Financial Fitness


End of Year Financial Planning

A 9-Point Checklist to Get Your Finances in Order
End of Year Financial Planning
Posted at 3:28 PM, Dec 08, 2015
and last updated 2015-12-08 16:28:25-05

For many people, the end of the year represents a hectic time, and the last thing anyone wants to do is add to an already full plate. However, building the following financial moves into your fourth- quarter routine can really pay off over the long run and give you greater peace of mind for the coming year.

Get a head start on organizing your financial records.

This could involve downloading your online account statements and gathering all your personal income records into one place. I like to stash stubs, receipts for any tax-deductible payments, and IRS forms I receive during the year in a separate folder. Then, when tax time comes, I do not have to go searching for all this information. If I have a refund coming, I want to file early so I can use the money. December is also a great time to get a general idea of your income taxes. Maybe you can make an extra deductible contribution, such as into your 401k, before January.

Review your taxable investment accounts for gains or losses.

If you have losses, take advantage of the government’s subsidy by selling the losers. You get to reduce any capital gains for the year by the losses, and if you have any remaining net losses, they can be used to reduce your taxable income by up to $3,000. But be careful: you must wait 30 days after the sale to buy back the same or "substantially identical" security if you want to take a loss for that year.

When deciding what to sell, look at your overall asset allocation and use this opportunity to rebalance your portfolio. Asset allocation works best with occasional rebalancing, since not all assets move at the same rate or in the same direction. If you do not have a plan, now is a great time to build a sensible allocation, based on your goals, objectives, and risk tolerance.

Find out how much you have contributed to your retirement plan and how much you can still contribute.

If you make this move early enough, you may still be able to increase your salary deductions in order to make up for any shortfall below the maximum. Not only that, but it is generally more efficient to use the extra cash to rebalance your portfolio when you do not have any losses to harvest.

Pay special attention to your liquid cash reserves.

In these uncertain economic times, make sure you have one to two years of living expenses set aside in savings. If you do not have this amount saved, begin building your reserves by watching holiday spending, avoiding consumer debt, and even revising your lifestyle. That way, even if your car's transmission suddenly conks out and you can pay cash for the repairs, you will thank yourself. If cash reserves look solid, you can begin setting aside next year's IRA contribution so you are ready to invest at the turn of the year.

Go over your expenses for the past year so you can anticipate your future monthly spending.

The better handle you have on your spending habits, the better you can plan your saving and make needed changes in order to save more. I accomplish this by keeping all my receipts during the year, categorizing them in a spreadsheet by month, and then observing how much goes to each category. Many computer programs are available that can help with this task.

Make a list of all revolving debt balances you carry. Try to make more than the minimum payments on any consumer debt to reduce the amount subject to interest. Ask the lender for a lower rate if you have been paying on time. Order your free credit report and review it for errors or close accounts you no longer need to maintain.

Review your insurance coverage.

Make sure you have adequate life, health, disability, long-term care and homeowners insurance, all of which can help protect you from a financial calamity.

Look over your estate planning documents.

Examine your wills, trusts, etc. to make sure they reflect your recent wishes and desires. You never know when they will go into effect.

Review your financial plan.

See if you need to make any modifications based on changes in your circumstances. If you do not have a plan, now is a good time to put one together.

Lastly, calculate your net worth to see if your wealth has been increasing.

If it has, reward yourself for a job well done with a visit to your favorite restaurant or with a purchase of a good bottle of wine. Then enjoy a very Happy New Year.

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