Preparing Your Finances for the New Year

financial planning
Start 2023 On the Right Financial Foot by Making the Necessary Preparations Now

As you get set to ring in the New Year, bringing with it the promise of new beginnings and new opportunities, it may be time to reassess your financial goals and your financial planning strategy. As you reflect on areas you’d like to strengthen, say retirement planning or wealth-building, use the below steps to start the next twelve months on a stronger financial foundation.

#1. Get a clear picture of your current financial situation.

The end of the calendar year is the perfect time to sit down and review all your assets and liabilities. Gather documents related to any accounts you have open, any loans you’ve taken out, any debts you owe, and anything else related to your financial situation. If you’ve been practicing avoidance where your finances are concerned, this might cause some anxiety. However, it’s critical to understand where you are before you can make plans to get to where you’d like to be in retirement. 

#2. Think about what changes you want to make and how to go about making them happen.

Once you have a better idea of where you stand financially, it’s time to begin thinking about what you want to change and where you want to go. Reflect on what you envision for your future, what you want your life to look like in retirement, and how money plays into that, and then begin writing down any financial goals that you’ll need to accomplish to make those visions a reality.

The key to this step is to be as specific as possible. Give yourself specific amounts that you want to reach and a deadline to reach them by. For instance, if one of your goals is to pay off your debts, break that down even more. How much do you want to pay off which account and by what date? The more detailed you are with your goals, the easier it will be to turn them into tangible steps.

#3. Create a budget that supports your short- and long-term goals.

With any wealth management plan, creating and following a budget is the crucial first step. Now that you now know where you’re starting from and you have determined where you want to go, think of your budget as the vehicle that will take you there. No matter how good you think you are with your money – or how big your paychecks are – a budget ensures that you’re not overspending and that you’re staying on the right track to accomplish your aspirations. Try one of these easy-to-use budgeting apps if you aren’t sure where to start.

SEE ALSO: Does Social Media Make Us Spend More Money?

#4. Take advantage of compound interest by saving as much as possible.

You’re probably saving for retirement, building an emergency fund, and maybe saving for something like a loved one’s college education or wedding, too. That’s a lot of different savings streams to manage, on top of paying for your living expenses and addressing any debts or loans you have. Though it can seem overwhelming, the key to building your savings is simply to begin saving and commit to continuing to save as much as you can.

Even if you can just put a little away at a time, every little bit counts – especially in specific savings accounts where compound interest is at play. Think of compound interest as financial magic; it allows you to make money on your own money without having to do anything but let it sit there. Your savings and investments can grow significantly when you take full advantage of compounding, and the key is to start as early as possible.

#5. Diversify your investments.

Have you ever heard the phrase ‘don’t put all your eggs in one basket’? That saying is particularly true when it comes to your investment strategy. You open yourself up to a substantial amount of risk when you put too much money into one asset type. Instead, the best thing you can do is diversify your investments. A strong portfolio needs to consider your risk tolerance, your cash flow needs, your time horizon, and your long-term financial goals, while also providing an investment strategy that works with your unique situation.

Investing is a particularly complicated part of finance, so if you’re feeling uncertain or confused, don’t hesitate to seek out a fiduciary investment advisor who can help guide you through the process.

#6. Get your strategy in order for the upcoming tax season.

A new year means that tax season is right around the corner. While you’re focused on organizing your finances, take some time to ensure that you have everything you need to be prepared for when it comes time to file your taxes. If you’re expecting to receive a refund, now is the time to plan for where you want that money to go. It can be far too tempting to spend that money on frivolous things rather than putting it to good use, so getting a plan together before you have the money can help you stay strong in the face of temptation and feel confident in your decision-making

#7. Don’t forget about estate planning. 

If COVID-19 has taught us anything, it’s that we can never be too prepared for what’s to come – especially when it comes to our finances. Thinking about our mortality is uncomfortable for everyone, but none of us can live forever or be sure how much time we have left. That’s why it’s so important for your financial planning to include having a will and getting your estate in order so that your wishes will be honored when you’re gone.

SEE ALSO: Three Questions to Help You Develop Your Estate Plan

If you have children or dependents who depend on you, this becomes even more critical. Regardless of how old you are or how healthy you believe yourself to be, talk with your family about how you want your assets dealt with should something happen to you and put those wishes into a legal document.

Smart Financial Planning Helps You Start the New Year Strong

The gift of each new year is that you can reassess, reevaluate, and make changes that improve your life in the present and in the future. This is certainly true of your finances, so use the next 12 months to give yourself the gift of greater financial health. Getting your finances in order now is a way to gift your present and future self with a life free from financial stress once you retire.

At Andersen Wealth Management, we understand that juggling all the important aspects of financial planning can sometimes feel like a herculean task. Having a professional you trust who can help you navigate the world of financial planning and guide you toward your goals can be incredibly beneficial in the long run. Don’t hesitate to give us a call if you feel like you would benefit from having a conversation with one of our advisors about your wealth management strategy.