Did you make any personal finance new year’s resolutions last January? If so, how did you fare? Did you meet or fall short of your goals? While the days leading up to New Year’s Eve are frequently spent thinking on the year that has passed, the days after should be spent focusing on the New Year, analyzing your financial scorecard for the previous year, and then looking for ways to improve.
The nice news about New Year’s resolutions is that you can start over every year. Here are some financial decisions you should make in the upcoming year.
- New Year’s resolutions are commonly broken, but try to keep your financial ones.
- Give yourself a financial checkup to start the year.
- Paying down debt, influencing your retirement plan, and making a reasonable budget can all help you start the New Year off on the right foot financially.
Determine your net worth
The new year is a great moment, if you haven’t already, to find out your financial worth.
Finding out your net worth is a crucial first step in evaluating your financial situation and achieving your financial objectives.
The required resolutions will be visible to you following this computation. You can see clearly where you are prioritizing your current spending and saving, as well as where you might need to make some adjustments, by carefully examining all of your assets and liabilities.
Recalculating your net worth annually is a smart move. This can assist you in meeting your financial objectives and correcting any errors you’re making before they turn into overwhelming debt.
Reset your retirement accounts
Encourage your future self! If your place of employment has retirement plans such as a 403(b), 457, or 401(k), prioritize making those monthly contributions. Up to the annual cap, try to save as much as you can afford. Pro Tip: By the end of the year, if you will be 50 years of age or older, you can unlock even larger savings through special catch-up contributions.
Boost your retirement objectives by thinking beyond your employer’s plan and adding an individual retirement account (IRA) on top of it. It’s an additional effective instrument with tax benefits for increasing your nest egg.
Financial advisors typically urge you to make minimum contributions to your employer’s plan in order to qualify for any employer matching contributions.
Do you work for yourself? If so, you might be able to make contributions to an independent 401(k), profit-sharing plan, or SEP IRA based on your income. Additionally, you can save even more if you are 50 years of age or older by December 31 since the contribution cap for independent 401(k)s rises.
You and your spouse can contribute to a regular or Roth IRA, even if you have a workplace retirement plan, as long as your combined taxable salary and net self-employment income do not fall below the total amount contributed.
Anyone aged 50 and up can contribute an additional $1,000, bringing the total permissible contribution to $7,500, or $625 per month, in 2023. This is increasing from $7,000 ($583 per month) in 2022.
Keep in mind, however, that for the 2023 tax year, a modified adjusted gross income (MAGI) of $138,000 to $153,000 for single filers (up from $129,000 to $144,000 in 2022), or $218,000 to $228,000 for married couples filing jointly (up from $204,000 to $214,000 in 2022), places you in the phase-out range for Roth IRA contributions.
There may also be limitations on the amount of traditional IRA contributions you can deduct depending on your salary and if you are covered by a workplace retirement plan.
You should only save what you can afford, as donating more than that may result in developing debt to fund daily costs. Include your retirement plan contributions in your monthly budget to see how much you can save each period.
Update your savings goals
Creating simple access to your funds can be appealing. You do incur the risk, if you are like many individuals, of spending money that is immediately accessible.
To help you achieve your goals, move monies meant for savings from your checking account to a separate savings or investment account. Better yet, have a specific amount of your paycheck automatically transferred into savings. That will make it more difficult to squander the money you have set aside.
Make a plan to pay down debt
Spend a few minutes now setting new savings goals for the next year. These might be anything from the amount you want to put toward a down payment on a new home to the amount you want to contribute to your retirement account, your children’s school fund, or both. Additionally, you should reevaluate how much you plan to spend toward your mortgage accounts, personal loans, and debts.
Consider paying additional principal on your mortgage each month. By doing so, you will earn a risk-free return on that money equal to your mortgage interest rate while also shortening the number of years it will take to repay your mortgage. However, if you have to pick between contributing to your retirement accounts and paying more on your mortgage, you should see a financial counselor to evaluate which option is best for you.
Rebalance your portfolio
There is always volatility in the stock market. Certain industries fare better than others. It is improbable that the industries that fared the best in 2022 will perform any better this year—and the majority of them did not fare well in 2022. You can lock in gains from the industries with the highest returns by rebalancing your portfolio to its original or updated asset allocation. You can also buy shares in industries that underperformed last year.
Pay down your credit cards
If you owe money on credit cards, calculate how much you can reasonably afford to pay off this year. For optimum results, avoid charging more purchases on those cards while you’re paying off what you owe. If you have high-interest credit card balances, examine if it is better to pay them off or save more. Another alternative is to move your credit card balance to a new card with a cheaper interest rate, such as a 0% promotional rate.
Review your credit report
Make sure you routinely review your credit report and take care of any negative items. You have the right to three free credit reports annually, so there’s no excuse not to review this important document—especially since errors are not common. AnnualCreditReport.com is the official website where you may get a free credit report.
Your capacity to save may be hampered by a poor credit report. The rationale is that you might have to pay higher loan interest rates, which would take away from your disposable income.
Examine Life and Disability Insurance Needs
As you advance in your career, your life and disability insurance needs may change. Evaluate your needs and compare them to the coverage provided by your employer’s benefits package. Consider whether you require more or less life insurance and whether term or permanent life insurance is better suited to your needs. Also, review your disability insurance coverage to determine if it is sufficient.
How Do You Keep Your Financial Resolutions?
When you’re tempted to abandon your resolution, remember why you made it in the first place. Transferring funds from your checking account to a separate savings or investment account that is not easily accessible, or having a portion of your income automatically placed into a savings account, can also assist to eliminate temptation.
How much money can I set aside each month?
That depends on the details of your situation. You should be able to ascertain how much you can realistically set aside after calculating your income, reviewing your spending habits, and looking over your debts.
There may not be much opportunity for flexibility when it comes to some costs, such a mortgage and utilities, but there are probably methods to reduce others and use the savings elsewhere. Financial gurus often advise setting aside at least 20% of your monthly income for savings.
What Is the 50-20-30 Budget Rule?
People can achieve their financial objectives by following the straightforward 50-20-30 budget rule. The 50-20-30 budget rule gained popularity thanks to Senator Elizabeth Warren of Massachusetts, whose book All Your Worth: The Ultimate Lifetime Money Plan. This rule states that you should dedicate 50% of your income to necessities, 20% to savings, and 30% to wants or discretionary, non-essential purchases.
Use this chance to restate your financial goals for the coming year in a straightforward and understandable manner. Take care not to create too many or overly ambitious financial goals. If not, you might not be able to complete any of them.
Keeping a checklist could be a useful tool for monitoring your progress all year long and making any required adjustments. Consider scheduling a meeting with your financial advisor to go over the objectives you have set for yourself if you have one.