Five aspects of your financials that you can clean up for the New Year

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As we’re counting down the hours until 2017 is no more, I’m going through my victories, failures, and resolutions for the upcoming year. It’s important for personal development to identify what has worked in our lives, what hasn’t, and what we can do to become better people. Financially, 2017 has been a rocky year for me—medicine has hit various professions hard, and the unlucky have been hit. I personally took an 80% pay cut while working longer hours and bringing in 8% more revenue (Yes, that’s collected revenue and not charges) for my employer! C’est la vie. We hope that  2018 will be a better year for medicine.

Despite what happens with our jobs, my financial plans remain as focused as ever. The upcoming year will still be too soon for me to declare financial independence or cut back on my job, but I hope to hit more milestones within the next five years.

In the meantime, I’ve dusted off my Top 5 Financial Checklist that I will be reviewing for the upcoming new year to keep my financial plans sharp:

Fund the Roth IRA

Anyone who is drawing a paycheck who has no tax-deferred IRA space should be contributing to a Roth IRA. Even if you are in early retirement, you ought to plan to fund your Roth IRA as you are withdrawing to cover your lower tax bracket space as conversions. If you don’t quality directly for a Roth IRA due to high income, you should still fund a backdoor Roth IRA.

You might also like: How to fund a Backdoor Roth IRA. 

If you have the funds, go ahead and contribute to your Roth IRA in January.  I’ve definitely had years when I “never found the time to contribute”. Your future self will thank you for it.

Strategize means to pay off those student loans

Although student loans are fortunately immaterial for me, they were a psychological burden when I was still in repayment.  With federal loans in the 6.8% range, recent graduates will benefit greatly by knocking out those loans as if your hair is on fire.  It doesn’t matter if your college roommate tells you she can get a 7% return on stocks that will compound while your student loans remain on simple interest. It doesn’t matter if a college acquaintance who became a real estate mogul gives you a lead on a 14.5% real estate return. Repayment of a 6.8% student loan is a guaranteed post-tax gain. If you have to refinance at a lower rate, do it. If you receive a sign-on bonus on your first job, consider contributing a portion of it (or all of it) towards your loans. You could probably live without a fancy new car for at least one year, right?

Reassess liability.

Liability to me involves situations that could devastate your financial situation. This includes:

  • Disability insurance
  • Homeowner’s / Renter’s insurance
  • auto insurance
  • umbrella insurance

One interesting aspect about umbrella insurance is that it ties into your auto and homeowner’s insurance. Most insurance companies do require a certain minimal coverage on your vehicles before umbrella insurance takes effect. If you drive a very old beater car that really isn’t worth insuring, you still have to increase the coverage. Yes, you have to pay more to get covered more because you have more money. I’d take more money any day.

Update your financial plan.

Everyone will have different levels of details in their financial plans. Some of us will calculate down to the month and year when we will be able to say goodbye to our daily jobs. Other people are simply going to have a basic financial statement declaring their investment strategy stratified by age. I keep my financial plan relatively basic, and I assess my annual savings rate, stocks to bonds ratios, and whether there are any planned big expenses like home purchases or real estate investments that I need to save for at the beginning of the year. This takes maybe fifteen minutes of additional thought and planning each year. No more, no less.

Update any employer-sponsored retirement savings.

Employer-sponsored plans include HSA’s, FSA’s, basic 401k’s, and the like that should be pretty much on autopilot.  Not every household is suited for high-deductible health insurance plans to qualify for HSA’s, despite what we commonly seen among financial bloggers. Believe it or not, some of us have families with chronic medical conditions that still benefit from health plans with higher premiums but more coverage. Many FSA plans allow you to carry over $500 or less of your balance into the new year. Be sure to make note of any details—you certainly don’t want to give away any money that’s rightfully yours.

Happy New Year everyone! What other financial housekeeping duties do you go through at the end of the year?

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