Year Financial Planning

Two more weeks until 2021 are in the books.  Are you ready?  

Financial stressors are one reason people dread the end of the year.  Gifts, trips, and other holiday spending can be overwhelming.  Compound that with businesses hoping to get out of the red for the year and individuals worrying about wrapping up their yearly finances, and you can get a real mess.  

We have you covered.  Our list of tips can help you keep your financial life on track as we head into the holidays. 

Make a budget for your holiday season.  Raise your hand if you neglected your budget in the first part of 2021.  Almost everyone we know is guilty.  Pandemics are hard.  It led to unexpected expenses and, for many folks, a loss of income.  It was very easy to neglect your budget.  Making a budget for the holiday season is one way to rein in 2021 spending.  

  • Set Your Spending Limit
  • Include Necessary Expenses
  • Prioritize Gifts
  • Allocate Your Funds 
  • Shop Sales
  • Stick to Your Budget

If your budget is leaner than usual, now is the time to set expectations.  Let family members know that your budget is limiting holiday spending. 

Check your credit report.

You can get a free credit report from each of the three credit reporting agencies.  You may also have benefits with credit cards or bank accounts.  Review those reports at least once a year.  If you disagree with any information in your credit report, you can dispute it.  Many people neglect to check their credit unless they are making a big purchase.  However, your credit score impacts everything from your ability to get a mortgage to how much you pay for car insurance.  It can even keep you from getting a job.  So, you want to make sure all of the information on your credit report is accurate.  If your credit report is correct, but your credit score is lower than “good,” it is time to take steps to repair your credit.  

Look at your taxes. 

Whether you are an individual or a business, take a look at your taxes.  This year has been financially volatile.  If you adjusted withholding or quarterly tax payments in 2020, you might have underpaid in 2021.  Make adjustments now to avoid potential penalties.  If you have been overpaying your withholding, making changes now is a way to free up cash for the holidays.  Better yet, divert that money to savings instead of giving Uncle Sam an interest-free loan!

Donate to charities. 

The holiday season is a great time to make charitable contributions. By now, you should have some idea of what your tax liability will be for 2021.  You may be able to use donations to help your deductions.  The IRS changed limits for itemized and unitemized charitable deductions in 2020, so check with a tax professional to see how to maximize your benefit. Charitable donations also make great gifts for the holiday season. 

Review your savings.  Did the pandemic mean you dipped into your savings?  Many people did.  Your ready cash might be almost non-existent.  The general goal is to have six months of living expenses in a ready-to-access format.  However, because savings accounts pay very little, if any, interest, cash savings may not be the way to go.  You may also discover that your 401k or other stock accounts overperformed expectations. Check on your savings.  Are you on target for retirement goals?  Do you have enough in your short-term savings? 

Maximize retirement savings.  If you are one of the more fortunate people, 2021 was kind to you financially.  Make the most of it by maximizing your 401(k) contributions. For folks 50 and under, your max yearly contribution is $19,500, but if you are 50 or above, you can contribute an additional $6,500.  Also, think about employer matching.  If your employer matches contributions, every dollar you contribute up to their matching limit goes even farther.

If you are handling individual retirement accounts, you can contribute up to $6000 by April 15, 2022.  For folks 50 and older, that amount is $7,000.  

Not sure if you can contribute to an IRA?  You are not alone.  Traditional IRA contributions used to be capped by age.  However, starting in 2020, those rules changed.  Check with your tax professional to see if you can contribute to an IRA and if doing so makes sense for you.   

While you are there, talk to them about possible Roth conversions.  They can be a great way to consolidate 401(k) plans from former employers.  However, there are tax implications from conversions.  So, check with a financial planner about the best conversion strategy.  Now is also the time to look at your investment strategies because of changes to Roth IRA and see-through trust rules.

Get surgeries and other healthcare. 

Many of us have met our deductibles and even our maximum out-of-pocket contributions.  If that applies to you, then this is the time to schedule non-emergency procedures.  Planning non-emergency procedures this way can lead to thousands of dollars in savings. 

Look at your insurance.

Most people have insurance renewals every six months to a year.  Your renewals may not be at the end of the year, but it is an excellent time to take stock of your coverage. 

  • What vehicles do you have covered?  Are you carrying coverage that no longer makes sense given the vehicle’s value?   
  • Do you have enough life insurance?  You are statistically more likely to die in January than in any other month, so the end of the year is an excellent time to increase life insurance coverage. 
  • Has your home’s value increased?  You may need to increase your coverage amounts, especially since supply chain issues are causing price increases in construction supplies. 
  • Did you get any expensive assets this year?  Will you be giving any Christmas gifts? 

While you are looking at your insurance, check your beneficiaries.  Relationships change.  Your beneficiary designations should, too.  When people think of beneficiaries, they usually think of life insurance.  However, you may have named beneficiaries for bank accounts, retirement accounts, and investment counts.  Check them while you are at it! 

Revisit your estate planning.

Many people think of estate planning as a one-and-done thing.  However, as your assets change, so should your estate planning.  Moreover, divorces, children reaching adulthood, the birth of grandchildren, and other life events should impact your estate planning.  It is a good idea to review them at least once a year.  The end of the year is a great time.  It leaves you months to handle gift contributions that might be an essential part of your estate planning strategy. 

One thing to consider this year is whether you gave any early disbursements to your children.  Many older adults found themselves financially helping adult children who were struggling as a result of the pandemic.  If you gave any child a substantial amount of money, you want to consider whether that will impact your gifts at death.  

Check on your investments. 

How are they doing?  The stock market has led to incredible gains for some but losses for others.  Are you facing tax implications for your investments this year?  With market changes, does your portfolio still match your risk profile?  If not, it is time to rebalance. 

Examine your employee benefits. 

The end of the year is enrollment time for many employee benefits.  Do you have the right coverage for your family?  What about your health savings account (HSA) and flexible spending account (FSA)?  Have you been putting enough in it to maximize savings?  Do you find yourself with excess at the end of the year?  Now is a great time to reevaluate your contributions and adjust them accordingly. 

Keep in mind that there is a critical difference between FSA and HSA accounts.  For FSA funds, you must use them or lose them.  If you have a balance, look at FSA rules to see what you can purchase with any remaining funds before the end of the year.  You can carry over HSA funds, and they can even earn money in your account.  If you do not understand your benefits, schedule a visit with your HR professional. 

Get help if you need it. 

Financial planning can be daunting. We can help.  At Stander & Company, we offer a full range of financial services.  From finding the right insurance to making sure your taxes are correct, we can help. 

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