2023 Financial Planning: Your Key To-Do List for the New Year

Are you prepared for 2023? From soaring inflation and rising interest rates to the ongoing effects of the pandemic and war in Ukraine, we can expect the economic landscape to remain predictably unpredictable for the foreseeable future. And Mr. Market doesn’t like it when it’s foggy.

While there’s not much we can do to influence the global macroeconomic and geopolitical picture, there are plenty of ways to ensure our own finances are robust enough to deal with whatever the next 12 months bring.

Here are a few key financial actions to consider as you create your financial plans for the new year:

1: Review Your Budget

If you are working with a Financial Planner, kudos to you! If you use a software like YNBA or Mint, bravo! You are probably reviewing and monitoring your budget on an ongoing basis. If you’re using Excel or doing it by hand, take an hour to review and update. I would recommend using a Budget Calculator like the one provided here by Nerdwallet (Budget Calculator). If you don’t have a budget, now is as good a time as any to begin. Your budget is the keystone to your Financial Plan. If you need help, you should consult with your Financial Planner.

2: Rebalance Your Portfolio

Regularly rebalancing your portfolio can help you stay on track towards achieving your long-term financial goals. One good way to do this is to review and adjust your asset allocations at the end of the year or early in the new year. This can help ensure that your portfolio is aligned with your investment objectives and risk tolerance. To rebalance your portfolio, you can log into your retirement accounts such as a 401(k), IRA, or 403(b) and make any necessary changes. If you’re not sure how to rebalance your portfolio or need help with your financial planning, it can be helpful to consult with a financial advisor.

3: Offset Capital Gains with Capital Losses

“Tax-loss harvesting” is a strategy that can help you reduce your potential tax liabilities by taking advantage of capital losses in your taxable investment accounts. When you review your investments, if you notice that you have realized capital gains, you may be able to offset some of those gains by realizing capital losses. This can be an effective way to lower your tax bill for the year. However, it’s important to note that there are some rules and limitations to tax-loss harvesting, so it’s a good idea to consult with a tax professional before making any decisions. They can help you understand the potential benefits and risks of this strategy and advise you on the best course of action for your specific situation.

4: Check on Your RMD

If you are over the age of 70 and have retirement accounts, you may be required to take Required Minimum Distributions (RMDs). These are minimum amounts that you are required to withdraw from certain types of retirement accounts each year. The rules for RMDs can be complex, so it’s a good idea to seek help from a financial advisor, financial planner, or tax professional if you have questions or need assistance. Some custodians (such as brokerage firms or banks) may offer to handle your RMDs for you automatically, but it’s important to make sure you understand the rules and set this up properly to avoid potential penalties. If you have any doubts, don’t hesitate to reach out to your custodian or a professional for guidance.

5: Review Your Parents’ Plans

It’s important to plan for the possibility that your aging parents may eventually need help with their financial affairs. By having a conversation with them now about their financial portfolio and their wishes for how their affairs should be managed in the future, you can help ensure that you are prepared to support them when the time comes. This can also help avoid any unpleasant surprises that might impact your own financial plans down the road. It’s never easy to think about these types of situations, but taking the time to plan and communicate with your parents can help provide peace of mind for both of you. If you need guidance or have questions about financial planning for your aging parents, consider consulting with a financial planner or professional.

6: Get Your Kids Involved

As a parent, it’s important to ensure that your children understand your financial plans and values, particularly if they are old enough to comprehend them. Having an open and honest conversation with your children about your financial situation and the values that you believe in can be a valuable opportunity to share your wisdom and guide them in making informed financial decisions in the future. It’s also a good idea to let them know what you would like to see happen with your assets and financial affairs after you are gone, so that there are no misunderstandings or surprises later on. Remember to approach these conversations with sensitivity and respect, and consider seeking guidance from a financial planner or professional if you need help navigating these complex topics.

8: Turbocharge Your Savings if You’re a Small Business Owner or Self-Employed

As a small business owner or self-employed individual, you have several options for maximizing your retirement savings and reducing your tax liability. These options include various types of retirement plans such as 401(k)s, SIMPLE 401(k)s, SIMPLE IRAs, SEP-IRAs, defined benefit plans, profit-sharing plans, money purchase plans, employee stock ownership plans (ESOPs), and SARSEPs. Each of these plans has its own advantages and disadvantages, and different maximum annual contribution limits, so it’s important to choose the right one for your needs. To make informed decisions about your retirement savings strategy, it’s a good idea to consult with a financial advisor or tax professional who has specialized knowledge in this area. They can help you understand the pros and cons of different plans and assist you in choosing the option that best meets your needs and goals.

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