The end of the year is a great time to look back on what you’ve accomplished and set goals for the year to come. One area you should not overlook is your finances.
In fact, reviewing your finances now and acting before the end of the year can empower you to start 2024 off strong — and save some money in the process.
Start by taking a close look at your income, expenses and debt. Really taking the time to review your finances gives you a clear picture of where you stand and helps you identify areas for improvement.
“Think of an end-of-year financial audit as a ‘financial health checkup’ to make sure you are still on pace with your plan,” says Sean Lovison, a Certified Financial Planner and founder of Purpose Built Financial Services in Moorestown, New Jersey. “It’s all about taking stock of what’s coming in, what’s going out and how your savings and investments are shaping up.”
Plus: Heads up investors: Capital-gains tax rules for 2024 are here
Are you on the right path?
Once you know where you’re at, you can start setting goals for the year ahead. This is an essential way to stay motivated and focused.
Take some time to reflect on what you want to achieve financially in 2024. Do you want to save a certain amount, pay off debts or invest in your future? Think about short-term goals, like building an emergency fund, and long-term goals, like saving for retirement.
“Whether setting a short- or long-term goal, you need to be specific to make the goal ‘real.’ Instead of ‘I need to save more for retirement,’ try ‘I want to max out my 401(k) this year,’” says Christopher Lazzaro, a Certified Financial Planner and founder of Plan for It Financial in Swampscott, Massachusetts. “The key to achieving financial goals is to establish saving and investing as a habit,” he adds. “If you automate the habit, it becomes that much easier and more powerful.”
Also see: Want great investing returns without great risk? It’s possible if you do these two things.
Achieving your financial goals in 2024
Here are some money moves to make now to set yourself up for success in 2024.
1. Make some last-minute tax moves. There are a few things you can do now to reduce your tax bill in 2024.
If you haven’t maxed out your contributions to your retirement accounts, now is the time to do so. The contribution limit on 401(k) plans is $22,500, rising to $23,000 next year. IRA contributions are capped at $6,500 this year and $7,000 in 2024. If you’re 50 or older, you can make additional “catch-up” contributions — $7,500 for 401(k) accounts and $1,000 for IRAs in both 2023 and 2024.
Contributions to retirement accounts are, with one exception, tax deferred. You will not have to pay taxes on the money before you add it to your savings; instead, you will pay income tax on funds as you withdraw them as a retiree and you will likely be in a lower tax bracket. The exception to this are Roth IRAs, which require you to pay taxes on your retirement contributions now but let you avoid taxes on the long-term capital gains and corporate dividends when you withdraw funds.
There are other last-minute moves you can make to lower your tax bill. If you’re considering making any charitable donations in the near future, doing so before the year ends can provide deductions that may reduce your taxable income.
The same is true for healthcare expenses: If you have a health-savings account (HSA), you can make contributions up until the tax filing deadline and enjoy tax-free growth and withdrawals for qualified medical expenses.
See: Your HSA can be an extra retirement savings
2. Reassess that retirement plan. Life is constantly changing, so it’s important to make sure your goals and strategy are aligned, especially as you approach retirement.
Has anything changed over the past year? Maybe you want to retire earlier, or you received a windfall that you want to put toward your savings. Review the investments in your retirement savings accounts to see if they are performing as expected. This will help you determine whether you need to make any adjustments.
Once you’ve reviewed your retirement plan and adjusted your strategy to meet your new goals, make sure you’re maximizing your contributions to your 401(k), IRA and any other tax-advantaged retirement plan. Take advantages of any employer match that’s offered — you’re leaving money on the table if you don’t.
Aim to set aside a percentage of your income for retirement. If you’re looking to diversify your retirement savings, consider moving some of it to certificates of deposit. These fixed-income accounts pay higher interest rates than other savings plans but require you to lock up your money for a set period (if you withdraw your money early, you’ll pay a fee). CD rates have risen to levels last seen more than a decade ago, making them a tempting option to grow your money risk-free.
Also see: Can you really save on taxes with year-end moves like making an extra mortgage payment?
3. Prepare your investment portfolio. Recent market volatility, accelerating inflation, and forecasts of slower economic growth may leave you feeling uneasy about your investments. This is especially true if retirement is approaching and you need to start withdrawing from your retirement accounts before markets bounce back. But rather than reacting to short-term fluctuations, focus on building a diversified portfolio that aligns with your risk tolerance and financial goals.
Our risk tolerance tends to change as we age. The end of the year is an ideal time to reassess how comfortable you are with your current level of risk. Are you willing to take on more risk for potentially higher returns, or would you prefer a more conservative approach? A typical portfolio has a 60/40 allocation: 60% to stocks and 40% to bonds. Depending on your goals, that may not be the best allocation for you.
“The last three years have been challenging for bonds, so year-end may be an opportune time to rebalance your target allocations,” says Lazzaro.
Stick to a schedule
Advisers generally recommend rebalancing your portfolio on a regular schedule rather than trying to time the markets by guessing when they are poised to make significant moves up or down.
“Rebalancing should be done at the same time every year and not based on if you ‘feel like it’s the right time,’” says Lovison. “If you aren’t doing it on a regular basis, you are trying to market time, which has been proven to not work.”
Diversification is the key to reducing risk. Review your portfolio to ensure it is well-diversified across different asset classes, such as stocks, bonds and real estate. This can help protect against the ups and downs of any single investment.
If you’re worried about stock market volatility, consider adding some defensive assets to your portfolio, such as bonds or dividend-paying stocks, to provide stability during uncertain times. These assets can act as a cushion during market downturns while still generating income.
4. Review your insurance coverage. As you age, your insurance needs may change. You might have new health concerns, new assets to protect or different financial goals. Reviewing your coverage ensures you have the proper protection for your current situation.
Your review should include health insurance as well as auto insurance and homeowners’ coverage. Make sure your health insurance adequately covers your evolving medical needs and includes provisions for prescription drugs, regular checkups and hospital stays.
This may be a good time to start thinking about long-term-care insurance. Although it might seem unnecessary now, having coverage for potential future healthcare needs can save you from unexpected financial strain down the road.
5. Consider a legacy plan. While it may not be the most pleasant topic to discuss, planning for your legacy is essential, especially as you approach retirement.
Drafting and updating wills, trusts and other estate documents can accelerate the distribution of your unspent retirement savings, life insurance benefits and other assets according to your wishes. Consider consulting an estate lawyer to help you navigate estate laws’ complexities and ensure that your plan is solid.
Read: Are you taking an RMD? 10 smart things you can use it for right now.
Starting next year strong
While combing through your budget and reviewing your investments isn’t the most exciting way to spend the holiday season, it can make a huge difference for next year’s finances. The more you know about your situation, the better equipped you’ll be to make informed decisions about your money.
Make sure to continue to track your progress throughout the year. Regularly review your finances, assess your goals, and adjust as needed. Celebrate your achievements, and don’t be too hard on yourself if you encounter setbacks. Financial success is a journey, and it requires patience and perseverance.
Hanna Horvath is a Certified Financial Planner and financial journalist, helping make complex financial topics engaging and easy to understand. Her work has appeared in Bankrate, USA Today, Policygenius, Business Insider, Lemonade, NBC News, Inc Magazine and more.
This article is reprinted by permission from NextAvenue.org, ©2023 Twin Cities Public Television, Inc. All rights reserved.
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