6 Tips To Tune-Up Your Finances For The New Year

calculator and notepad placed over stack of usa dollars

As you kick off your new year, it’s important that you take the time to ensure your finances will support the year you hope to have rather than hinder it. Since our finances affect every facet of our lives, improving your finances can support success in other areas of your life. Use the following 6 tips to help tune-up your finances for the new year.

1. Review Your Goals

Before you can achieve your goals, you first have to define them. Having well-defined goals helps you stay accountable, gives you awareness of your financial situation, and can keep you motivated as you track your progress.

Your financial goals can fall into three categories: short-term, intermediate, and long-term. Once you define your goals, you’ll want to ensure that they are SMART (specific, measurable, achievable, relevant, and time-bound). To learn more about creating SMART goals, read this article.

2. Track Your Money

After you have your goals defined and prioritized, you will need to track your money.

  • Budget: You probably saw this coming; the first step in tracking your money is creating or reviewing your budget. Did you have any changes last year that caused changes to your spending? A budget is a critical tool in your financial success because it gives you the awareness needed to make informed decisions about your finances. Here are a few apps that can help you track your income and expenses: Mint, Personal Capital, and YNAB.
  • Net Worth Statement: To know where you stand financially, you need a Net Worth Statement or balance sheet. This statement shows you what you own and what you owe and provides the additional clarity that a budget lacks. You can learn more about creating a Net Worth Statement here.
  • Establish or Replenish Your Emergency Account: Did you deplete your emergency account last year? Or maybe you never had one. Either way, an emergency account is a must-have for financial success as a significant unexpected expense can set your financial progress back substantially. You can find tips on building an emergency fund here.
  • Manage Your Debt: Managing your short and long-term debt is essential to maintaining your financial health. Once you have created your financial statements, and you know where you stand financially, you can start to implement your debt management plan. From the debt avalanche and debt snowball strategies to consolidation, you have options for managing your debt. To learn more about creating a debt management plan, read this article.

3. Review Your Insurance

Many of us know that certain life events (buying a home, getting married, or starting a family) require that we review our insurance needs. However, a good rule of thumb is to check your insurance needs at least once a year and when certain life events occur (marriage or divorce, etc.). Review the following insurances to ensure there are no gaps in your protection:

  • Life Insurance: There are a few ways to measure the amount of life insurance needed, but I prefer the “financial needs” approach. To learn more about selecting the right amount of coverage, read this article.
  • Disability Insurance: The amount of coverage you need depends on various factors, such as your occupation and financial obligations. The amount of your coverage should be enough to cover all your non-discretionary expenses. You can learn more about disability insurance here.
  • Property & Casualty Insurance: This often includes your home, auto, and umbrella policies. Read this article for tips on selecting the right amount of home insurance coverage.
  • Health Insurance: Federal employees have a wide selection of health plans to choose from, and since the plan you have impacts your out-of-pocket costs and which doctors you can see, ensuring that you have the right plan for you and your family is critical. To learn more about your Federal Employee Health Benefit plans, read here.

4. Review Your Estate Plan

There are many misconceptions about estate planning and its importance, but the truth is that everyone needs estate planning because everyone has an estate. So, what is estate planning? Estate planning is the process of arranging how your assets will grow, be protected, and be transferred efficiently and effectively. And estate planning doesn’t just involve planning events post-death but also includes planning for how your wishes will be carried out if you become incapacitated. Review the following areas to ensure your plan reflects your goals:

  • Will
  • Financial Power of Attorney (POA)
  • Medical Power of Attorney
  • Healthcare Directive (or Living Will)
  • Trusts
  • Beneficiary Designations (on all financial accounts)

For tips on creating your estate plan, read here.

5. Review Your Investment Strategies

When it comes to saving and investing, your strategy should be aligned with your time horizon, risk tolerance, and goals. You should review the following areas at least annually to ensure that your investment strategy is still in alignment:

Asset Allocation

Review your accounts at least annually or whenever there are large fluctuations in the markets to ensure that your mix of investments hasn’t drifted from your target percentages and that your asset selection still meets your goals.

Asset Location

Review the location of your assets to ensure they are in the most efficient type of account. It is usually more tax-efficient to avoid holding certain assets in taxable accounts, such as those paying interest and non-qualified dividends.

Rebalance Portfolio

If your investments have drifted materially from their targeted weights, you may want to buy/sell to bring your portfolio back to your targeted allocation.

For tips on aligning your goals with your investing strategy, read this article.

6. Check Your Credit Report

You should check your credit report and score at least once a year to monitor your creditworthiness and ensure accuracy and spot any evidence of identity theft. You are entitled to a free credit report every 12 months from each of the three major credit reporting companies (Equifax, Experian, and TransUnion). And can request your report at AnnualCreditReport.com. Although your credit report doesn’t include your credit score, many credit card companies provide your credit score for free, so check with your credit card company before paying for your score.

Final Thoughts

Aligning your finances to support the year and life you want is not always easy. And with all the distractions and priorities of life, putting your finances off to the side for later can seem like a reasonable thing to do. But putting the time and effort upfront to be intentional with your financial life plan will help ensure you are progressing towards accomplishing your goals and living your ideal life. If you need help creating your financial life plan, consult with a qualified financial planner.

Published by Jose Armenta, MsBA, CFP®, ChFC®, EA

Jose Armenta is a CERTIFIED FINANCIAL PLANNER™ professional who specializes in helping federal employees get the most out of their federal benefits. Jose’s experience serving federal employees has provided him with valuable insight into federal employees' unique financial planning needs.

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