Now is a good time to rebalance or understand why you are owning each investment. Read more info on Financial Symmetry’s investment strategy here.
12. Review your Life and Disability Insurance Needs
Did you have a child in the last year or are the kids on their own so the need is less?
Do you have long-term disability insurance? People are much more likely to be disabled than die at a younger age so make sure you have long-term disability insurance through work or separately, especially if people depend on your income.
Links Mentioned in the Show
- Schwab – People feel more confident with a Financial Plan
- Podcast – Retirement Secret Weapon – the Mega Backdoor Roth IRA
- Beneficiary Review Worksheet – TransAmerica
- Inc. Magazine – 42% More Likely to Achieve Goals if Written
- Your Ultimate New Year Checklist PDF
