10 Annual Financial Steps You Should Take

By Michael S. Hohf, CFP®, NSSA®

Every New Year, people make goals and resolutions to work on certain parts of their lives, such as their bodies or careers. And every new year, I like to emphasize to clients the steps they should take to assess their financial health and improve their financial futures.

Here are 10 annual financial steps to consider for financial success in the new year and beyond:

1. Evaluate your emergency fund account.

An emergency fund is one of the most important tools to have in your financial toolbox. So, it’s important to make sure you’re getting the best rate for your money. Bankrate.com lists the national money market yield at 0.11%. There are several online banks, however, that offer much higher yields for online savings and money market accounts – sometimes up to 1.25%. These accounts can be opened with a small minimum deposit, have no fees and allow you to link to your other bank accounts, which makes it easy to transfer money.

2. Review your insurance coverage.

Insurance rates change like the wind. Therefore, each year you should review your insurance policies to make sure you are getting the best rate and have the right amount of coverage. It’s easy to compare rates and coverage online. Online insurance companies often provide lower costs compared to brick-and-mortar insurance companies since their overhead is much lower.

3. Save additional money for retirement.

The IRS allows $18,000 of annual pre-tax contributions to employer retirement plans such as 401(k) and 403(b) plans. Those 50 and older can contribute an additional $6,000, known as a catch-up contribution.  Elevate your monthly contributions starting in January to contribute additional dollars to your plan. Especially, if you received a raise the previous year. Spreading those contributions across the full year will make it easier on your budget. The more money you save, the better your retirement. I have yet to meet someone who has said they saved too much for retirement.

4. If you are self-employed, set up and fund a retirement plan.

The IRS allows very generous, tax-deductible contributions to special retirement plans for self-employed individuals. SEP IRAs, SIMPLE IRAs and Solo 401(k) plans can be set up relatively easily. If you establish a plan, create a savings strategy throughout the year that will allow you to maximize contributions. This will allow you to accumulate dollars for retirement but also lower your current year’s income tax.

5. Evaluate your previous year’s spending and make a budget for the new year.

The turn of the year is a great opportunity to adjust your budget since most credit card companies send year-end spending reports. Review these reports with your other expenses and identify areas that could use improvement. Then, think about ways to stay disciplined to your budget. For example, should you eat out less each month? Can you find a less expensive gym membership? Does it make sense to eliminate your cable bill?

6. Analyze your net worth.

Your net worth is the best figure to look at to understand if you are sticking to your financial plan and making progress toward your goals. If you haven’t started to keep track of your net worth, I suggest using an online aggregator such as Mint for simplicity’s sake. Or, create a spreadsheet with all your assets and liabilities listed. I use a spreadsheet that I update once a month. This allows me to quickly review each account and see my overall net worth. It’s a great way to visualize your progress, and if you can see the benefits of your financial plan coming to fruition, it becomes a lot easier to stick to it!

7. Review your investment accounts.

Make sure that you’ve defined an objective for each of your investment accounts and make sure each account is invested in a fashion that is designed to meet that objective. Throughout the year, your assets will likely fluctuate. Your accounts may have too much or too little risk, depending on your objective. The start of a new year is a wonderful time to rebalance – selling what has gone up and buying what has gone down – if necessary. I suggest that you review your investment accounts with the help of a qualified adviser.

8. Make IRA and Roth IRA contributions.

If you haven’t made your IRA or Roth IRA contribution, you can make eligible contributions all the way into the new year that apply to the previous year. The deadline for 2017 is April 17. Contribution limits for 2016 and 2017 are $5,500 ($6,500 if age 50 or older).

9. Pay down debt.

The most efficient way to increase your net income is to eliminate debt. If you have credit card or student loan debt, make sure you pay more than the minimum amount each month. When your debt is paid off you’ll be happy with the interest you’ve saved and the extra money that’s in your pocket.

10. Consider purchasing an umbrella policy.

If you are earning an income and/or have accumulated assets, you are potentially vulnerable if you become involved in a lawsuit. If you haven’t already, consider purchasing an umbrella policy, which will help preserve your assets and future incomes if you are liable.

Michael Hohf is a CERTIFIED FINANCIAL PLANNER™ who provides comprehensive wealth management solutions, such as retirement planning and investment advice, to help clients work toward achieving their financial goals. He is also one of Dave Ramsey's designated SmartVestor investing professionals.