As spring rolls around and tax season slows many of us take the time to tidy up our personal lives. But this season isn’t just about personal decluttering—your finances could also use a refresh. Just as you declutter your living space, it’s essential to revisit your budget, investments, and financial goals to ensure you’re still on track for the year ahead.
Why Financial Spring Cleaning Matters
Spring is a great time to reassess your financial health and make sure your strategies align with your current goals. What went well last year and what didn't? Whether you’re saving for a home, paying off debt, or preparing for future investments, this process can help you regain control and clarity over your financial plan.
1. Review and Refresh Your Budget
Over the past year, your spending habits may have shifted, maybe you've added a new addition to the family or even got married. Take time to reassess your budget by evaluating your expenses and savings. Can you reduce or eliminate unnecessary spending? Are there better ways to allocate your income toward savings and investments? This spring, streamline your budget to ensure it reflects your current financial reality.
2. Reevaluate Your Debt Repayment Plan
Debt repayment is key to freeing up cash flow for other goals. If you’ve made progress paying off credit card debt, student loans, or other obligations, consider refining your strategy. Should you increase your payments or shift to a more aggressive plan? The snowball or avalanche methods can help accelerate debt repayment and set you up for a more flexible cash flow plan.
3. Refresh Your Investment Strategy
As your financial situation evolves, your investment portfolio should evolve too. Review your current asset allocation and assess whether your risk tolerance or investment goals have changed. Do you need to diversify or rebalance your portfolio to align with your future goals? For those with equity compensation, now’s a good time to ensure you’re not overly exposed to your employer's stock while also making decisions around what options to exercise without incurring AMT(alternative minimum tax).
4. Set New Financial Goals
Have your financial goals changed? Life events such as a new job, starting a family, or moving may affect what you want to achieve financially. Spring is the perfect time to set new goals or adjust your existing ones. Whether it’s buying a home, saving for a big purchase, or building an emergency fund, setting new objectives will give you a clear path forward.
5. Maximize Retirement Contributions
As the year progresses, take a moment to ensure that your retirement contributions are on track. Are you making full use of employer matches? Are your contributions enough to keep you on course for your retirement goals? If you’ve recently experienced a salary increase, consider adjusting your contributions to maximize your tax-advantaged retirement accounts. Maybe this year you will be in a new tax bracket; analyze how different retirement accounts can be optimized for this year's tax situation.
6. Update Insurance Coverage
Your insurance needs may have changed, especially after major life events like purchasing a home or starting a family. Review your property & casualty, health, life, and disability insurance policies to make sure they offer adequate coverage. Spring is an ideal time to update beneficiaries or tweak your coverage limits to better reflect your current situation.
7. Check Estate Planning Documents
Estate planning isn’t just for retirees. If you’ve gone through significant life changes recently, ensure your estate planning documents are up to date. Double-check your will, beneficiaries, and power of attorney documents. This review will provide peace of mind knowing that your assets will be managed according to your wishes if any unforeseen event were to happen.
8. Assess Your Tax Situation
Spring coincides with tax season, making it a great time to check your tax strategies. If you hold equity compensation, such as restricted stock units (RSUs), non-qualified stock options (NSOs), or Incentive Stock Options (ISOs), now’s the time to understand how they impact your tax liability. Also, if you're self-employed, don’t forget to file your quarterly tax payments to avoid penalties.
Filing an extension doesn’t mean you get more time to pay — taxes are still due by the filing deadline. This is especially important for business owners who may need to make their first quarter estimated tax payment on April 15th.
9. Clean Up Your K-1s and Other Investments
If you receive K-1s from limited partnership (LP) investments, be proactive in reviewing them. K-1s can sometimes arrive late, and failing to report this income could result in penalties. Make sure you're organized and understand how any LP investments will affect your tax return.
10. The QBI Deduction for Business Owners
If you're a business owner, don’t forget about the Qualified Business Income (QBI) deduction. You may be eligible to deduct up to 20% of your income, reducing your overall tax burden. This is a valuable deduction, especially for sole proprietors and pass-through entities, and can have a significant impact on your tax liability.
A Fresh Start for Your Finances
Spring cleaning your finances gives you the chance to refresh your strategies, streamline your spending, and make sure you’re on the right path toward achieving your goals. Whether you're reworking your budget, reassessing investments, or fine-tuning your tax strategy, taking the time now will set you up for a successful and financially healthy year ahead.
If you're reading this and just have a question, or are simply looking for a recommendation, let's chat. At WealthBound Advisors, we specialize in optimizing your financial life based on your unique situation.
Disclaimer: This content is for informational purposes only. Consult with your tax advisor or financial planner before making any changes to your investment strategy.