It’s the end of the year, and that means it’s time to take a look back at your financial health. That can be scary, especially if you haven’t gotten around to some important tasks.
But don’t worry!
We’ve got you covered with this list of things to do before January 1st:
Your financial health is important and should be part of your year end planning.
In order to be proactive, you should have a financial plan. You should review it at the end of each year and make sure that your finances are on track for the coming year. This will help ensure that you’re tracking your money well, making positive steps towards meeting your goals, and staying informed about any changes in tax laws that could impact you. The plan is the guide/road map for the upcoming year.
Evaluate Your Goals
- Think about the goals you set for yourself at the beginning of this year. What have you accomplished?
- Look at your future goals for next year. Do they align with your vision for your money and life as a whole, or do they need to be adjusted?
- Revisit your long-term goals, including those that may not be relevant anymore (e.g., “I want to own my own business”) but have been hanging around in some form or another in the back of your mind all this time. They may still hold meaning—or they might need an update before you can move forward with them again!
Check on Your Investments
2022 was an upside down year in the markets. Very different than the last 3 years. Is it time to abandon your investment strategy? Now is the best time to check on your investment accounts and make sure they’re properly invested.
If you have a 401(k), IRA, or other type of investment account, it’s important to review whether or not your asset allocation is still appropriate for your current situation. This can be done by reviewing the past few years of performance and determining whether or not rebalancing makes sense. If stocks have done well in the last two years, maybe it’s time to rebalance toward a more conservative allocation—or if bonds did better than expected, moving more into those investments is probably wise.
As you review your investment accounts, it’s also important to pay attention to the fees and expenses associated with each account. If you’re paying high fees on your investments, it may be time to consider a rollover or transfer into another type of investment vehicle with lower costs.
Review Your Employee Benefits
It’s open enrollment season!
Are there any changes to your insurance coverage that you need to adjust for? Are you still eligible for maternity leave or vacation time? Is your company still offering a 401k plan? Is it time to enroll in the company’s savings plan, or should you look into other options with better rates and more flexibility (such as investing on your own)? All of these questions need answers before the new year rolls around.
Reviewing changes to your benefits can help keep you informed of what’s going on. Maybe there is a new perk, insurance program or an increase in the company 401k match you should take advantage of.
If you don’t know where to start, below are a few questions to ask yourself.
- Is your company still offering a 401k plan?
- Are you currently enrolled in that plan, or are you interested in taking advantage of it?
- Have you been contributing the maximum amount allowed by law each year?
- Do you know what kind of growth your money has had over time and how much interest is earned annually?
- Have your beneficiaries changed?
- Do you need a better medical plan?
- Can you opt out of anything?
- Do you have access to an FSA?
If you still need help, your human resources department is an obvious place to start. They should be able to provide info on each program. Don’t hesitate to ask!
Increase 401k Contributions
If you are not contributing enough to your 401k, then you should increase your contribution. If you are already contributing enough and have extra money, consider increasing your contribution by 1% each year or by a larger amount if possible. The new 401k limits for 2023 are $22,500 (up from $20,500 in 2021) for workers under 50 years old and $30,000 (up from $27,000 in 2021) for workers over 50 years old.*
Increase IRA contributions
Not everything is done at work….IRA’s are retirement accounts you can open on your own. You may not get all the tax benefits if you have a 401k at work, but if your looking to sock more money away this is one place you can do it. In the world of IRAs, there are limits to how much you can contribute each year. For 2023 $6,500. If you are age 50 or older, your maximum annual contribution is $7,500.
If you haven’t maxed out your IRA yet this year and have some extra cash laying around in December (or if you plan on getting a tax refund), it’s a good idea to increase your contributions so that they’ll compound over time at their full potential rate.
Make Changes For 2023
With your goals and budget in mind, you can now review your investments. If there are any changes to be made, the time to do so is now. Are you closer to needing a lump sum of money? Maybe the aggressive allocation isn’t appropriate any more.
Then it’s time to review your insurance coverage—both personal and business—to ensure that it’s adequate for both individuals and businesses alike. This includes health and dental insurance (including children who may require coverage), life insurance as well as disability income protection coverage if this applies (for example: truck drivers sometimes need this).
Next, take a look at your credit card debt and how much you owe. If it’s not too high, then consider making extra payments on this so that you can pay off the balance faster. If there are any other debts or loans that need to be paid off, such as car loans or student loans, then put aside money from your budget each month until they’re completely gone.
Review Any Other Life Changes
Next, take stock of all the other changes in your life.
- Are you still paying off debt?
- Is your retirement savings on track?
- Have any benefits recently become available to you that you didn’t have before?
- Is your insurance coverage up to date and reflective of any health changes (such as diabetes or pregnancy)?
The point is, there are lots of things that may have changed in your life since last year. It’s important to know what those changes are so you can factor them into your budget and financial plan for the coming year.
Conclusion
Hopefully, this post has helped you understand some of the basic financial planning principles that can be used to make your year-end a little less stressful. If you have any questions about how to apply these concepts in practice, then please feel free to contact us at Redwood Financial Planning!
