The New Year is a great time to reassess your financial health, set goals, and plan for the future. Here’s how to prepare for a financial check-up, with special attention to updates like the increased IRA contribution limits and the benefits of reviewing your Thrift Savings Plan (TSP).
1. Review Your Budget and Spending Habits
Number one on any financial check-up are the basics: the budget and spending habits.
Before diving into specific accounts or investment plans, examine your overall budget. Look at your spending over the past year to identify trends, unexpected expenses, and opportunities for savings. Apps like Mint or YNAB can help you track spending and create actionable goals.
2. Maximize Contributions to Retirement Accounts
For 2024, the IRA contribution limit has increased:
- Traditional and Roth IRAs: The maximum contribution is now $7,000 for those under 50, and $8,500 for those 50 and older
- Thrift Savings Plan (TSP): The elective deferral limit has increased to $23,000, with an additional catch-up contribution of $7,500 for those 50 and older.
Maximizing contributions to these accounts is essential for building long-term wealth, especially as these accounts often come with significant tax advantages.
3. Conduct a TSP Check-Up
TSP is a cornerstone of your retirement plan. Here’s what to review:
- Investment Allocations: Ensure your contributions align with your risk tolerance and long-term goals. Consider diversifying across funds like the G Fund (government securities) and C Fund (common stocks).
- Matching Contributions: Ensure you’re contributing enough to receive the full government match, typically 5%.
- Catch-Up Contributions: For those over 50, maximize the catch-up option to grow your retirement savings faster
4. Check Tax Withholding and Plan for Deductions
Review your tax withholding to ensure you’re not overpaying or underpaying. With changes in income or family circumstances, adjusting withholding might prevent surprises during tax season. Also, identify potential deductions, such as those for student loan interest, childcare, or charitable contributions.
5. Review Insurance Policies
Financial health includes protecting your assets. Take time to:
- Update beneficiaries on life insurance policies.
- Ensure you have adequate homeowners, renters, and auto insurance coverage.
- Review your health insurance to confirm that it meets your family’s needs.
6. Audit Debt and Create a Payment Strategy
List all outstanding debts, including credit cards, student loans, and mortgages. If you carry high-interest debt, consider strategies like:
- Snowball or avalanche payment methods.
- Refinancing options for lower interest rates.
- Balance transfer cards with 0% introductory APRs.
7. Set Financial Goals for the Year
Think long-term and short-term:
- Emergency Fund: Aim for three to six months of expenses.
- Vacation or Major Purchases: Set up sinking funds.
- Investment Growth: Increase contributions to taxable brokerage accounts or consider alternative investments.
By addressing these areas, you’ll not only have a clearer picture of your financial health but also be well-prepared to take advantage of the opportunities a new year brings. Stay proactive, and you’ll set the stage for financial success in 2025 and beyond.
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