New Year Smart Financial Goal Setting

New Year Smart Financial Goal Setting helps you take control of your finances with a clear plan. Achieve your financial goals with actionable steps this year!

Who doesn’t want to head into the new year in a better financial position? Whether your overreaching goal is to cut up your credit cards and pay off credit card debt, save for a down payment so you can stop renting, or begin squirreling money away for an emergency fund, the new year is the perfect time to take control of your financial future. And no, there’s no magic wand to wave over your money. However,  having a clear plan and setting achievable goals will guide you toward financial success. 

This new year’s financial checklist is the perfect way to set you up for success, helping you break down your long-term goals into actionable steps that fit your current financial situation. With a good financial goals worksheet in hand, you’ll have everything you need to make smart financial decisions and track your progress toward a more secure and prosperous year ahead. It’s not about making big, sweeping strides; it’s about achieving small amounts of progress each month that snowball, over time, into fulfilled financial dreams.

1. Make a spending plan

The very first step of your new year financial checklist is to create a spending plan. It might even be the most important step. 

Some people call it a budget, but a spending plan sounds nicer. No matter the name, having a plan for your spending will help you take control of your finances. I prefer calling it a spending plan.

A spending plan helps you:

• Spend less than you earn (this is financial literacy 101)
• Pay bills on time. I don’t know of anything more stressful than overdue bills and constant calls from creditors, do you? 
• Monitor spending
• Be intentional with your money

A budget doesn’t control you, it lets you control your money. There are different methods for creating your spending plan, so you can find the one that works best for your life & personality. 

Whether you prefer to focus on short-term goals, like saving for a vacation or monthly goals like paying rent on time, or long-term goals, like building your retirement savings or tackling outstanding debts, a well-thought-out financial plan can set you on the right track.

How to make a spending plan

To get started, track your spending for the last 3 months. The easiest way to do that is through a budgeting website/app (like Mint or YNAB). These budgeting tools enable you to import transactions from your bank and credit card accounts. 

The next step is to just categorize the spending as best you can. Don’t get hung up on splitting your Target purchases into groceries vs. home supplies vs. pet food. 

The trick is to base your first budget on what you’ve spent previously. 

Over time, gradually adjust your budget by cutting back in certain categories. Eventually, you’ll reach a point where you’re spending less than you earn. At that point, set aside the extra money for savings, investments, or paying off debt.

Hold budget meetings

Your spending plan is a dynamic tool that will evolve each month. As you become more familiar with budgeting, gain a better understanding of your spending habits, and improve your ability to stick to the plan, it will naturally evolve. Since your activities, events, and spending can change month to month, your plan should too.

The best way to make your spending plan a regular part of your life is by holding budget meetings at least once a month. If you’re having trouble sticking to your plan, don’t wait a full 30 days; schedule weekly check-ins to tackle any obstacles standing in the way of your financial objectives.

Use these check-ins to discuss budget changes, upcoming expenses, and how this whole thing makes you feel with your significant other or accountability partner. Following a spending plan doesn’t have to be hard or scary; it just requires some work. 

A little extra effort is definitely worth it if it moves the needle, even just a tiny bit, in improving your personal finances.

2. Review your credit report

You can request a free credit report at Annual Credit Report. Actually, this is the one step of the new year financial checklist you should do at least 3 times a year. 

Under normal circumstances, you can get a free report from each of the three reporting bureaus each year. If you spread those out, you can get a report every 4 months, so you always have access to fairly updated information.

As of December 2021, you can get free reports even more often. Each bureau is offering a weekly credit report, thanks to the pandemic. You don’t need to pull your report THAT often, but it’s nice to be able to get an updated report basically whenever you want. 

Make it a habit to check your credit report regularly. Why? Because it’s the best way to stay on top of your student loans, auto loans, mortgage, credit card debt, and more.

What to look for on your credit report

When reviewing your credit report, start by confirming that every debt listed is accurate. Do you actually owe the reported amount? Has the debt been paid off, discharged in bankruptcy, or written off?

Pay close attention to any accounts listed as “collections.” This means the original lender has given up on collecting payments and sold the account to a collection agency. Accounts in collections have a significant negative impact on your credit score.

Your credit report will also list the lender, giving you a starting point if you want to reach out and attempt negotiations. While it’s not easy to arrange a reduced payment, it’s possible.

If you spot an error, you can contact the reporting bureau to dispute the error. 

Fixing inaccuracies is important for improving your credit score, which can help you secure a lower interest rate. Plus, some companies may require a good credit score for certain jobs, and it could even be needed to set up new utilities.

3. Make a debt payoff plan

The free Debt Payoff Planner is the perfect way to start your debt freedom journey. A debt payoff plan is a straightforward method for listing all your debts and deciding the order to pay them off. It also helps you calculate how much extra you can pay on each debt as you work down the list. 

Attack your debt with focus, as that keeps you on track and ensures you use your money more efficiently. Spreading extra payments across many debts slows progress, but focusing on one debt speeds up the process and gets you closer to your financial dream.

make a plan that works for you

Paying off debt is more of a mental challenge than a math problem. From a purely mathematical standpoint, it makes sense to pay off the loans with the highest interest rates first. However, paying off the loan with the smallest balance can provide such a strong mental boost that the extra interest costs feel worth it.

Often, the difference in total interest paid is minimal, unless you have a large balance with a high interest rate. Stay focused on the long term and do whatever helps you stay motivated and hopeful.

Use the information from your credit report to make a list of all your debts. But don’t stop there; include all other liabilities not reported by a credit bureau, such as the loan Mom gave you when you bought your first home.

Importantly, decide upon an order to pay your debts off, based on interest rates, total balance, or a combination of both. 

Make minimum payments on everything, except your focus debt, the debt you’re working to pay off first. Once that debt is gone, roll the payment amount into monthly payments on the next focus debt. By the time you get to your last debt, you’ll be making pretty large monthly debt payments. 

Remember, the ultimate goal is to be debt-free or carry as little debt as possible

4. Get life insurance

This box on your New Year financial checklist is the most important to check off. It’s all about protecting your loved ones. Life can throw unexpected things your way, so you want to be ready for any financial challenges that insurance can help with.

You need life insurance if you have minor children, provide financially for others, or have debt that would become a burden on loved ones. 

The best part is that you can often get an affordable policy through your employer if they offer that benefit. Private policies tend to be pricier, but one big advantage is that they can go with you from job to job.

how much life insurance do you need?

You need life insurance, and not just any policy—enough to cover your debts, your kids’ college expenses, and give your family time to grieve. A small policy is better than nothing, but aim for a large enough death benefit.

A simple way to calculate your needs is to multiply your annual income by 10. While this isn’t the most precise, it’s quick and easy.

For a more accurate estimate, consider the DIME method: add up non-mortgage debt, income (multiplied by years until your youngest child graduates high school), mortgage balance, and education costs for your kids.

Don’t let complex calculations stop you from getting a policy. It’s better to act now and adjust later, especially since premiums are cheaper when you’re younger and healthier.

5. Invest in retirement

Retirement investment is a key part of your New Year’s financial checklist, providing protection for your future. No one wants to work forever, and saving for retirement prevents that outcome.

The simplest way to start saving for retirement is to enroll in your employer’s plan, if available. If you leave the job, you can roll that account over to a personal account, unlike employer-provided life insurance. 

If you don’t have access to an employer-sponsored retirement account, there are still options for you, like an IRA. Retirement accounts have tax advantages too, but the type of account matters much less than starting to invest now. 

Compound interest needs time to work its magic, so investing earlier is much more important than how you invest. 

Or increase your contributions

Maybe you already have a retirement account. if you have one, consider increasing your contributions. The recommendation is to invest 15% of your pre-tax income. If you can work that into your budget, you should absolutely invest that much. 

What if you can’t start contributing 15% right away? Don’t worry. Increase your contributions by 1% per year. You probably won’t even notice that your take-home pay is less after each increase. And  the impact on your ending retirement balance will be significant, however. 

6. Get your tax documents together

Personal income taxes are due by April 15 each year, unless you file for an extension (but remember, any taxes owed still need to be paid by April). Use this checklist to jump-start your tax-filing process.

Taxes don’t have to be overwhelming, especially if you’ve kept your paperwork organized throughout the year. Set up a folder for important tax documents as you receive them, so everything is ready when tax season rolls around.

Here’s a list of documents you might need:

• Last year’s tax return
• W-2 for employee wages
• 1099-G for unemployment income 
• 1099s from investments
• SSA-1099 for Social Security income
• 1098 for mortgage interest paid
• Property taxes paid
• 1098-E for student loan interest paid
• 1098-T for tuition paid & scholarships received
• State & federal refunds received
• Business-related income & expenses
• Retirement contribution information 
• Receipts for:
  • Childcare expenses
  • Medical/dental expenses
  • Charitable contributions
  • Energy-efficient home improvements 
  • Classroom supplies if you’re a teacher

The documents you need will depend on your unique tax situation, but this should give you a solid starting point.

If your tax situation is more complicated (think rental income, business expenses, or complex investments), I recommend working with a licensed Certified Public Accountant (CPA). A professional can help minimize errors and offer guidance if issues arise later.

Why is the new year financial checklist so important?

Most New Year’s resolutions don’t really stick. Saying “I’m going to be better with money” is much harder than following a clear financial checklist because it lacks specific goals.

Instead of setting resolutions, I prefer choosing a word of the year to live by. 

Living with intention every day feels more relaxed than chasing after a specific goal.

These 6 strategies will have a big impact on your finances and help you actually follow through on your goal of managing money better.