Summary:
Happy New Year! Here is your checklist for financially preparing for the new year:
- Look back
- Prepare for tax season
- Update estate documentation and beneficiaries
- Analyze Risk
- Set short term goals
- Set long term goals
- Budget, automate, and strategize
- Meet with your team
The new year comes with a lot of celebration, excitement, and maybe a little pressure to set (and stick to) your new year resolutions.
But part of setting successful and attainable goals is knowing where you currently stand compared to where you want to be. This new-year-financial-check-in helps you figure out where you are, so you can plan where you’re going.
Looking Back
This process starts with a look backward. Just note what was happening with your money last year, you don’t have to make any changes quite yet!
Now is a great time to check how and where your money flowed all year. Did you have extra money at the end of the month usually, or were you often running at a loss? There are countless apps and tools to help you look at your cashflow, but you can always start by taking a look at statements from:
- Your bank,
- Credit cards,
- Investment accounts,
- Mortgage,
- Other accounts such as HSAs, 529s, etc.
- Other debts such as student loans, car payments, etc.
However you categorize your spending and your income, look for patterns and anomalies. Maybe your cashflow was disproportionately affected by a major event or vacation one month, but pretty steady the rest of the year. Or maybe your spending habits vary significantly from month to month. Maybe your income changed substantially due to a job change or loss, or maybe you’re surprised at how much you spend on takeout every month. Noticing these patterns is a great way to notice opportunities for goals!
It’s important to not only look at the numbers, but to check in with yourself about how you’re feeling about your finances. You can ask yourself:
- What felt good financially?
- What felt stressful?
- If you could change one thing (or more) what would it be?
- Do I regularly check-in with my finances or do I avoid them?
Preparing for Tax Season
Preparing for tax season early can reduce stress and surprises when it comes time to file, and (in a continuation of our first checklist item) it gives you great perspective on your last year of finances.
Gather all the documentation you will need to file; check last year’s return to remind yourself what documentation you need:
- Income documents like W2s and 1099s
- Investment tax documents
- Expense records
- Charitable giving receipts,
- And anything else that applies to your situation
If you’re missing anything, now is the time to track it down or find out when it will be mailed to you.
Part of preparing to file your taxes is identifying tax strategy, so give yourself ample time to meet with your tax professional well before it’s time to file.
Estate Documents and Beneficiaries
It’s nobody’s favorite topic, but you want your wishes to be carried out when you pass away, right?
Life happens, and your beneficiaries aren’t automatically updated after marriage, divorce, birth, death, or estrangement. So the new year is a great time to double check the beneficiaries on all of your accounts and insurance policies to make sure they are up to date. Make any updates as necessary!
Even better, double check your estate plan (whether it’s a will or a trust or both) and make sure it still reflects your wishes. Again, make any updates as necessary! And if you don’t have an estate plan, maybe this is the year you make one!
Risk Management and Emergency Funds
While we’re double checking things, how is your emergency fund? Did you have to dip into it at all last year? Does it need replenishing? What about insurance policies, do you have the coverage you may need in place, do you need more coverage, or maybe too much?
Risk Management is about preparing for the unexpected. Not in a doomsday-way, but in a flexible, adaptive, weather-the-storm-way. Life happens, and you’ll thank yourself for being prepared when things inevitably go sideways.
There is no one-size-fits-all answer to the question of how much you should have in your emergency fund, and it likely will change as your life changes. We can help strategize.
As for insurance, policies renew and prices change, so take a moment once a year to make sure your coverage and policy is still the right fit.
Short-Term Priorities
Now that you know where you stand, let’s get into goal-setting for the new year.
Now that you’ve examined last year’s finances, you can look for things that demand attention right away.
Do you have any debt? Is it high-interest or low-interest debt? Is it tied to your primary residence, or your student loans? Or is it a large car payment or credit card debt?
Do you have any upcoming major expenses, such as a vacation or event, a home repair, or a medical procedure?
Analyzing your debt and upcoming expenses will help you decide where to allocate funds immediately.
Long-Term Goals
Now that you’ve decided on what needs your attention immediately, you can also make some long-term financial goals. These goals might feel easy to ignore, or like you’re hardly making progress toward them, but small, consistent effort is the game plan.
We’re talking about retirement plan contributions, funding an HSA, or opening 529 accounts for your kids or grandkids.
Budgeting, Automating, and Strategizing
Now that you have a clear picture of your cashflow and your goals, let’s talk about how to get from point A to point B. Ask yourself where you can make things easier immediately. One great suggestion is to automate anything you can! Turn on automatic contributions to savings and investments and put those utility bills on autopay. You’ll avoid late fees and enjoy your savings stacking up without any effort at all.
Then, check back in with your cashflow. If you have extra money each month, decide in advance (and automate!) where that cash can go toward your goals.
Meet with your Team
Most importantly: you don’t have to do any of this alone! The new year is a great time to meet with your financial planner, insurance broker, estate planning attorney, tax professional, and whoever else you have in your court.