Financial Moves To Make Before The Year End

Oh my – who can’t wait to see the back of 2020?! I think we can all agree that it’s been a bit of a shocker. It’s probably fair to say we’ve all had challenges to face, and I suspect we’re all hoping for a more peaceful 2021. And whether or not you have a more successful 2021 might feel way out of your control I’m sure; we just have to accept that some things are.

But there’s a way that you can bring just a bit more peace of mind to the start of 2021. Getting your finances under control is a surefire way to give yourself and your family the perfect head start to a great new year. So follow these tips – these are the five financial moves to make before the year end.

Revisit Your Financial Plan

Ooh, as far as financial moves to make before the year end go, this one sounds like a big one, doesn’t it? I mean, I could divide this one up into five tips itself. But it’s not as daunting as it sounds. This is just really touching base with your goals, and checking in on how things are lining up. And it’s one of the most important financial moves you need to make.

First of all, do you still have relevant goals set? This is really important, otherwise hard work saving and monitoring your finances can feel like it’s for nothing. You need to be clear on why you’re doing things the way you’re doing them.

If some of your financial goals have changed, make sure you actively acknowledge this, and check that you are on the right track. While you’re doing this, check your cash flow too. Make sure that your budget is working for you.

You might have reduced your income, had a pay rise, or be using your money differently than last year. Is there any way that this might change how quickly you can reach your goals? If you’re not spending as much money at the moment – due to working from home or doing less socially – can you change your budget so it better serves your long term goals?

Just checking in on these things regularly will really serve you well. Keeping your goals and your cash flow in mind regularly will mean that you’re more likely to think about the long term when making any kind of financial decision. And that means when you’re about to buy a big ticket item or commit to a gym membership, or an insurance policy renewal.

Prepare for Tax Season

Getting taxes filed early just feels like one of the biggest wins of them all, doesn’t it? So this is definitely one of the more satisfying financial moves to make before the year end. It can take some thinking to get everything in order, even if you have an accountant or tax expert on your side to help out.

If your circumstances have changed significantly over the last year, you may need to give it some more thought too. Start by reviewing last year’s tax forms. Then begin organizing the information that you’re going to need to fill in this year’s forms. If you need some guidance, you can always check the IRS website and necessary forms online.

You’ll need to track your income over the year, and remember that different types of income require different forms. If your circumstances have changed and your income is coming from different sources, make sure you’ve got it all documented and have the relevant forms to fill in.

Also, remember that 2021 is going to be a bit different if you received a stimulus check from the CARES Act. It’s not included in your gross income and isn’t taxable, but you’ll need to put it on your tax return.

The more you can prepare in advance, the better you’ll be able to deal with any bumps in the road.

Boost Your Retirement Savings

IRAs, Roth IRAs and 401k plans all have contribution limits set, so you can only contribute a certain amount per year. If you can, it is well worth meeting those limits each year.

For 2020, the limit for 401k employee contributions is $19,500 (or $26,000 if you’re 50 or older). If you’ve not reached that limit yet and have a bit of spare money that could work harder for you in your savings, then make that extra contribution to your 401k now.

The same goes for an IRA, and contributions to an IRA could be tax-deductible (check with your tax advisor to be sure).

An often overlooked way to save for costs in retirement is a Health Savings Account. This is a triple tax advantaged account, if the funds are used for qualified medical expenses. So it’s a really good way to save especially if you’ve maxed out contributions to other retirement accounts.

So as the year comes to an end, see if you can give your retirement savings a boost by making extra contributions. Although you might be tempted to spend it on the holidays, your future self will most definitely thank you for every extra bit you can save now.

Check Your Accounts

Reviewing your accounts on a regular basis is a really good habit to get into. Making sure you fully understand the terms of all your accounts is crucial too, because they could be costing you more than necessary. Regularly checking your accounts can help protect you from fraud as well, which these days is getting so clever that it can slip by unnoticed.

Because of good offers and tempting interest rates, we can end up with our cash spread out in different places. But after the introductory period is over, some accounts have hefty fees or charges, or poor interest rates. You might get a better deal elsewhere, and it might make sense to consolidate accounts. Do the same with your investment accounts. Streamlining investment accounts could result in a significant reduction in fees and simplify your financial life.

The same goes for insurance accounts. You maybe have just reviewed employer-provided benefits packages because of the open enrollment period before everything renews in January. That means you might have this covered already. But if you haven’t been through that process – if you’re self employed, a business owner, retired already – then it’s really worth checking your insurance accounts. Check the beneficiaries and if you’ve had any changes of circumstances this year make any necessary changes. And it never hurts to research some alternatives.

Rebalance Your Investments

When was the last time you reviewed your investments and rebalanced your accounts? Rebalancing can apply to your 401k too, depending on how they’re managed. Ideally, your investment portfolio will be made up of several types of asset classes, i.e. stocks, bonds, real estate, cash and so on.

Depending on your age (i.e. your time left to invest), risk tolerance and other preferences, your investments are most likely divided between asset classes in a way that suits you. For example, you might have 20% in cash, 30% in bonds and 50% in stocks. By the end of the year, your stocks may have done far better than your bonds, and now represent a larger portion of your portfolio. It might now look more like 20% in cash, 20% in bonds and 60% in stocks.

For illustrative purposes then, you might rebalance your investment portfolio by transferring 10% of your investments from stocks to bonds. Rebalancing may offer better investment returns as you may be able to take advantage of opportunities to sell high and buy low (selling what is overweight and buying what is underweight). While the potential benefits of rebalancing are fairly obvious, the timing of this activity is a little more complicated; some items to be considered are transaction costs and tax consequences, depending on your account type.

As you get older and your circumstances change, so might your investment preferences and needs. If retirement is drawing closer, your risk tolerance may well be a lot lower so you might choose more cautious investments. A regular assessment of your risk tolerance and a corresponding rebalancing of your investments is one of the most crucial financial moves that you need to make on a regular basis. Doing so will help ensure that you are managing your wealth effectively to secure your best possible future.

Confused About Making The Right Financial Moves?

So, there you have it – a list of the five most important financial moves to make before the year end so you can go into 2021 financially empowered. But each of those moves can get complicated, and some can be extremely time consuming.

As a financial planner, my joy comes from knowing I’ve lifted some of the weight from my clients’ shoulders. I help them to free up time to spend with their family and doing things they love, instead of spending time analyzing financial documents.

If you’d like some help with some of these tasks and to streamline your finances for the year ahead, please do reach out. I’ll be so happy to hear from you, and to see how I can lighten the load for you.

Investment advisory services offered through Equita Financial Network, Inc. (“Equita”). Equita also markets investment advisory services under the name Method Financial Planning, LLC. The foregoing content reflects the opinions of the author(s) and is subject to change at any time without notice.

Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.

All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.