While it can be tempting to shift your focus away from financial matters and enjoy the holiday season, there are many financial issues that may require your attention as the end of the year approaches. For instance, you don’t want to lose money, incur fines, or shoulder any extra taxes unless absolutely necessary. This is why preparing a year-end financial checklist may be crucial for starting the new year off on the right foot. Here are seven tasks you can add to your to-do list.
1. Prepare a “30-Minute Family Report”
Initially, it can be helpful to sit down and prepare a “30-Minute Family Report,” which is a brief financial review session with your family members. During this time, you can analyze your current financial situation and review the past year.
Some questions to consider during the discussion include: Did you achieve your financial goals? Did you pay off the debts you hoped to settle? Were you able to stick to your budget?
Respond to these questions thoroughly and honestly with your spouse or family. If there are areas that need improvement, commit to making those changes now. There’s no time like the present to take control of your finances.
Tip: You might consider scheduling monthly meetings with your family regarding your finances. Review your budget, spending, and goals to ensure you are all on the same page.
2. Start a Debt Diet
American household debt collectively stands at $14.15 trillion. If you have credit cards, mortgage loans, student loans, or any other debts, it’s time to get serious about paying them off.
You may find yourself saying, “I can’t think about my debts in the middle of the holiday season.” However, now could be the perfect time to start a “debt diet.” After all, your credit card debt can hinder your earnings and affect your overall financial health.
Determine the best approach for tackling your debts. For example, you might try the “snowball” method or the “debt avalanche,” which simply means tackling the smaller balances first and building momentum toward the larger balances.
Review your budget to determine how much money you can apply to the debts each month above the minimum payments. Then, set a deadline for paying off the debts one by one, from smallest to largest.
Tip: Consider refinancing high-interest debt or rolling credit card balances onto a card with a 0% interest rate. By reducing the amount of interest you pay, you can eliminate debt more quickly.
3. Sell Positions to Realize Tax Losses
Do you have any positions or investments that are causing financial losses in your portfolio? If so, you might consider selling them to realize a tax loss. But remember that there are some very specific rules.
For instance, if you sell a stock at a loss, you are not allowed to buy a substantially identical stock or security within 30 days. This rule is known as the “wash sale rule,” and if you violate it, the IRS can penalize you by disallowing any tax benefit you gained from the investment loss.
4. Spend More Time on Retirement Planning
People who live happy retirement lives spend at least five hours a year planning for retirement. They have discovered the formula, which differs for each individual, to determine how much money they need to save for retirement. But remember that knowing this formula requires planning, so be sure to allocate the necessary time so that you too can become one of the happy retirees.
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If you haven’t had a financial advisor yet, consider finding someone you can trust to provide good advice. Some key questions to ask when choosing a financial advisor relate to how they prefer to communicate, the types of services they offer, the kind of clients they work with, and their overall investment strategy.
Note: Be sure to understand the difference between a fee-only financial advisor and a fee-and-commission-based financial advisor. Fee-only advisors earn their income solely from the fees they charge for their services, whereas fee-and-commission advisors can earn commissions from selling certain investment products.
5. Maximize Your 401(k) Contribution
Your company may offer a matching contribution to your 401(k) as part of your employee benefits package. This money is free for you, so if possible, it’s best to contribute the maximum to your 401(k).
The minimum eligibility for your company’s matching contribution plan can vary from company to company, so it’s always best to check with your human resources department to find out how much money you need to contribute. Try to save at least the amount that your company will match. Otherwise, you are leaving money on the table.
Tip: You might consider gradually increasing your contributions each year. If you receive regular raises, you may not even notice the extra money missing from your paychecks.
6. Identify Any Charitable Donations
As you review your finances at the end of the year, you should take into account any charitable donations you made during the current year, especially for tax purposes. Some questions to consider include: What causes and charities did you donate to this year? Did you maximize the benefits of your charitable donations, or did you donate non-cash assets instead of cash? Could you benefit from tax savings by donating more?
If you plan to donate the same amount of money each year, consider “bunching” or consolidating your deductible charitable donations into one year. This collective donation can increase your potential tax deduction for that year.
7. Take Advantage of Your FSA or HSA Accounts
A Flexible Spending Account (FSA) is a tax-free account you can contribute to for paying for healthcare services not covered by your health insurance. Be sure to check with your benefits office to find out the deadline for using the funds in this account so that you don’t lose them.
You might also look into the benefits of saving money in a Health Savings Account (HSA) if you have a high-deductible health insurance plan, which typically has lower monthly premiums than other types of plans. An HSA provides triple tax benefits in the form of tax-deductible contributions, tax-deferred growth, and tax-free withdrawals when using the money to pay qualified medical expenses. Compared to an FSA, you don’t have to spend the money in an HSA every year, meaning you can let it grow over time until you need it.
8. Job Change or Life Change?
If you changed jobs this year, whether due to job loss or moving to a new position, here are some things to keep in mind. If you lost your job and received unemployment benefits at any point this year, you will likely need to report that on your 2021 tax return. It may also be helpful to speak with a tax advisor regarding any tax implications of receiving unemployment benefits.
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On the other hand, if you have been promoted or changed jobs, it may be beneficial to review your life insurance policies or other insurance to account for your new income expectations. In general, if you have also experienced life changes, such as getting married or having a child, you may need to update the beneficiaries on existing policies.
Thank you for reading this article, and we wish you a successful financial new year!
Source: https://www.thebalancemoney.com/year-end-financial-checklist-1289739
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