personal finance | january 21, 2021
Your Financial Checklist for the New Year
What are you hoping to accomplish in the coming year?
Setting clear goals and an overarching plan are important elements in making financial progress.
Breaking down large goals into manageable steps can help you succeed.
Our monthly financial planning guide will keep you on track throughout the year ahead.
Judith Ward, CFP®
Senior Financial Planner
Roger Young, CFP®
Senior Financial Planner
With 2020 behind us, a new year is an opportunity to refocus on financial goals. We’ve made it convenient by organizing actions into a monthly guide. “Start by prioritizing what you’d like to accomplish, breaking these things into smaller steps, and writing them down,” says Judith Ward, CFP®, a senior financial planner with T. Rowe Price. “Then take a holistic view of your income and expenses to help align your intentions with what’s realistic in your current situation.”
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Planning Is Key to Success
Our monthly planning guide gives you tips and ideas that can help as you’re putting together your plan—and monitoring it—throughout 2021. “Having a plan in place will make it easier for you to track your progress during the year,” says Roger Young, CFP®, a senior financial planner with T. Rowe Price. “The most successful plans aren’t one and done; they’re revisited and adjusted regularly. Things can change throughout the year, but a thoughtful plan will help you stay focused.”
January—Set Your Intentions
Prioritize your goals. Start categorizing by what’s urgent, what’s important, and what can wait.
Draft a 2021 budget. Look at last year’s income and expenses, and set your plan.
Make your 2021 IRA contribution. You have the potential to earn thousands more over the long term by making contributions earlier in the year.
February—Prepare for Tax Time
Get organized. Gather last year’s forms and records. Make sure you have access to all documents needed.
File your taxes. Submit your return as soon as you’re ready but no later than April 15, 2021.
Invest your tax refund. You can choose to have your refund deposited directly into an investment account.
March—Simplify Your Investments
Don't forget your old 401(k). You have a few options.1 Consider factors like tax benefits, investment choices, and costs to determine what’s right for you.
Streamline holdings. Asset allocation options provide a diversified portfolio in a single investment and are rebalanced regularly.
Automate investing. Contribute a set amount regularly to a tax-advantaged or taxable investment account.
April—Improve Your Financial Standing
Check your credit report. You can access one free report from each major credit bureau per year. Request yours, and resolve any issues.
Review your debt. Prioritize your debt repayments (credit card, mortgage, car loan). Target high-interest debt first.
Make your 2020 IRA contribution. You have until April 15, 2021, to make a 2020 IRA contribution (and to file your taxes if you haven’t done so already).
May—Invest in Education
Open a 529 account. Saving for college, graduate school, or vocation training can be more attainable with a 529 plan.
Help children succeed financially. Engage the children in your life in activities to help them become regular savers and conscientious spenders.
Educate yourself. Find a book, podcast, or blog to learn more about financial topics that interest you.
June—Do a Midyear Checkup
Check your budget. Are you sticking to your targets? If priorities have shifted, adjust accordingly.
Review your asset allocation. The appropriate mix of stocks and bonds in your portfolio depends on your risk tolerance and investment time horizon.
Fund your emergency account. Assess whether you are targeting an appropriate funding level (typically three to six months of expenses for most households).
July—Commit to Your Financial Health
Be aware of lifestyle inflation. Also known as “lifestyle creep,” this is the tendency to spend more on discretionary purchases when your standard of living improves.
Practice mindful spending. Pause before you purchase anything deemed as a “want.” Waiting a self-assigned period, such as 30 days, before you buy will help make sure you really want a particular item.
August—Reassess Your Choices
Evaluate your insurance coverage. Review your insurance coverage levels, including life, health, disability, liability, auto, and property. Research and pursue any discounts you might qualify for.
Review your memberships. Are you using the memberships you have to their full advantage (e.g., subscription and streaming services, gym membership)? If not, reevaluate if you really need them.
September—Organize and Give Back
Get yourself organized. Gather important documents, including tax returns, legal and estate planning documents, statements, and bills of sale, and store them as appropriate—electronically or as hard copies.
Make charitable contributions and donations. Consider different ways to make charitable contributions, such as through a donor-advised fund (DAF). Additionally, you can donate any items you no longer need.
October—Be Vigilant With Cybersecurity
Protect your passwords. The most effective passwords contain uppercase and lowercase letters, numbers, and symbols and do not contain words found in a dictionary.
Use multi-factor authentication (MFA). MFA provides an extra layer of security to prevent someone from logging in to your account. Once set up, in addition to your password, you will enter a one-time security code sent to your multi-factor method.
November—Focus on Family Matters
Talk with adult children about money. As you prepare for the later years of your life, you may want to involve your grown children in the conversation. Your plans can impact their futures, too.
Update your estate plan. Take into consideration the tax consequences on your estate and your heirs’ income needs. Review and update beneficiary designations on your various policies and accounts.
December—Prioritize Your Retirement
Prepare for your retirement. Aim to save at least 15% of your salary (including any employer plan contributions) across your retirement accounts.
Take required minimum distributions (RMDs). Whether you’re working or retired, at age 72, you must start taking withdrawals from your Traditional, Rollover, SEP, and SIMPLE IRAs. Pay special attention to the provisions of any Inherited IRAs.2
A 529 college savings plan’s disclosure document includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. You should review the 529 plan offered by your home state or your beneficiary’s home state and consider, before investing, any state tax or other state benefits, such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s 529 plan.
1Consider all available options, which include remaining with your current retirement plan, moving your assets into your new employer’s plan, rolling over your assets to an IRA, or cashing out the account value.
2If you turned 70½ on or before 12/31/19, you should resume your RMDs in 2021. The SECURE Act, which was enacted in December 2019, provides that if you did not turn age 70½ on or before December 31, 2019, you are not required to take your first RMD until the year in which you turn 72.
All investments are subject to market risk, including the possible loss of principal. Diversification cannot assure a profit or protect against loss in a declining market.
This material is provided for general and educational purposes only and not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and not intended to suggest any particular investment action is appropriate for you, nor is it intended to serve as the primary basis for investment decision-making. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or tax professional regarding any legal or tax issues raised in this material.
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