Personal finance: Along with the closets, let's spring clean our finances

March is here, and with it, the season of spring cleaning. While we often focus on decluttering our homes – clearing out closets, sorting through pantries, and reorganizing living spaces – it's equally important to focus on our financial well-being. Now is the perfect time to sort out your finances and ensure that your money matters are as organized and efficient as the rest of your household. Below, we outline a few key steps to help tidy up your financial situation, from maximizing contributions to retirement accounts to planning for summer expenses. So let's start preparing our financial house for a brighter year ahead.

Adjust your contributions

First, it's important to reassess your contributions to retirement accounts such as your IRA, 401(k), and any HSA or FSA accounts you may have. In 2024, the IRS has updated the maximum contribution limits for these accounts. Taking stock of these changes and increasing your contributions accordingly can help you maximize your savings and the associated tax advantages.

Making these adjustments early in the year can greatly benefit your long-term financial health, ensuring you're on the right track toward a secure retirement. Take a moment to check the new limits and adjust your contributions as needed.

Roll over old retirement plans

Life changes, and so do jobs. If you've embarked on a new career path this year, don't leave your old 401(k) or retirement plans gathering dust. Rolling over these accounts into your new employer's plan or an IRA can consolidate your savings and give you better control over your investment choices.

Revisit your financial goals

Check in on your financial goals for the year. It’s common for priorities to shift or for unexpected challenges to lead you off your planned course. Instead of viewing this as a setback, see it as an opportunity to recalibrate your financial strategies.

Identify the areas where you’ve drifted from your goals, and determine what adjustments are needed to either realign with your original intentions or set new, more realistic targets. This proactive approach not only aids in getting you back on track but also enhances the likelihood of achieving or even surpassing your goals for the year.

Allocate your tax refund wisely

For many, the arrival of a tax refund feels like bonus money. But a strategic approach towards using this refund can significantly enhance your financial security. So before you splurge, prioritize strengthening your emergency fund to cover three to six months of living expenses if you haven't already.

This financial buffer helps you navigate life's uncertainties, from a sudden job loss to unexpected medical bills, without derailing your long-term financial plans. Consider your tax refund as an opportunity to solidify your financial foundation, providing you with peace of mind and stability in case of unforeseen circumstances.

Max out last year’s IRA contributions

If you haven't taken full advantage of your Individual Retirement Account (IRA) contributions for 2023 and your financial situation permits, now’s the time to act. The IRS allows contributions for a given tax year up until the tax filing deadline of the following year. This means you still have a window of opportunity to contribute to your IRA for 2023 before this year’s tax deadline.

Doing so can reduce your taxable income for 2023, providing immediate tax relief. Also, maximizing your IRA contributions enhances your retirement savings, capitalizing on the compounding growth potential over time. This strategic move not only helps in tax savings but also strengthens your financial security in retirement.

Budget for summer expenses

As you start dreaming of summer vacations, be sure to incorporate these plans into your budget. Assess the amount you intend to spend on things like travel, outings, and other activities, and start earmarking part of your income or savings. This proactive approach can help you enjoy your time off without the stress of overspending and derailing your financial goals.

Spring cleaning your financial house doesn’t have to be a daunting task. By taking these steps, you can ensure your finances are tidy, organized, and well-prepared for the rest of the year. Here’s to a fresh start and a prosperous 2024!

Hillary Stalker, CFP, is an executive vice president and financial adviser at CapWealth. For more information, visit capwealthgroup.com.

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