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Beginning of Year Personal Finance Checklist

Each year, it’s smart to look ahead and see how you can get closer to your financial goals. We offer several tasks you can complete ahead of the new year.

At the start of each year, people often set goals or resolutions in hopes of being better off by next December. One of the main points of focus for many is to improve their finances. This may consist of setting more aside to save and invest, sitting down with a financial advisor, or setting specific goals for future milestones, such as buying a home or paying for a child’s education.

In this article, we’ll break down several key areas of your finances that you may want to focus on as the new year begins. This includes general tasks, like budgeting or reviewing your insurance, and more specific elements, like taxes or setting investment goals. We’ll also explain why working with a financial advisor can help you get ahead.

Person setting goals for the future.

1. Reviewing Your General Finances

Both the start and end of the year are good times to review your general finances and prepare for the upcoming months. This generally refers to exercises like setting targets and fostering good habits. It also refers to other specific tasks you should consider completing before the new year gets underway.

One important task to complete is reviewing your most recent pay stub. According to Glen Goland, JD, CFP, a Senior Wealth Strategist at Arnerich Massena, it’s important to “review your first January pay stub to make sure your benefits and withholdings are correct.” By doing this, you’ll have a better idea of what to expect in terms of cash flow each month, which will make budgeting easier.

It’s also a good idea to start a budget if you haven’t already. This helps ensure you’re managing the cash coming in versus what’s going out. To do this, simply track your income and monthly expenses. You may need to cut unnecessary costs to make sure you’re saving more than you spend.

Finally, you may wish to establish an emergency fund. This is an important savings milestone that allows you to have a safety net in case anything happens, such as losing your job or if your car breaks down. The general rule is to have at least three to six months of your living expenses saved up.

2. Preparing for Tax Season

Taxes are an often stressful part of everyone’s life. And, as January starts, it’s not too early to start getting ready for the upcoming tax season. This includes preparing documents, keeping detailed records, and staying aware of crucial dates.

Erika Kullberg, an attorney and personal finance expert, explains that even though it “may feel early, hitting the ground running in January will help you avoid tax season stress in the Spring.” She emphasizes having a “plan for how you will get your taxes done” and if you “want to work with a professional, make that appointment now so you aren’t fighting for a spot later on.” Ultimately, the best thing you can do now is start planning ahead, so you can ensure you’re compliant with the law and avoid stress.

One thing you can do to get ahead is gather documents you’ll need for the spring. Per Goland, “The end of January is a good time to start looking for W-2s from employers and 1099s from your investment & bank accounts. In the meantime, it is smart to collect receipts from charitable gifts and medical costs, as these may be deductible.” After you have your W-2 and are aware of potential deductions, you’ll be able to file your tax returns more easily, either with or without a professional.

Tax professionals can be an invaluable resource as you tackle your upcoming taxes. They can assist with identifying potential deductions, filing your documents correctly, and ensuring you’re compliant with state and federal laws. For this reason, you may also benefit from planning to meet with a tax preparer or planner to get ahead on your taxes.

3. Investing

Each year, it’s wise to re-evaluate your investment portfolio and ensure you’re staying on track toward your goals. This consists of several different tasks, including the following:

  • Evaluating asset allocation and diversification. It’s a good idea to take a look under your portfolio’s hood and assess its current asset allocation and diversification. If you see anything that isn’t aligned with your goals, risk tolerance, or time horizon, you should consider rebalancing.
  • Investing funds from December. Goland points out that you should “invest any cash that accumulated in December when mutual funds distributed capital gains and when income was received from bond holdings.”
  • Optimizing for taxes. Ensure your portfolio is following best practices for tax-loss harvesting. This is when you sell underperforming assets and replace them with those of a similar value. By doing so, you can help offset capital gains taxes.
  • Remaining disciplined. Throughout the year, it’s smart to plan to make consistent contributions to your investment accounts, such as your 401(k), IRA, or 529 Plan. For some, it may be useful to use dollar-cost averaging as a means to track and make contributions.

Anne Lester, former Head of Retirement Solutions at J.P. Morgan Asset Management and author of Your Best Financial Life, explains that it’s especially important to rebalance your portfolio “if it’s not being done automatically.” She continues, saying, “The markets have been moving around a LOT lately and it’s possible that your mix of stocks and bonds has changed from your target. Your portfolio should be rebalanced back to target (i.e., 70% stocks, 30% bonds) once or twice a year.” In this way, you should be constantly monitoring and rebalancing your portfolio to keep up with fluid market conditions.

4. Setting Financial Goals

Another important task as the year begins is to set financial goals. But it’s often not enough to set vague goals like “I want to be rich” or “I want to retire.” Instead, you should prioritize goals that allow you to take specific action and measure results.

For the year, it’s usually a good idea to set shorter-term goals, including those that get you closer to long-term ones, such as becoming a millionaire or retiring. For instance, Goland says you should “prioritize paying down high-interest debt,” such as those from credit cards or car loans. He also explains that increasing “your monthly savings target by 5%” is a good place to start. By doing those, you’ll be able to have more to save and invest for your future.

Whatever financial goals you choose to set, it’s important to constantly track your progress. This way, you can adjust to any challenges you’re having so you can stay on track. For example, keeping a record of how much you’re saving each month will allow you to know if you’re sticking to your target.

5. Sitting Down with a Financial Advisor

While you may want to improve your finances next year, it can be difficult to handle it by yourself at times. For this reason, it may be beneficial to meet with a financial advisor. They can help you set attainable goals, track progress, and manage your investment portfolio.

Glen Goland, an experienced financial advisor, explains that a professional can help you by “sharing experiences from other clients who may be facing similar obstacles or challenges,” as well as “by developing a savings plan for large purchases, such as college funding, that may feel overwhelming to many clients.” Additionally, they’re often able to connect with other resources, such as “attorneys, accountants, and insurance agents as appropriate.”

It’s important to find a high-quality financial advisor, preferably one who adheres to a fiduciary duty. You should also look for the type of professional that suits your needs, such as a financial planner, investment manager, or tax planner. To find one in your area, we recommend using a free matching tool, such as this one, which will connect you with up to three vetted experts in your area.

Frequently Asked Questions

What are some methods for staying informed on market trends for the upcoming year?

Per Goland, you can best stay informed by speaking “regularly” with your financial advisor, as well as following “his or her company’s social media and blog posts.” He also recommends you “spend a little time each day on Yahoo! Finance or Google Finance” to read up on current events affecting the markets.

What should I focus on financially for the new year?

As the new year starts, it’s always a good idea to map out how much you can save each month. This way, you’ll have more to invest for the long term. It’s also a good idea to have clear-cut goals, both long- and short-term, that you can shoot for.

How much should I save each month?

The rule of thumb is to save at least 20% of your monthly income. To achieve this, you may consider starting a budget and tracking your earnings and expenses each month.

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