• Erik Baskin

Issues to Consider at the Start of the Year Checklist


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The beginning of the year is a time for reflection and goal setting. It is also a good time to give yourself a financial check in to make sure that you are on track for a productive year. The above checklist is an excellent tool in order to start off on the the right foot. Below I summarize the importance of each of these planning areas.

Personal Issues

This section touches on the softer sides of financial planning. The ability to look at previous goals and where you ended up last year are important. Also, looking ahead at life events that could change things for you or your family financially is equally important. Some of these life events could include marriage, going to college, retirement, or moving to a different state. The effects of these events can be seen in several different financial planning areas like cash flow, tax planning, insurance, and estate planning.

Making financial decisions without first assessing your personal circumstances is like taking medicine without a diagnosis. All of your personal circumstances, goals, and milestones need to be actively considered on an annual basis. This is where financial planning begins, assessing your personal situation is the building block of an entire financial plan.


Cash Flow Issues

Cash flows are the backbone of any financial life. They fuel investments, determine what you can and cannot (or should not) purchase, and largely dictate the trajectory of your wealth building journey. It is probably not necessary, nor is it healthy, to categorize every dollar and cent into specific categories each month. This may be good practice if you have never had a budget, but a sustainable practice is to simply track your income and expenses in order to record net cash flow each month.

Once you have a positive net cash flow, you can take action to direct that cash flow into investments or other vehicles to reach your financial goals. It is important to take time to think about large expenditures that you may have in the upcoming year such as a car, wedding, vacation, or a donation to charity. Next, assess your ability to pay for these expenses, and begin making a plan that allows you to pay for these in cash rather than with credit.

Once you have the basic goals and expenses covered, make a plan to contribute to an IRA, and make sure you are on track to contribute to your workplace 401(k) or any other investment accounts that you may have. This is also a good time to assess your employee benefits package in order to take advantage of any FSAs, HSAs, or health, disability, and/or life insurance plans through your workplace that may be applicable to you.


Asset and Debt Issues

A personal balance sheet is a listing of all of your assets and liabilities. All of these things added up equals your total net worth. It is good to take stock of all of your investments, whether it be real estate, retirement accounts, businesses, or anything else that you own. Taking a look at whether you are overweight in certain investments, as well as assessing your risk tolerance, is something that is healthy to do on an annual basis.

Asset location (not asset allocation!) is also included in this list. This is a more advanced strategy that views your retirement accounts and non-retirement accounts as one portfolio. The goal is to make sure that you are holding the most tax efficient investments in taxable accounts and the least tax efficient investments in retirement accounts. This strategy has the potential to drastically reduce the tax drag on your overall portfolio and increase returns.

The next item in this list is mortgage refinancing. This is very popular when mortgage rates drop... you may have experienced your bank calling and begging you to refinance. Be careful as refinancing comes with a fee, and if you don't plan on staying in the house for a certain number of years, then refinancing likely isn't worth it.

The last few items on this list concern reviewing your credit report and credit score. You should review your credit report at least once annually, and you should also freeze your credit any time you are not actively applying for new credit. This needs to be done directly with all three credit agencies (Equifax, Experian, and Transunion) in order to be effective.


Tax Issues

At the beginning of the year, most actions that could affect your taxes for the previous year are over, but you want to make sure that your taxes are recorded properly. In order to do so, gather all of the necessary tax forms such as 1099s, 1040s, and make sure to file any special forms. Special forms frequently include a Form 709 if you made a taxable gift, or Form 8606 if you made non-deductible IRA contributions. Whether you file your taxes with an accountant or you do it yourself on Turbo Tax, it is important to make sure that you are in compliance with the IRS regulations.

It is imperative that you take maximum advantage of tax advantaged retirement accounts in the previous year, and that you have a plan to do the same this year. This includes maxing out your IRA and workplace 401(k) plan, if applicable, as well as your Health Savings Account (HSA). If you own investments in taxable accounts, it may be advantageous to plan to harvest either losses or gains this year. For those who are in higher tax brackets, it makes sense to harvest losses, and for those in lower tax brackets, specifically the 0% capital gains tax bracket, it makes sense to harvest those gains pay no taxes on those gains.

In general, acknowledge your tax return from last year by understanding how much tax you paid and why. You should roughly be able to project any adjustments to your income this year, and look at that projected income in the lens of the tax brackets. Specifically, your projected lifelong tax brackets. If you are right on the upper edge of a tax bracket, then it might not be a good idea to do something like a Roth conversion, while if you have $30K left until your next tax bracket, it can be a good idea to accelerate income to "fill up" that tax bracket. Tax planning is complex, and should be done with the careful help of your financial planner or accountant.


Insurance Issues

There are two broad categories of insurance. The first is insurance to protect and/or replace your future earnings or yourself. This type includes life, disability, health, and long term care insurance. The amount of insurance you may need for each of these, if any, depends on a few factors. Essentially, it is a calculation of your future income, assets, debts, and how much income you would need to be replaced or protected. Health and long term care insurance protect the depletion of your assets due to health related issues. Health insurance is a little bit more complicated and depends on many factors. Long Term Care insurance is typically purchased between the ages of 55-60 by families with a net worth of $500,000-$3,000,000. In this range, they are too wealthy to "spend down" their assets for Medicaid eligibility, but not wealthy enough where a significant long term care event will significantly deplete their wealth.

The other category of insurance is insurance on physical items. This type includes home, auto, renters, and property insurance. These various types of insurance are used to protect against catastrophic losses to these items that would be financially devastating. You want to have just enough insurance so that you are covered against the really big losses, and you are not paying extra insurance premiums for insignificant items. An example of this is with auto insurance. I see many families that have auto deductibles of $250 or $500. This means that insurance kicks after you hit the deductible in the case of an accident. The lower the deductible, the more insurance you are purchasing, and the higher your premium will be. If you have an adequate emergency fund of 3-6 months of expenses, you should have your deductible as high as possible to maximize premium savings while also maintaining insurance against catastrophic events. Insurance is something that needs to be continually reviewed and updated as your life continues to change (i.e. moving states, changing jobs, births, deaths, and shifting financial goals).


Legal Issues

This category has to do with estate planning and any other legal issues concerning new laws or a business you may be involved in. Your estate plan should be reviewed on an annual basis. An annual review should guarantee that estate documents are still up to date, as well as ensure that you have the correct beneficiaries named on all of your investment accounts. The titling of your assets matters as well because assets that are titled as joint tenants with right of survivorship will pass to survivors differently than assets held solely in your name. The name of the game in estate planning is to avoid probate as much as possible, and pay the least amount of estate tax as possible! In order to achieve these two things, careful estate planning and proper maintenance of one's estate is mandatory.

Frequently, new tax laws are passed in the new year that could affect your financial situation. One example of this would be the proposed repealing of the $10,000 state and local income tax (SALT) cap. This has not yet been passed, but congress is working on a proposal that could affect Americans in many ways. There could also be state specific tax issues to consider, like specific tax credits or taxes that may apply to your state of residence. It is imperative to keep an eye out for updates in the tax law in order to ensure you are paying the least amount of tax over your lifetime.


The beginning of the new year is a great time to address these checklists as everyone is fresh and rested coming off the holiday season. Start the new year off by attacking your financial plan, simply reviving this checklist with your partner or family is a productive first step. Getting a game plan together will set the tone for your financial future and put you on the path to a successful year.