Your Financial Health – 4 Things to Do Before Year’s End

So much can happen in a year! Before getting too swept up in the hustle and bustle of the holidays, take some time to reflect on how the last eleven months have impacted you financially. Determine whether your long-term goals are on track. Consider what you can do to set yourself up for success, and improve your financial health, in the coming year.

Reflect On the Past 11+ Months

Are you ending the year with less debt than you had last January? There are valid reasons to take on debt, but in general, your debt should be decreasing over time. If it isn’t, consider using a different debt management strategy in the coming year.

Review your spending through the year. How does it compare to previous years? If you’re spending more, year after year, it’s important to consider the root causes of the increase.

What percentage of your annual income was saved and/or invested? Depending on which source you consult, you’ll discover that you should be setting aside 10-20% for savings and investments. Using best practices and recommendations, such as this, is a good starting point. Eventually, you may want to consider customizing this percentage to your specific short and long-term goals.

We (my husband and I) save 20% of our monthly income. We do this as soon as it comes in. Put another way, we pay ourselves first. Then, at the end of each month, we decide where to put any surplus, often in savings and investments. When we receive money sporadically, expected or not, at least 50% of it is allocated to savings and investments. Over time, this has resulted in a savings and investment rate of about 40% of our after-tax income.

Is your emergency fund sufficient? Ideally, you have 3-6 months of base expenses available, in case of emergency. If your expenses have increased through the year, you’ll want to add to your emergency savings accordingly.

Conduct a Needs Assessment

Do your insurance policies suit your current needs? Determine whether you should increase or decrease either your coverage or your deductible.

Do you have an up to date estate plan in place? Do you have a will, a living will, a health care power of attorney, a financial power of attorney, trusts, and a plan for your end-of-life expenses? Consider whether you need to modify any of these documents or update your beneficiaries, because of changing life circumstances.

(Re)Allocate Your Assets

Assess Risk. Has your portfolio become too concentrated? Are you comfortable with the level of risk you’ve taken on? Do you need to adjust your strategy to reflect shifts in your priorities or time horizon? If so, this is a great time to bring your portfolio back into balance.

Engage in tax-loss harvesting by ditching the worst performers in your brokerage accounts, investments that have lost money this year, to offset the taxes from any profits. You may want to take even more in losses, since the Internal Revenue Code (IRC), Section 1211(b), allows investors to deduct up to $3,000 in capital losses each year.

Spend what is left in your Flexible Spending Account. Don’t forget that FSAs are “use it or lose it.” If there’s time, schedule medical, dental, or vision appointments. If not, you might want to stock up on qualified over-the-counter items, such as medication for allergies, acne, or pain.

Make end-of-year contributions to:

529 Plans
Individual Retirement Accounts (IRA). Don’t forget you can include “catch-up contributions” if you’re 50 or over.
Health Savings Accounts (HSA)
Charities

Prepare for the Year Ahead

This is the perfect time to define next year’s financial goals and priorities.

Ask Yourself:

Will I have any large expenditures that I’ll need to save ahead for?
Does my spending reflect my core values?
Should I tweak my budget or spending strategy?
Am I on track for retirement?
Do I have a comprehensive financial plan in place?

Consider whether, in the months ahead, you could shift your money mindset in ways that would lead to a less stressful, more balanced life. And, while you’re making those New Year’s resolutions, don’t forget to commit to building wealth!

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