What To Include in Your Year-End Financial Checklist

Check off the items on this list and start the new year right

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As tempting as it may be to take your foot off the pedal and just enjoy the holiday season, there are several financial issues that may need your attention as the year winds down. For instance, you don't want to lose money, pay penalties, or incur any additional taxes unless you absolutely have to. This is why creating a financial checklist as the end of the year approaches can be crucial to getting the new year off to a great start. Here are seven tasks to add to your to-do list.

Sit Down for a '30-Minute Family Report Card'

For starters, something that can be beneficial is to sit down and create a “30-minute family report card," which is essentially a brief financial assessment period with your loved ones. During this time, you can analyze your current financial situation and review the past year.

Some questions to bring up in the discussion include:

  • Did you meet your financial goals?
  • Did you pay off the debts that you hoped to?
  • Did you keep within your budget?

Answer these questions thoroughly and honestly with your spouse or family. If there are some areas that need improving, commit to making those changes now. There’s no time like the present to get a grip on your finances. 

Tip

Consider scheduling monthly family check-ins regarding your finances. Go over your budget, spending, and goals to make sure you're all on the same page.

Go On a Debt Diet

Collectively, U.S. household debt stands at a staggering $14.15 trillion. If your household has credit cards, a mortgage, student loans or other debts, it's time to get serious about paying them off.

You may be thinking to yourself, “There's no way I can worry about my debt in the midst of the holiday season.” However, now could be the best time to go on a "debt diet." After all, your credit card debt can hamper your bottom line and hurt your overall financial health.

Consider what kind of approach is best for tackling debt. For example, you could try the debt snowball or the debt avalanche, which essentially means tackling your smallest balances first and building momentum toward the larger ones.

Review your budget to determine how much money you can apply to debt each month above the minimum payments. Then, set a deadline for paying off your debts one by one, from smallest to largest.

Tip

Consider refinancing or consolidating high-interest debt, or transferring credit card balances to a card with a 0% APR. By reducing the amount of interest you pay, you can chip away at your debt totals faster.

Sell Positions for a Tax Loss

Are there any money-losing positions and/or investments in your portfolio? If so, you can consider selling them for a tax loss. Just remember that there are very specific rules.

For example, if you sell a stock for a loss, you are not allowed to buy substantially identical stock or securities within 30 days. This is called the wash-sale rule and if you violate it, the IRS can penalize you by removing any tax break you enjoyed from harvesting losses.

Spend 5 Hours or More on Retirement Planning

The happiest retirees spent at least five hours per year planning for their retirement. They’ve figured out the formula, which is unique for every individual, for how much money they need to have saved for retirement. Just remember that figuring out this formula takes planning, so be sure that you dedicate the time required so that you too can become a happy retiree.

If you don't have a financial advisor yet, consider finding you can trust to offer good advice. Some of the key questions to ask when choosing a financial advisor center on how they like to communicate, the types of services they offer, the typical kind of clients they work with and their overall investment strategy.

Note

Be sure to understand the difference between a fee-only and fee-based advisor. Fee-only advisors base fees on their services while fee-based advisors can earn commissions from selling certain investment products.

Contribute the Maximum Amount to Your 401(k)

Your company may offer a matching 401(k) contribution as part of your employee benefits package. This is free money to you, so if possible, it's best to contribute the maximum amount to your 401(k).

The threshold to qualify for your company’s matching contribution plan may differ from company to company, so it's always best to check with your human resources department to see how much you need to contribute. Try to save at least the amount that your employer will match. Otherwise, you are leaving money on the table. 

Tip

Consider increasing contributions incrementally each year. If you get a regular pay raise, you may not even miss the extra money from your paychecks.

Identify Any Charitable Donations

As you evaluate your year-end finances, one of the items to consider, especially for tax purposes, is any charitable donations you made during the present year. Some questions to ask include:

  • Which specific causes and charities did you donate to this year?
  • Did you maximize your charitable donations or donate assets other than cash?
  • Could you potentially benefit from tax savings if you donate more?

If you plan to donate the same amount of money each year, consider “bunching,” or consolidating tax-deductible charitable contributions, into a single year. This bulk donation could increase your potential itemized deduction for that year.

Leverage Your FSA or HSA

A flexible spending account (FSA) is a special tax-free account in which you can contribute money that will pay for services that your health care coverage doesn’t cover. Be sure to check with your benefits office to find out the deadline for using the money in this account so that it doesn't go unused.

You can also consider the benefits of saving money in a health savings account (HSA) instead if you have a high-deductible health insurance plan, which has lower monthly fees than other types of plans. An HSA offers triple tax benefits in the form of tax-deductible contributions, tax-deferred growth and tax-free withdrawals when you use the money to pay for qualified medical expenses. And compared to an FSA, you don't have to spend the money in your HSA down each year, meaning you can allow it to grow over time until you need it.

Experienced a Job or Life Change?

If you experienced a job change this year, whether from a job loss or new career move, here are some things to keep in mind. If you lost your job and received unemployment compensation at any time this year, you'll likely need to report it on your 2021 tax return. It can also help to speak to a tax advisor regarding any tax implications for receiving unemployment benefits.

On the other hand, if you were promoted or changed jobs, it can be highly beneficial to review your life or other insurance policies to account for your new income expectations. In general, if you also experienced any life changes, like getting married or having a child, you may need to update your beneficiaries on existing policies.

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