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5 Essential Financial Moves to Make at the Start of a New Year

Alarm clock with blocks that spell out 2024

The beginning of a fresh year is the best time to check in on your financial planning.

Author: Martin Lundgren

There is nothing like the beginning of a new year to help kickstart everything: fitness goals, travel planning, and yes, financial review and changes to get closer towards that future you dream about. 

When it comes to your personal and family financial goals, it’s easy to get overwhelmed by the amount of areas to cover and tasks to do. Working with a trusted financial advisor can help you ensure you are checking all the right boxes, but if you’re looking to see what you can do on your own, we’ve gathered our top 5 activities to help you start the year off right.

1: Review allocation in 401k and how much is being contributed.

As the new year begins, one of the easiest things you can do for your financial well-being is to review and reassess the allocation within your 401(k) portfolios to help make sure your investment strategy aligns with your financial goals, risk tolerance, and time horizon. 

Evaluating the allocation involves analyzing the distribution of assets among various investment options such as stocks, bonds, and cash. Additionally, individuals should carefully consider the amount they contribute to their 401(k) accounts at the outset of the year. Adjusting contribution levels per changing financial circumstances, income levels, or retirement objectives is essential to maintaining a well-balanced and effective retirement savings plan. 

Regularly revisiting and fine-tuning your allocation and contribution strategy is key to optimizing long-term financial growth and security within the framework of a 401(k) plan.

2: Review and update paycheck withholdings to ensure it is still correct based on last year’s tax return

Another thing to do at the beginning of each year is to review and update your paycheck withholdings to ensure they accurately reflect your current financial situation, particularly in light of last year’s tax return. This process involves scrutinizing your withholding allowances, considering any significant life changes — marriage, the birth of a child, etc. — or changes in income. 

By aligning your paycheck withholdings with your actual tax liability, you can prevent over-withholding or under-withholding, ultimately avoiding unexpected tax bills or refunds. Regularly reassessing and adjusting your withholdings helps maintain financial efficiency and ensures you are not paying more or less taxes than necessary. A proactive approach like this allows for better financial planning and compliance with tax obligations, contributing to a smoother and more predictable financial outlook.

3: Review last year’s cash flows and savings and determine if you hit your savings goal

While the new year gets rolling, remember to reflect on last year’s cash flows and savings to assess whether you achieved your financial goals. A comprehensive review of your cash inflows and outflows provides valuable insights into spending patterns, potential savings areas, and your financial plan’s overall health. 

By comparing your actual savings against the goals you set, you can gauge the effectiveness of your budgeting and saving strategies. If you find that you fell short of your savings target, it may be an opportunity to adjust your budget, identify unnecessary expenses, or explore new avenues for income generation. 

Conversely, exceeding your savings goal allows you to celebrate financial milestones and consider how to allocate surplus funds for future goals or investments. This annual review is a pivotal step in maintaining financial discipline, adapting to changing circumstances, and ensuring that your financial objectives remain on track.

4: Gather tax documentation 

As the tax season approaches, it is crucial to diligently gather all necessary documentation, with particular attention to details such as donation receipts, major house improvements, and home office expenses. Collecting accurate records of charitable contributions is vital for maximizing potential deductions, so ensure you have receipts or acknowledgment letters from the organizations you supported throughout the year. 

Similarly, maintain detailed records of expenses for major home improvements, as certain renovations may qualify for tax credits or impact your home’s adjusted basis. If you’ve been working from home, meticulous documentation of home office expenses is essential. Keep track of eligible costs, such as utilities, internet fees, and office supplies, to support any potential deductions related to your home office space. 

By proactively gathering and organizing these documents, you ensure compliance with tax regulations and position yourself to optimize your deductions and minimize your tax liability.

5) Review any changes to your financial or personal life 

Regularly reviewing and updating key aspects of your financial and personal life is a crucial step in maintaining a comprehensive and up-to-date plan. Changes in circumstances such as marriage, divorce, the birth of a child, or the passing of a loved one may necessitate updates to beneficiaries of retirement accounts and life insurance policies. Similarly, alterations in family dynamics or financial goals should prompt revisiting your estate plan, including wills, power of attorney documents, and any other directives. Adjusting these documents ensures that your wishes align with your current situation. 

If income or expense assumptions have significantly changed, you should update your financial goals accordingly. Regularly reviewing and adapting these elements of your financial and personal life not only safeguards your assets but also ensures that your plans remain in harmony with the dynamic nature of life, promoting financial well-being and peace of mind.

Download Northern Lights Advisors 16-point Comprehensive Financial Planning Checklist 

Whether you are embarking on a new journey toward financial success or want to make sure you’re doing enough, wealth management requires a holistic and comprehensive approach. At Northern Lights Advisors, we know there is a lot to cover to achieve the future you desire. We gathered our top considerations to help you evaluate your financial well-being.

Download our 16-point checklist today.

As a fiduciary, fee-only, Registered Investment Advisor (RIA) firm, Northern Lights provides financial planning and investment management services. The information in this article is not intended as tax, accounting, or legal advice. Read the full disclaimer here.