End-Of-Year Planning: 8 Tips To Successfully Set Up Your Finances

With Thanksgiving celebrations, big family gatherings, and the sound of Christmas holidays around the corner, you slowly start feeling that another year is coming to an end. But, before you get too excited about writing down new wishes and resolutions, it’s wise to sit and reflect on your current goals and make year-end financial planning a priority. Understanding how far your finances have come is key to both your short and long-term goals. This is also a great chance to learn more about your money outflows and find out how you are managing your earnings. To do so, there are eight valuable things to consider before saying goodbye to 2021 and welcome the new year feeling confident about your financial health:

Collect All Documentation

Your end-of-year planning should start by gathering all documentation that shows any change to your finances, whether an increase or decrease. These documents can be in the form of digital receipts or printed invoices, and they should include the following: • Bank statements • Income statements/paystubs • Credit card statements • Mortgage statements • Loan statements (personal, auto, student, etc.) • Budget app statements • Pension and/or retirement statements • Social security statements • College or secondary account statements • Financial goals for the current year

Revise Your Budget

This is the perfect time to review your budget and see if you have been financially accountable. If you were not able to accomplish all your financial goals, it’s time to craft a new plan for the upcoming year. Remember that budgeting is not a one-time activity, but a long-term commitment to better manage your money. This will not only help you assess your spending habits and money management skills, but it will also contribute to your long-term financial goals and increase your savings.

Compare Previous vs. Current Year

While this may seem time-consuming, comparing your numbers from one year to the other has many benefits. Aside from showing a more comprehensive flow of your expenses and earnings, it gives you a clearer idea of how to improve your financial standing. This is a great chance to re-evaluate your money outflows and decide whether or not to reduce overspending in certain areas.

Review Your Emergency Fund

Ideally, you should be able to cover three to six months of emergency expenses, but you may find it hard to replenish your fund regularly, which is understandable. However, remember that unexpected emergencies such as medical bills or car repairs always lurk around the corner, and you don’t want to be among the 25 percent of Americans who have no emergency savings at all. Reviewing your emergency fund is a crucial step for your year-end financial planning, just like your everyday budget. As you review your fund at the end of the year, try to replenish it or start a new one if you haven’t done so already. This will prevent you from utilizing credit cards or borrowing money to cover surprise expenses.

Validate Your Tax Withholdings

It’s always wise to review your total tax withholdings and upcoming payments, especially as the year comes to an end. Check for any tax exemptions you may be qualified for, or for special tax law provisions that might have been implemented. You can also take advantage of the new Tax Withholding Estimator from the IRS to figure out income tax withholdings. If you had investment losses, remember that you can write them off. The IRS refers to them as capital losses to your income taxes, which reduce your taxable income and nets you a smaller tax break – this is known as tax-loss harvesting. Lastly, you may consider donating money to a worthy cause. This is not only an admirable gesture but also a way to take advantage of further tax benefits. Charitable gifts may be qualified for large tax deductions, especially if they are made directly from your IRA.

Review Your Investment Portfolio

With the year coming to an end, it’s time to take a closer look at your investments. Is your job less secure than last year? Did you inherit some money? As life changes, so does your financial portfolio, so it’s a good idea to check for any needed alterations or updates. Review asset allocations, investment holdings as well as any stocks and bonds investments. Evaluate if you can tolerate the same amount of financial risk in a way that doesn’t affect your main needs. You should also consider maximizing your allowable contribution to an IRA, 401(k), or Roth if your budget allows and if those options are available to you. Doing so offers many tax advantages that can help you save money over time.

Outline Future Plans

If you have a big event coming up like a vacation, wedding, home purchase, or surgery you should start planning for any expense you may incur. You can set up a separate account to transfer funds specifically for that big event – it’s a good way to look forward to the future and stay financially motivated throughout the year. Don’t forget to keep an eye out for your credit score through real-time credit reports. Typically, a score of 740 or more is considered very good, especially if you are looking to buy a house, a new vehicle, or planning to request a loan.

Review (or Update) Your Insurance Policies

As part of your year-end planning, take some time to review your auto, home, and life insurance policies. Make sure they still meet your coverage needs, check whether you need to adjust deductibles or if it’s better to shop for a new coverage package altogether. You should always have a policy that protects you fully and at a good price. From retirement planning to revising investments to learning new tax strategies, the end of the year is a great time to take action and improve your overall financial situation. Consider making financial check-ups a new annual tradition and be on the lookout for new opportunities to grow your money and expand your long-term goals!