Resolutions to Solutions: A Financial Checklist for the New Year

Plan ahead for life changes 

As the old adage goes, “an ounce of prevention is worth a pound of cure.” With that in mind, look ahead at any life changes you may have planned for the coming year, such as buying a home, paying for education, or looking toward retirement. While life is bound to bring surprises throughout the year, planning ahead for events you expect to happen can help you make sure you are well positioned for the next big life event. 

Review your spending plan 

Once you’ve set your goals for the year and identified plans for potential life changes, make sure your budget is aligned with your plans. To create an effective budget, you need to know how much money you’re bringing in each month as well as how much you’re spending. Doing so can help you recognize whether your spending patterns align with your long-term goals. If you use credit cards, your provider may be able to provide you with a year-end snapshot of your spending habits by category, which can be a great starting point in identifying spending trends in your life. 

Fine-tune your budget as needed  

After you’ve run the numbers on your budget, see if there are any areas where you might need to adjust your spending levels to free up more money to fund your goals. That doesn’t mean you have to deprive yourself of the things that matter to you; it simply means prioritizing your spending to put yourself in a better position to achieve the financial milestones important to you. 

Review your insurance policies 

Managing risk is a crucial part of your financial plan. If you had a big life event in the past year or expect significant changes in your life during the coming year, you may need additional  insurance coverage to keep your finances secure if you were to pass away unexpectedly or if you became disabled and couldn’t work. You may also want to consider long-term care solutions as you look to protect what you’ve saved for retirement. A Northwestern Mutual financial advisor can work with you to evaluate whether your coverage levels fit with where you are in your life. 

Consider your college savings plans 

If you already have a college savings plan, good for you; you’re on the right path! If not, now is a good time to open one for your child, a grandchild, or even yourself if you intend on going back to school. Assets in a 529 plan grow tax deferred and, if used for education expenses, are completely tax-free. Some states may even offer a tax deduction for contributing to a 529 plan, depending on the state you live in and the state plan you contribute to.  

Make a plan to tackle any outstanding debt 

While it’s easy to focus your efforts on spending and saving, it’s also important to have a plan for any outstanding debt you may have. While the use of debt can be prudent in some situations, eliminating or minimizing expensive forms of debt such as credit cards can help you reach your financial goals more quickly. If you’re feeling stuck coming up with a plan of where to start, one useful debt management strategy is to tackle any high-interest debt first, known as the debt avalanche method.  

Get a head start on planning for tax season 

After a busy holiday season, thinking about taxes may be low on the list of things you want to do. However, you can start your tax-season prep work by simply getting organized. Starting now to gather your tax documents, including W-2s, 1099 forms, and receipts for any tax deductions, can prevent last-minute scrambling and save you from stress later on. 

Once you’ve filed, consider how your tax situation impacts your financial plan. If you are expecting a large refund, work with your financial advisor to figure out how to use the windfall to help make additional progress toward your goal. On the other hand, if you are in the unfortunate situation of owing money, consider changing your tax withholdings so that the amount of money taken out of your earnings aligns more closely with the amount due next year. 

Review tax-favored account contributions 

If you are already contributing to tax-advantaged accounts, such as a traditional IRA or Health Savings Account (HSA), you’re off to a great start. By reviewing your tax-advantaged contributions against IRS limits for 2023, you may identify additional opportunities to lower the portion of income that is taxed. By doing so, you’ll be giving yourself time to make any final retirement contributions for the previous year before the April 15 deadline, which can help you reduce the amount of your income that is subject to tax.  

Additionally, with your new budget in place, now is a good time to review the amount you plan to contribute in the year ahead. Contribution and income limits are changing for 2024. For example, in 2024, subject to income limitations, you can contribute up to $7,000 to an IRA and $23,000 to a tax-favored retirement plan, such as a 401(k) or 403(b). Your advisor can work with you to help determine which limits may apply to your specific situation. 

Consider streamlining and automating your investments 

If a new job is one of the things you’re celebrating as you look back at the past year, it may mean you have a 401(k) or other retirement savings plan you left behind at your previous employer. As you map out your financial moves for the new year, you may want to consider rolling retirement savings from former employers into your current company’s plan (if allowed) or rolling it over into an IRA. 

The new year can be an opportune time to automate your investment contributions if you don’t already. Doing so eliminates one more thing you must think about and is an easy way to maintain healthy investment habits. Another idea to consider is automating increases to the amount you contribute each year. By setting up annual automatic increases in your contributions, you can seamlessly make the most of any annual raises you receive over the years.