Cleaning your financial clutter is probably easier than you think. Here are five ways to straighten out your finances and gear up for the years ahead.
1. Meet with a financial planner
If it's been a year or more since you last met with a financial planner, it might be time to set up a session. Reviewing your finances each year can help you assess your short- and long-term goals—especially if you’ve experienced significant life changes. To get through the pandemic, many people had to withdraw from their retirement accounts Opens in new window, deal with unexpected medical expenses, take out business loans or receive unemployment. Add to that the changing landscape for real estate, employment and living costs, and you may have much to consider.
When you sit down with a financial planner, they'll go over your retirement savings, investments, bank accounts, property, debts and other details. Then they'll make recommendations, such as replenishing your retirement accounts or rebalancing your investments, to get you back on track.
2. Adjust your budget
Your income, expenses and goals don't always stay the same from year to year. Your budget shouldn't, either.
Maybe you were promoted or lost your job—that can affect your financial picture. So can unexpected costs like hospital bills and higher insurance premiums. Or maybe your plans have changed and you want to buy a house while interest rates are low Opens in new window.
Whatever the factors, you should adjust your budget to make sure your dollars get where they need to go.
3. Hire a tax professional
As your finances get messier, so do your taxes. Starting a business, buying or selling a house, taking out loans, working side gigs—all of them (and more) can complicate your tax return, making it tougher for even experienced DIY tax filers to get right.
That's why, as things get trickier, many people call in an accountant. Working with a professional can help you maximize deductions and credits to trim your tax bill and save more money.
4. Reprioritize your retirement
Many people put retirement planning on the back burner during the pandemic, but you can't neglect your future forever. If your retirement strategy gathered dust in 2021, reprioritize your goal. Even small contributions to a workplace plan like a 401(k) compound with time—especially when an employer offers to match some of what you put in.
If you've maxed out on contributions Opens in new window (or even met your company match), consider opening a Roth individual retirement account. Roth IRAs let you contribute after-tax dollars—and take tax-free distributions (as long as you meet certain IRS criteria Opens in new window)—in retirement. Having a mix of tax-deferred (such as traditional 401(k) or IRA) and after-tax (like Roth 401(k) or IRA) accounts will give you more flexibility on how and when to take income once you retire.
5. Revisit your estate plan
It's not pleasant to think about, but COVID-19 led many people to ponder how their financial situation might affect their loved ones if they died. That means estate planning (which, by the way, does not require a 50-room villa, 100-foot yacht or stretch limousine).
Life insurance is one area to consider. Applications for life coverage soared early in the pandemic Opens in new window. "Term" life insurance, which covers you for a set period (such as 10 or 20 years), is a popular (and usually the least expensive) choice. "Permanent" policy options such as whole and universal life cost more but don't expire as long as the premiums are paid, and offer other advantages. Check with a financial professional to learn which policies best serve your needs.
Your estate plan also includes a will or trust—and the latter might offer some tax benefits. If you don't already have these documents prepared, work with an estate planning attorney to get started.
And no matter what, make sure you've named (or updated) beneficiaries for each of your financial assets, from insurance policies to investment accounts.