5 Financial Must Do's Immediately following January 1st [2023 Update]

By: Scott Sturgeon, JD, MBA, CFP®

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With each new year comes an opportunity to reinvent ourselves, or at least take steps to find ways to improve on last year. What if this year instead of focusing on giving up sweets or getting to the gym every day (goals that this author has admittedly tried in the past and ultimately failed at), what if you turned your focus to improving your personal finances? Starting the year with a list of Financial Must Do’s is a great way to tackle a topic that everyone has to deal with and something you can benefit from by reviewing and ensuring you’re making the right financial moves.

If one were to do an internet search for ‘Year End Financial Planning’, you’ll undoubtedly find dozens of articles with lengthy lists on tax, investment, and other considerations to take into account prior to the end of the year. There are a lot of reasons for that and in reality, year end is one of the best times to reevaluate your financial picture from a tax perspective to ensure you’re optimizing your tax planning before the new tax year starts. Given that we’re now in a new year however, the next best thing is to review your prior year financial decisions and review your current financial status to ensure you’re still on track to meet your objectives. So what are the 5 “must-do’s” following the first of the year? Read on to find out!

Identifying Objectives

The first “must do” for anyone is to make sure you write down 3 financial objectives or goals for the year. It could be something very simple like wanting to save more or buying a car. Conversely, you could make it more complex like wanting to find more tax efficiencies and savings for the year ahead or even make sure that your investment allocation aligns with goals and risk profile. What’s great about setting these kinds of goals is that they’re going to be unique to you and will help guide the kinds of financial decisions you’re going to make over the course of the year.

Net Worth Review

The second “must-do” is taking a look at your total earnings or income for the year, compare it to last year, and then take a look at your net worth. If you’re still working, did it increase? If you’re retired, did it stay the same or increase? If the answer to these questions is no, the start of a new year is a great opportunity to reevaluate where you could be saving and investing more. Budgeting and evaluating your cashflow goes hand in hand with that process, so if the results don’t look like what you want them to, take some time to determine what you need to do to correct it. 

*If calculating your net worth isn’t something you’ve done before, fear not! There are a myriad of online calculators available or better yet, consider working with a fiduciary, fee-only financial planner like Oread Wealth Partners to see if we can help! 

Efficient Contributions

The third “must-do” that anyone can implement at the start of a new year is to look at all of their various retirement plans and accounts to determine whether they could make additional contributions for the prior year. You may have a 401(k), a 403(b), a 457(b), IRA, Roth IRA, and/or an HSA, each with unique rules to when and in what amount contributions can be made. Some of those accounts actually allow for contributions to be made that count toward the prior year, so even though it’s 2022, you might be able to make a 2021 contribution to your IRA.

Whether it makes sense to make those contributions and in what amounts is going to vary greatly between different individuals and families however. While there are tax benefits to utilizing those accounts, it has to make sense in the broader picture of your goals and objectives. If you’re needing money to buy a new house in the next year, fully funding your IRA with extra cash may not make sense since you’re effectively locking those funds up until retirement. Remember, your financial planning needs to be custom to your needs!

Tax Planning 101

The fourth “must-do” is a little tricky, but it involves taking a hard look at your tax situation and determining if you’re adequately implementing a tax plan. Tax planning, put simply, is reviewing all of the elements that might impact your tax picture (income, retirement plan contributions or withdrawals, deductible expenses, major taxable transactions, charitable contributions, etc.) and taking steps to find efficiencies to mitigate tax liabilities arising from those events both now and in the future.

Tax planning often goes overlooked or ignored because it’s difficult, the US tax code is incredibly complex and hard to understand, and most people only want to think about taxes when it’s time to file them (i.e. putting them off as long as possible). While there’s nothing wrong with that approach, without having and implementing an efficient tax plan, you could be paying more in taxes than you actually need to. Those dollars could be put to use elsewhere in your life to do the things you find most fulfilling and it’s often relatively simple steps needed to begin a comprehensive tax planning process.

The Important Things

The fifth and final financial “must-do” at the start of the new year may not appear to be related to finances at all, but it’s critical in the long-term; spending time with friends, family and doing the things you find fulfilling in life. Why spend time creating a financial plan and working towards achieving financial objectives if it doesn’t get you closer to doing the things you really want in life? The start of a new year is a great time to reevaluate your relationships, pursuits, and identifying the things you find most fulfilling in your life. While that may sound difficult initially, working with a qualified wealth advisor can be really helpful in that process in helping outline the steps you need to take to get where you want to be and doing the things you want to do!