It’s about that time again! The start of a new year and the perfect time to hit reset on your finances.
As you toast the start of the new year and build your resolutions, there are some personal finance tasks to consider before closing out 2023 and preparing for the new year. Complete these steps to ensure that your 2024 is a year of prosperity and not one of financial ruin.
Wrap-Up Financial Tasks From 2023
Make contributions to your IRAs. IRA contributions can be made for the 2023 tax year until April 15, 2024. The IRA contributions limit for 2023 is $6,000 with a $1,000 catch-up if you are age 50 or older. Contributing to an IRA can be an excellent way to reduce your taxable income or boost your savings contributions for the year.
Check the balances on your Flexible Spending Account. If you have a Flexible Spending Account (FSA) through your employer that had a balance at the end of 2023, you can check with your benefits department to see if they offer a rollover policy into the next year or a grace period. For 2023, companies may choose to provide a maximum of a 2-and-a-half-month grace period to spend the remaining funds in an FSA. Instead of an FSA grace period, some companies carry over unused funds. In 2023, companies may allow FSA participants to carry over a maximum of $610 into 2024. FSAs are usually use-it-or-lose-it during the year, so if the account did have a balance at year-end, this could be the last chance to ensure you can use the funds.
Review Your Financial Life in 2023
One of the best ways to get a financial head start for 2024 is to review your financial life from the previous year. This review can be the stuff of organizational fantasy with color-coded spreadsheets or as simple as a handwritten journal of notes. The important thing is to spend time understanding your financial life from the previous year to understand aspects you want to start, stop, or continue in the new year.
Below are some ideas of areas to review your financial end-of-year review.
Your Net Worth Statement
A net worth statement is a snapshot of your assets (what you own) minus your liabilities (what you owe). To build your net worth statement, all you need to do is compile a list of everything that lands in these two categories and then subtract your total liabilities from your assets. The resulting net worth figure provides insight into your actual level of wealth.
The goal would be to have an increasing positive net worth over time. However, if your net worth is negative, it can be a good idea to assess why your net worth is negative, how your liabilities impact your financial life, or when you project to reach a positive net worth. A common reason a person has a negative net worth is that student loan balances are greater than the assets a person has early in their career.
If you have an app or means of measuring net worth throughout the year, year-end is a good time to review your progress and current net worth. If you do not regularly track your net worth, transitioning from one year to the next is a great time to review your net worth and see precisely where you stand.
Your Net Cash Flow From 2023
Net cash flow is your income minus your expenses. You can assess your net cash flow from a few different periods, such as monthly, quarterly, or annually. Reviewing your net cash flow through the lens of varying periods provides different perspectives. Reviewing your monthly cash flow can highlight your experience budgeting each month and whether your monthly income covers your expenses. Looking at longer periods, like quarterly or annually, can help to account for non-recurring or irregular expenses and show if, overall, you were able to increase your wealth over the period.
Your Savings Contributions
Net cash flow is important because, ultimately, it is what allows you to save. When thinking about your savings contributions, you can ask yourself several questions. What were your savings goals for 2023? Did you reach them? Did you get close? Did you get a raise or a bonus recently? Can you increase your savings contributions? In addition to asking yourself questions, you can consider which savings goals (e.g., emergency funds, vacations, retirement) you allocated contributions to and see if this is the allocation you want to continue within the new year.
Your Spending and How It Aligns with Your Values
When reviewing your net worth, spend some time reviewing your spending. It is very easy to misjudge how much you spend and on what. By doing an annual audit of your expenses, you can see where your money actually goes and assess if this aligns with what you value. For example, if you appreciate fashion, spending on clothes may be a larger budget item, but if you don’t care much for fashion but love traveling and did not spend much on travel in 2023, perhaps it is time to reallocate those funds. If you want to save for a big-ticket item like a house or car, is there any spending on things you realize you don’t actually care about that can be reallocated toward your most important goals? Every person’s values and goals are different, and the key to this review is to make sure where your money goes is aligned with what you want in your life.
Your Triumphs
Looking over your financial life can bring up many thoughts and feelings, some of which may not be positive. After completing your end-of-year financial review, you may feel motivated to take your financial life to the next level, feel discouraged by your progress so far, or lament your mistakes. Whatever emotions come up during this process, remember to take a step back and reflect on the progress you made and the triumphs you had during the year, even if they were small and especially if they were significant. Every little step towards the financial life you want counts!
Set Your Intentions for 2024
Based on your financial end-of-year review, set your intentions for 2024. What do you want your financial life to look like in 2024? Do you want to save more in your retirement accounts? Consider increasing your retirement plan contributions. If your net cash flow is negative or less than you would like to see, brainstorm ideas to increase your income or lower your expenses. If you want to lower your expenses, look for areas where your spending does not align with your values.
Regardless of your future goals, completing an end-of-year financial review before setting your 2024 financial goals allows you to make choices and plans based on the realities of your financial life, and knowing where you are is critical to figuring out where you want to go.
