Managing your finances can feel like a full-time job. While there are things you need to do regularly throughout the year (like monitoring your monthly budget and ensuring all your bills are paid), some matters may only happen once a year (like filing taxes).
To help you keep your finances in balance, we’ve compiled an annual checklist of all those activities to handle early in each new year. Here are nine things that should be on your financial to-do list.
1. Check Your Credit Report
Your credit report and credit history are the foundation of your financial health. Good credit can help you get approved for loans or credit cards when you need them, and it can grant you favorable interest rates.
You have the legal right to obtain one free credit report per year from each of the three major credit bureaus. You can request them from individual bureaus or you can request all three from AnnualCreditReport.com.
2. Check Your Credit Scores
Credit scores are typically not included in your credit report, and they reflect your credit health at any given moment. Your credit scores can affect not only how much you can borrow but also your ability to rent an apartment or even get certain types of jobs.
There are multiple ways you can obtain your credit score, including free sources like your credit card provider or bank. You can also pay for your credit score from FICO or any of the three major credit bureaus.
3. Calculate Your Debt-to-Income Ratio
Your debt-to-income ratio is another key indicator of your financial success. To calculate it, add up all your debts and divide them by your gross total income. If you’re applying for a mortgage or another type of loan, lenders will look at this number to determine if you’re capable of taking on new debt.
Even if you don’t plan to apply for a loan, your debt-to-income ratio can tell you if there’s a red flag in your finances. Generally, a debt-to-income ratio of 36% or lower is considered good, while anything above 43% is deemed too high.
4. Calculate Your Net Worth
Your annual financial to-do list should include an updated statement of your net worth. Ideally, you should calculate your net worth quarterly to track progress. But at the very least, you should calculate your net worth at the beginning of each year as a way to monitor your financial progress objectively.
You can calculate your net worth by adding up the value of your assets and subtracting your liabilities (what you owe). Assets include cash, investments, real estate, vehicles, and other possessions. Liabilities are debts like a mortgage, student loan, auto loan, or credit card balance.
Ideally, your net worth increases as you age, although there are times it’s expected to decrease, such as when you take on new student loans or buy your first home. Once you calculate your net worth, you can work on a plan to increase it by paying down debt, growing investments, or saving more money.
5. Review Your Retirement Plan Contributions
When calculating your net worth, you should have considered the value of your retirement savings. Are you on track to meet your savings goals? Can you contribute more? If you have an employer-sponsored retirement plan with a matching contribution, try to contribute at least enough to get the full benefit of the matching contribution. That’s free money.
If
You didn’t have an employer-sponsored retirement plan, did you set up a traditional retirement account? For any type of retirement plan, now is the time to review your investment options and make changes if necessary, considering your long-term goals.
6. Set New Financial Goals
To stay motivated in achieving your short-term and long-term financial goals, you should review them at the beginning of each year and make any necessary changes. Did you achieve any of your goals last year? Do you need to reassess how your current goals are prioritized?
Examples of short-term goals include creating an emergency fund, paying off credit card debt, or taking a big vacation. Long-term goals include buying a home, starting a business, or funding your children’s education. Whatever your goal, make sure the goals are realistic so you can commit to them.
7. Create a New Budget for the New Year
Conditions change throughout the year, and a new budget that aligns with your new goals will help you stay on track. If you don’t have a budget already, now is the time to create one.
If you already have a budget, take a close look at your expenses. Have any of your expenses increased or decreased since the last time you updated your budget? Also, look at your income. If it has decreased but your expenses have not, you may need to cut spending in one or more areas.
8. File Your Taxes
Learn that you need to file your taxes. Although you have until April 15 (or later if you file for an extension), it’s best to start early.
Employers are required to send tax forms like W2s and 1099s by January 31. Set a goal to gather all the paperwork you need by that time to make the task easier.
Filing taxes early gives you the advantage of having time to check and double-check, ensuring that you receive every available deduction and tax credit. If you’re expecting a refund, it also means you’ll get your money sooner.
9. Review Your Income Tax Withholding
If your situation has changed (for example, if you got married or divorced, had a child, lost dependents, bought a home, had a significant change in income, owed taxes last year, or received a large refund), you should rewrite your W-4 form.
If there are changes you want to make to your W-4 regarding your filing status or number of dependents, you may also want to take the opportunity to review and update your beneficiaries and will.
Frequently Asked Questions
What is the 50/30/20 rule for money?
The 50/30/20 rule is a budgeting guideline. If followed, you will allocate 50% of your income to needs, like housing and groceries; 30% to wants, like hobbies or entertainment; and 20% to savings. It’s a rough guideline rather than a strict rule.
What are some examples of financial goals?
Smart financial goals include creating an emergency fund, paying off debt, saving for retirement, saving to buy a home, paying off a car loan, and planning for a dream vacation.
Source: https://www.thebalancemoney.com/financial-to-do-list-1289802
Leave a Reply