Only about ten percent of people who set New Year’s resolutions keep them throughout the year. Without a concrete and realistic plan, it’s hard to get from point A to point B.
As a financial advisory firm in Flagstaff, AZ we want clients to succeed far more than ten percent of the time. This new year, leave behind the financial stress that comes from holiday spending, too much family, and adding on some extra pounds. You can achieve financial freedom when you stick to a plan. To help you move forward, you’ll want to follow this year-end checklist. It allows you to review 2021 and set achievable financial goals for 2022.
Don’t worry if you don’t get your year-end checklist done before December 31st! You can complete many of these financial planning and tax-saving opportunities before the tax deadline of the new year.
1. Review 2021 Spending
Reviewing your budget is remarkably helpful because it gives you visual insight into where your money has gone and helps you see ways to save or redirect budget funds. On a daily basis, it’s hard to comprehend the full impact of your spending habits, but the accumulation of a year’s worth of spending makes trends clear.
Taking some time to look back and assess your spending plan will help you see beyond your daily life and improve future financial decisions.
2. Increase Retirement Contributions
Make sure you’ve contributed as much to your retirement accounts as you can afford, up to the annual limits. You can contribute for the prior year through April 15th of the new year (or the due date for taxes).
If you found yourself adding funds to your IRA or 401(k) accounts at the end of the year, you may want to increase your monthly contributions starting this month.
3. Maximize Tax-Free Benefits
If you have a Flexible Savings Account (FSA), a Health Savings Account (HSA), or are saving for college with a 529 or similar tax-free account, the end of the year is an opportunity to reduce tax liability by maximizing your contributions.
Although you can contribute to an HSA for the prior year until taxes are due, both 529 savings accounts and FSAs are much more limited in terms of when you can contribute. FSAs have an open enrollment period for contributions, and any funds for your 529 have to be contributed by the end of the calendar year.
4. Review Insurance
Even if nothing significant has happened in your life this past year, an annual review of your insurance policies helps ensure your policies are up to date, and you have the coverage you need.
Just like a medical check-up or routine home maintenance, an annual insurance review helps protect your family and financial well-being.
5. Review Your Estate Plan and Beneficiaries
Families are dynamic and can change a lot in a year; marriages, divorces, children, grandchildren. Your investment portfolio can also vary in ways that require an update to your estate plan.
It’s smart to review your plan and beneficiaries annually, even if you don’t make any adjustments. If there are new family members or status changes, you can make sure your documents are up to date.
6. Donate to Charity
Participating in the larger community and donating to your favorite charities feels good, benefits others, and is tax-deductible. If you’ve intended to donate money, clothes, or household goods, go ahead and do it before the end of the year so you can include it in this year’s tax write-offs.
If you are already retired and have required minimum distributions (RMD) for an IRA or 401(k) that will bump you into a higher tax bracket, you can choose to donate all or a portion of your RMD directly to a qualified charitable organization to avoid those income taxes.
Setting Financial Goals for 2022
Once you’ve reviewed your past year, it’s time to set goals for the new year. Remember to keep them realistic. Small and steady changes are easy to implement and will add up over time.
1. Adjust Your Spending Plan Budget
If your budget review highlighted areas to reduce spending, make those changes. It can be as simple as making coffee at home, buying clothes less frequently, or canceling subscription services you aren’t using anyway.
Over the course of twelve months, a few small-budget adjustments can make a significant impact on your bottom line.
2. Set Goals
Changes are easier to make when you have clearly defined goals. They give you a place to focus your attention and a reason to make small sacrifices or install new habits. A combination of near and distant targets tends to work best. You want some rewards that are achievable quickly while you also work toward bigger and longer-term goals.
For example, you may save in the short term to buy something fun for your family or take a vacation. That gives you faster satisfaction from your efforts. Meanwhile, you can also work on the longer-term goal of increasing your investment portfolio or retirement account savings.
3. Increase Your Monthly Savings
Many people find they are more successful at saving money when they do the following:
- Pay themselves first (i.e., have the savings amount automatically deducted from paychecks or deposits)
- Add savings to specific and separate accounts.
You can have distinct savings accounts for short-term and long-term goals. That way, it’s easy to track your progress, and you’re less tempted to divert funds toward your immediate needs.
4. Create an Emergency Fund
An emergency fund represents three to six months of expenses in an account that you can access easily. That way, you are insulated from unexpected life events and can sustain your lifestyle through temporary hardship.
If you don’t already have an emergency fund, start one now. You can add a small amount each month. Over time, it will add up to what you need.
The peace of mind that comes from knowing your bills are covered even if you lose your job or need to make a significant life change is well worth the effort.
5. Start Investing or Increase Your Investment Contributions
Once your emergency fund and savings accounts are established, you want to look at what you can invest each month.
Investments include a degree of risk and aren’t always totally liquid, so you don’t want to put all of your savings into investment accounts. However, it’s hard to grow money faster than with investments over time. If you have questions about smart investing, reach out to a financial advisor in Flagstaff, or any of our offices for help.
Slow and Steady Wins the Race
For people without a budget, savings, or investments, it can be discouraging to start. However, steady and consistent effort is the best way to realize your goals. It doesn’t take much if you do it every month.
Don’t be afraid to ask for help. As financial advisors in Flagstaff, Mesa, and Phoenix, Arizona, we don’t engage clients unless we know we can provide substantial value. If you would like to discuss your budget and 2022 goals, we are here to help. Schedule a conversation with us today.