The beginning of the year is an opportune time to upgrade your finances. You may already be in New Year’s resolution mode, and finances are a shoo-in for these life improvements. Here are five things you can do this year to help boost your financial health.

1. Set Financial Goals

What financial areas need your attention? What big dreams do you need to prepare for? Now’s the time to brainstorm goals and choose the top priorities.

For example, do you want to save enough money for a fall trip abroad? Do you want to set up an emergency fund so you quit relying on your credit cards to cover unexpected expenses? Do you want to supercharge your retirement contributions to make up for lost time?

Once you have your goals, create actionable steps to achieve them. For example, you might increase your 401(k) contributions now and apply any bonuses or raises throughout 2023 to your retirement account.

2. Map Out Your Cash Flows for the Year

You know where you’re headed when you have a financial map, a fact that can help you stress less and enjoy life more. There are programs to help you with this process, or you might work with a financial advisor. Either way, getting a clear picture of your income and costs can help you meet your goals in Step 1 and adjust to life’s changes.

One note: Your cash flow plan isn’t a one-time deal. It’s a good practice to regularly review your plan and make any necessary updates so it stays relevant to your life.  

3. Fund Your Retirement Accounts

We already touched on this goal in Step #1. If you have a workplace plan such as a 401(k), you can contribute up to $22,500 in 2023. That’s an increase of $2,000 over 2022. If you’re 50-plus, you can contribute an additional $7,500, up from $6,500 in 2022.

You can also consider funding an individual retirement account (IRA). For 2023, you can contribute up to $6,500—$500 more over 2022.

With traditional IRAs, you can receive a tax deduction for your contributions. However, if a workplace retirement plan covers you or a spouse, the tax deduction is phased out as your income climbs.

Roth IRAs also have limitations: Your ability to contribute to one is reduced as your income rises. However, you might work around this rule by making a Roth conversion from a traditional IRA. Consider talking with a financial advisor to determine if this is a good step.

4. Review Your Portfolio

The beginning of the year can be an excellent time to assess your portfolio to ensure it’s on track. You’ll want to evaluate factors like (1) diversification, (2) return needs, and (3) risk tolerance. Your review can include actions such as rebalancing.

A diversified portfolio helps protect against undue risk in any area of your portfolio. For instance, if you hold too much of your company’s stock, what will you do if that stock tanks? Check your portfolio to make sure you have an appropriate mix of asset classes, sectors, and geographies. This review should also include the combination of cash, stocks, bonds, and other investments you hold.

You’ll want to determine whether your portfolio has the right balance between return needs and risk. You want to target a certain return amount to stay on track with your goals. However, returns are never guaranteed in the investing world, which leads to your risk amount. You want to avoid taking on too much risk.

You also want to understand how much risk you can psychologically tolerate. If you’re uncomfortable with your risk exposure, you might react to your detriment during market volatility.

5. Meet with a Financial Advisor

DIY financial planning can be fine when you’re younger or your financial picture is uncomplicated. But you might benefit from working with a financial advisor as you build wealth or get older and closer to milestones like retirement.

The right advisor will take a comprehensive view of your finances including the above areas and others, like debt management, retirement income planning, risk review, tax minimization, and estate planning. They’ll integrate these areas into an ongoing plan to help you achieve your goals.

Consider working with a fiduciary, fee-only financial advisor who doesn’t accept commissions. That way, you can receive unbiased, objective advice meant for your best interests, not the advisor’s payday.

Start 2023 Off Right

These five steps can help upgrade your finances in 2023. By the end of the year, you could be looking back with satisfaction at the goals you achieved. You’ll know where your finances stand because you have a cash flow roadmap. You’ll have contributed to your future self by funding your retirement accounts, and your portfolio will be optimized. You may even have the personalized planning of an experienced financial advisor.

We wish you every success in 2023!

Schedule a complimentary consultation with one of our fee-only financial planners to discuss your personal situation.

This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.