Step one in hitting your goals is to start with doing a net worth statement. Step two is to make a plan for investing in 2023. This may seem obvious, but I'm going to dive in and explain why it might not be as obvious as you think.
Make a plan for investing. I think a lot of people mess this up right off the gate. I still have friends who ask me about index funds because they know I love them. I had one recently over the holidays who asked me if I was still using those index funds. They had a rough year last year, but I told them that every month, I'm still buying into those same baskets.
It is important to take a big overview of what your plan is for every dollar you'll be investing every month. Are you going to be loading up, or will you spread it out? Realize all the contribution limits for a lot of different accounts have changed, and you have the potential to update all of that right now in January to capture it throughout the year.
A lot of folks walk into financial planning and walk in their savings strategy thinking they'll see what they have left over at the end of the month and save that. But behaviorally, that just doesn't work for most people. If you wait until the end of the month to save, you'll find there's no money left over. So, we think starting at the beginning of the month, the beginning of your pay cycle, or the beginning of the year, you need to lay out where you want your money to go. Pay yourself first before you pay for all the other living expenses that come through life.
Don't just guess if you'll have enough left over at the end of the month. You need to figure out some things, like if you look at Roth IRAs, health savings accounts, and 401ks. All of them have changed funding limits, and you need to figure out whether Roth IRAs are something you should do once at the beginning of the year or spread out throughout the year. Be deliberate with that.
One of the things that we like to talk to our clients about is the financial order of operations. We have nine tried and true steps of what you should do with your money. Every year, when they become a client, we do a "foo" for them. It's helpful if you can go through the financial order of operations and think about what you want to do this year. Check the boxes as you work through them.
Just thinking about maxing out your Roth IRA (which has gone from $6,000 to $6,500) can be amazing. If you put that money to work right as you're 25 years old, by the time you retire in 40 years, that $6,500 has the opportunity to become $286,000. Harness the power of compounding growth and let your money work harder than you can with your back, brains, and hands.
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