Getting your finances back on track at the start of the new year should be one of your top goals. While looking forward to having a decent lifestyle free from debt and financial constraints, you need to proactively take care of everything that surrounds your income, budget, and savings goals. How do you achieve this? What you actually need is a financial checklist for the new year.
Ideally, your personal finance should be captured in an annual financial plan that takes into account your short-term and long-term money goals, as well as, the specific steps you need to take to achieve them.
In this blog post, we are going to examine all the essential items anyone is supposed to have on their financial checklist. This will easily guide you, as you plan toward creating a more secure future for your finances.
Why Do You Need A Financial Checklist
Creating a financial checklist isn’t a casual decision you make just because you feel it’s right. You need to also reassure yourself of the specific benefits that come with this decision. Here’s what you should know:
Clarity And Focus
Mistakes become inevitable when you lack clarity and focus on your goal. By using a new year personal finance checklist to organize your objectives and priorities for the year ahead, you can shine a spotlight on your goal. This means you’ll know exactly what to do and when to do it, helping you to avoid potential pitfalls that may ruin your finances.
Proactive Planning
Reviewing your finances and setting the right goals allows you to make informed decisions and take proactive steps to improve your financial situation. This way, you can act in advance to deal with an unexpected change or difficulty in finances.
Reduced Stress
One good benefit of creating a financial checklist is that you’re constantly reminded of your financial goals. You can see it all in the plan. Knowing this can actually reduce the stress and anxiety from financial constraints. For instance, if you set up a feasible payoff strategy to clear your student loans or credit cards, you won’t have any reason to be worried about being in a debt trap.
Accountability
With a new year’s financial checklist, you have a written plan for how to achieve your goals. This can help you stay accountable and track your progress throughout the year. Each time there’s a roadblock or setback, you can always go back to your drawing board to restrategize and forge ahead.
Improved Financial Health
This is the ultimate goal. By taking the time to review your finances, set goals, and achieve them, you can improve your overall financial health and achieve long-term financial security. Each goal you achieve brings you closer to stability and ease.
Financial Checklist For The New Year
Are you ready to elevate your finances in the new year? Here are vital things that should be a part of your financial plan:
1. Create A Personal Financial Inventory
Business owners inventory their stores to have a detailed list of all the items on hand. This helps them to fully understand the situation of their business and figure out where needs improvement. As you plan toward stabilizing your finances, you need to begin by creating an inventory. This should be the first thing on your financial checklist for the new year.
This financial inventory would paint a clear picture of the state of your finances by including the following:
- A list of all your assets: real estate equity, retirement fund and investment/savings accounts, emergency fund, education savings, and any other valuables, such as expensive jewelry.
- A list of all your debt balances, including credit cards, student loans, auto loans, mortgages, and any other types of debts.
- Your debt-to-income ratio.
- A recent report of your credit score. Aside from determining whether you’ve been able to handle credit responsibly, checking your score can also help you identify errors or fr#udulent activities.
- A list of your expenses. By listing both fixed and variable expenses, you’ll be able to assess your spending and see if there is an opportunity for you to reduce costs in the future. For example, you can cut out subscriptions you no longer need.
Does the listing of all these items seem like a lot of work? Maybe it does. However, seeing this as a daunting task might make you procrastinate and not do it on time. Without taking an inventory of your finances, it would be very difficult to make headway and plan for the new year.
2. Set Financial Goals
Having completed your personal financial inventory, the next important thing to do is set goals for the next 12 months. Ideally, they are meant to be categorized into short-term, mid-term, and long-term goals.
Short-term goals are smaller and more basic objectives like creating a budget, building an emergency fund, or paying off credit card debt.
On the other hand, your mid-term goals could include getting life insurance and disability income insurance, renovating your house, or saving money to send your kids to college.
Then your long-term goals would typically include planning for retirement. You need to figure out how much you need to save in an investment account to be able to live comfortably for the rest of your life after your working years. It’s advisable to contribute between 10% and 20% of your income to your retirement fund.
3. Review Your Retirement Savings
Saving for retirement is key to securing your financial future. Typically, having an individual retirement account (IRA) or a 401(k) plan is a smart way to handle this. But when making plans for the new year, you need to review your retirement plan. Here are some specific things you should consider:
- Determine what’s best for your financial situation: a Roth or a traditional IRA.
- Depending on your long-term goal, check if there’s a need to convert your traditional IRA to a Roth IRA. The best time to make this change is when your income from the value of your account begins to reduce. You can also do the same for your 401(k).
- If you have an old 401(k) from your previous employer, roll it over when you move to a new company.
- If you run your own business, find out the limits for a simplified pension plan and other retirement accounts for self-employed individuals. Do this to maximize your contributions.
- Although this is not compulsory, it pays to increase your annual contribution to your retirement account. You can do this if you get a salary raise or generate more revenue from your business.
4. Review Your Investments
As an investor, especially when you’re inexperienced, certain mistakes are inevitable. One of these mistakes is failing to review your investments regularly.
Keep in mind that it’s crucial to assess the state of your assets, particularly when the economy shifts. For example, if stocks aren’t performing well, it may be a good time to add real estate or fixed-income investments to your portfolio. This strategy is advisable because it helps offset some of the volatility. Be sure to include this in your financial checklist for the new year.
5. Balance Your Portfolio
As an investor, this is definitely one of the things to include in your financial checklist for the new year.
You need to periodically rebalance your portfolio to ensure that you aren’t taking on too much risk or losing money on securities that aren’t generating good returns. Doing this is also important as it ensures that your current portfolio is not adversely affected by market changes. This way, you can keep your portfolio diversified without being overly impacted by risks.
Moreover, you may want to occasionally review the asset classes in your portfolio. You should check for gaps and adjust your investments to maximize profits. Lastly, it’s important to minimize the cost of managing your portfolio. Over time, you could consider using a robo-advisor or a different low-cost strategy.
6. Review Your Taxes For Investments
Did you know selling off assets can affect your tax liability? This is one thing to remember while managing your portfolio and rebalancing. For example, there’s a compulsory capital gains tax you can’t evade if you want to sell investments for a profit. This happens especially when you’ve held the assets for a long time.
To handle this situation intelligently, there are two things you can do. The first option is to find out if there’s a chance for you to have tax-loss harvesting. This is because if you sell depreciating assets before year-end, you’ll bank the negative and offset gains in your other assets. This will then reduce your overall income and tax bill.
The other option is to use appreciated assets to make charitable donations or help family members or friends with lower incomes. This way, the securities will be tax-free.
7. Build Your Emergency Plan
Having a sizeable emergency fund is essential for financial stability. The money kept in this savings account can serve as your safety net when you’re facing serious financial constraints or emergencies.
For instance, if you suddenly get laid off, what would be your next plan? To get a new job, of course. But before finding new employment, you need some financial backing to prevent you from maxing out your credit card or taking loans. It’s important to avoid this especially when you already have outstanding debts to pay off.
Bear in mind that your emergency fund should hold enough money to cover three to six months’ worth of living expenses. While you may not reach this target overnight, saving consistently will get you there.
8. Prioritize Future Savings
While you may currently be committed to funding your emergency savings account gradually, it’s important to explore other potential means of boosting your savings. You should be willing to think outside the box and find smart ways to squeeze out some of your savings goals. This should be on your financial checklist for the new year. Here are some tips that would help:
- Consider refinancing your mortgage.
- Look for cheaper car insurance premiums by comparing the costs across different companies.
- Don’t waste food. Make use of your leftovers to prepare new meals.
- Use a high-interest savings account to grow your money faster.
- Avoid spending money unnecessarily on streaming services like Netflix, when you can opt for a free alternative. For example, MovieBox is a completely free app that allows you to download and watch all your favorite movies and TV shows without paying a cent.
- Minimize your energy consumption to curb the bill.
9. Don’t Work Alone
It makes sense to do this completely on your own since it’s your personal finance we are talking about here. However, if you have an accountability partner who can go through your financial checklist for the new year, it would be great!
Aside from holding you accountable and helping to monitor your progress, your accountability partner can be a source of encouragement and motivation. The support you get from them might be enough to help you pull through despite the setbacks.
Moreover, not working alone means you can also rely on financial planning apps to track your expenses and income. Managing your finances can sometimes seem complex, but using apps or software to simplify the process makes you realize how easy it is to reach your goal.
Quick Summary: Financial Checklist For The New Year
An annual financial checklist is an exceptionally valuable tool to help improve your personal finance today and in the future. Having gained insight from this post, you already have an idea of the things your new year’s financial checklist should include. Perhaps you have checked off all the items on this list by now. If you haven’t, there’s no more time to waste. You can start planning even before the new year begins.
More importantly, don’t forget that a financial checklist can give you a clear understanding of where your money is going, how much your investments are earning, and how much you’re putting away for retirement. These are key metrics for measuring your growth.
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