Financial Planning for the New Year

There’s something about the start of a new year that really gets you thinking about financial planning. A new year represents a new start andA new year is a great time for a new start or new goals. It's a great time to review your financial planning to see what you can do better. a clean slate. I think that’s why so many people like to set resolutions when the calendar flips over to January 1, myself included. That got me thinking, there are certain types of goals that are especially fitting for the new year because I have the entire past year’s worth of data to reflect on. It’s also a great time to embark on new goals and make plans for your money. Here’s what I’m working on for the new year.

Review Current Year

At year-end, I like to take a look at all the financial info from January to December. I look at my spending, savings, and earnings. Since most of my spending is on a credit card, it’s very easy to see at a glance the different categories we spend our money on as well as the actual amounts. Most credit card companies these days send out a year-end statement which saves you the trouble of tracking down all 12 statements from the past year.

I track my net worth monthly by entering the numberings into a spreadsheet. At year-end, I can easily see how my savings and investments have fared throughout the year. It helps me see whether I’m on the right path.

I also like to review my earnings. I’m a W2 employee so my pay stub shows my gross and net earnings not just for the pay period but also for the year.

Having all these numbers in hand helps me calculate my savings rate for the year and see if anything’s out of whack. People have different ways of calculating savings rates. I calculate my savings rate by adding together the money I socked away in my Roth IRA and savings accounts and divide that by my earnings. If I’m happy with the number, I’ll stick to the same plan I’ve set in place. If I feel that the number’s too low, then the new year’s the perfect time to revamp my financial plan.

Things I Can Do Better

Reviewing my spending, savings, and earnings helps me see if there are areas I can improve on in the new year. I’ve been pretty happy with my savings rate but of course, I’d like to save more if I can. I’d really like to improve my earnings as it would provide us with more freedom to pursue our interests such as traveling.

I’ve explored some side hustle opportunities and while the money earned isn’t enough to provide a full-time income, it’s a start and every little bit helps. I believe that as hard as we work to cut our spending, it’s impossible to completely eliminate all expenses. On the other hand, your earnings are theoretically unlimited. Therefore, I’d like to focus on improving earnings next year. I’ve been brainstorming ideas that I’d like to try out on Etsy. I’m also trying to convince hubby to give selling on eBay a try.

Think About Retirement Contributions

Many retirement plans have a limit on how much money you can contribute in a tax year. For example, as someone under 50, I’m able to contribute $5,500 to my Roth IRA every year. You have until the tax filing deadline to contribute to your IRA. Since the deadline for filing 2017 taxes is April 17, 2018, that means you have until that date to contribute to your IRA for the 2017 tax year.

I tend to like to make my contribution within the calendar year rather than basing it on the tax filing deadline. I find that it’s easier to plan when using the calendar year. I get paid every other week so I receive 26 paychecks a year. I divide $5,500 by 26 which gives me $211.54 and that’s the amount of money I transfer to my Vanguard account every month. I also have a taxable investment account and I’ve been setting aside $100 from every paycheck for that as well.

These are important things to think about so that you can contribute exact amounts and not go over or under. Going under means you’ll have to scramble at year end to find the money to max out the limit. If you go over, you’ll have to take certain remedial measures or face a monetary penalty.

Run Retirement Calculations

While we’re on the topic of retirement, the end of the year is also a good time to check on how your retirement funds are doing. There are so many free financial tools out there that can help you figure out how well you’re doing. I enjoy using Personal Capital. I plug in numbers such as my age, savings rate, current investment balance, and expected retirement spending and Personal Capital will tell me how likely it is that I’ll meet my goal.

You can also run calculations to include information about your spouse. I like to run both calculations to be on the safe side. I like to prepare for the worst possible scenario so I don’t like to assume that everything’s smooth sailing. For now, Personal Capital is telling me that I’m on target to meet my goals. I love seeing that because it gives me reassurance. However, life is super unpredictable so I’m always aiming to save more, more, more!

New Goals I Want to Accomplish

Finally, I look at the new year as a great time to pursue new goals. I really want 2018 to be the year where we buy a rental property. More and more, I’m believing that owning rental properties is one of the best ways to achieving financial independence. People will always need housing and rental properties would provide a stream of income aside from our regular paychecks.

If we’re able to build up enough of a real estate portfolio, we’d be able to rely on them entirely for our income. We’ve identified the neighborhoods we’re interested in and it will take careful/obsessive monitoring for the right houses to come on the market.

What’s in your financial plans for the new year? Do you take this time to plan out your finances or do you keep on doing what you’ve been doing during the past year?

A new year is a great time for a new start or new goals. It's a great time to review your financial planning to see what you can do better.