16 Dec 5 Year End Financial Planning Tips
Everyone needs a financial plan. Whether you are in your first “real” job or nearing retirement, success doesn’t happen by accident when it comes to financial well-being.
Your financial plan can be simple or intricate, provided it serves as a guide for financial decision making. December is a popular time to review finances, re-evaluate goals, and ensure the plan you have will help you reach long-term financial goals.
Here are five year-end financial planning tips to make next year your best financial year ever.
Don’t Make Money the Enemy: You want to improve your finances, earn more, save more, and spend less. Yet, avoiding financial conversations, ignoring budgeting best practices, dodging spending reviews, and hiding from money problems, means you are treating money like it’s the enemy.
Instead, see money for what it is, a tool to help you get what you want.
Embrace the process and set aside a little time each week to review goals, spending patterns, evaluate your emergency fund balance and consider all your sources or potential sources of income. A review will help identify and correct problems quickly and lead to more natural money conversations, which can teach children sound financial principles and ensure you are on the same page with your spouse or significant other.
Start Fasting: Just as there have been experts who promote fasting from food to jumpstart your metabolism, fasting from spending can serve the same purpose about money. Going for periods without spending can improve awareness of spending habits, jump-start savings, and free up money for your highest financial priorities.
Don’t Leave Money on the Table: Financial waste is one of the primary causes of failed budgets and comes in many forms. Stop to review your spending; unnoticed expenses like too much take-out, your frequent “coffee runs”, monthly entertainment subscriptions, or an unused gym membership. Many times, people are surprised at the end-of-year waste that often goes unnoticed. Consider the following as well:
- Failing to empty your flexible spending account (FSA). Most FSA balances do not roll over to the next year. If you have money in your account schedule that office visit, fill your prescriptions, buy qualified over-the-counter medications, or complete needed medical services not covered by insurance. Find a list of eligible items here.
- Meet any Required Minimum Distributions (RMDs) in your retirement accounts by December 31st. Having more than one retirement account in more than one location can result in not withdrawing the required amounts, leaving you with a hefty tax penalty. Most consumers with a traditional IRA or 401K must take RMD distributions after reaching 70 ½.
- Forfeiting vacation time. You might not see vacation time as dollars in your pocket, shown by the 52% of workers who let vacation days While some employers allow partial rollovers of vacation time, once you reach the maximum, you are leaving money on the table when you give up vacation time.
Rebalance Your Portfolio. Financial advisors recommend an annual investment review to ensure your portfolio aligns with your investment objectives. At the end of the year, it is also a good time to make adjustments to any underperforming investments. Rebalancing can increase your rate of return, lower risk, and improve asset allocation.
Check Your Credit Report and Score for Free. Your financial plan should include credit maintenance. Credit impacts how much you pay for services like cable and insurance, along with the cost of additional debt in both fees and interest rates. Late payments and high credit card balances are the leading cause of poor credit and low credit scores.
Design your financial plan around your long-term goals and aspirations, and you will find it is easier to make changes that will improve your overall financial picture.
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