The end of the year approaches. Do you have your personal finance plan in place?
Time can pass quickly and sometimes we neglect the tasks that are most important. The end of the year is a good time to review personal financial planning items that may affect you for the year to come.
Personal financial statements
The end of each year is a good time to review your annual budget and net worth statements. Review and evaluate the current year’s income and expenses. Are you saving enough? How much of your income is spent servicing debt? How do your income and expenses compare with those of the prior year? Create a budget for the coming year that will help you accomplish your overall financial goals.
Reviewing your net worth on an annual basis is good idea. Is it higher or lower than the prior year? What are the reasons for the increase or decrease? The goal of a financial plan is to increase net worth. Any increase in your assets or reduction in your liabilities will accomplish this result.
Updating your financial plan can ensure that you are still on track to meet your financial goals. Has your spending and investment been according to your plan? Have there been any changes in your circumstances such as birth, death, retirement or job change?
Year-end tax considerations
To lower taxable income be sure to maximize contributions to your 401k and other pre-tax retirement accounts. While 2023 IRA (and after-tax Roth IRA) contributions can be made until April of 2024, employer sponsored retirement plans typically have a contribution deadline of the end of the calendar year. Contribution amounts have increased for IRAs, Roth IRAs and retirement plans, which allows more money to be put toward retirement goals.
Deposits to health savings accounts and 529 savings plans can be beneficial ways to save for health care and education expenses. There are also tax benefits to making these deposits. Make any charitable contributions by the end of the calendar year and consider taking those contributions directly from an IRA account or using highly appreciated property.
It is a good idea to estimate what your capital gains distributions will be for the year. Consider if there are capital gains or losses available and if so, consult your tax professional to determine if it would it be wise to sell before the end of the year to “harvest” these losses and reduce capital gains taxes for 2023.
Review your investment portfolio
Stock and bond markets have been very volatile, and geo-political risks are elevated. Interest rates have risen more quickly than any time in history. This is a good time to review your investment portfolio and determine if it is time to rebalance.
When markets are volatile, investment allocations can become off-balance and may need to be adjusted. Shopping for the best short-term interest rates can ensure you are getting the most from cash deposits.
Review your insurance coverage
It’s good policy to review your insurance coverage from time to time. Do you have adequate life insurance in place for you and for your spouse? Have you planned for a potential disability where you suffer a loss of income? In retirement, it’s wise to have a plan to pay for long-term care expenses. These costs are not typically covered by health insurance or Medicare.
Reviewing your homeowners and auto insurance coverage amounts, premiums and deductibles periodically can bring about savings or expose a risk you may not be aware of. Some homeowners’ policies now have a deductible that is a percentage of the coverage amount.
Consider an “umbrella” liability policy in addition to your homeowners and auto policies. Do you serve on the board of directors of a charitable organization? Does the organization carry a liability policy that covers you? Do you have personal identity theft protection? A full understanding of insurance can help eliminate financial surprises.
It’s also wise to review your estate plan each year and determine if you have the appropriate legal documents in place. Have you updated and selected your employee benefits for the upcoming year? Check your credit reports with credit reporting agencies to ensure accuracy. Many other items should be considered, and it is best to have a comprehensive financial plan in place before the new year arrives.
Happy holidays and best wishes for 2024.
Chris Walden is a CERTIFIED FINANCIAL PLANNER professional and a member of the Financial Planning Association of Greater Kansas City. He is an advisor with Heartland Capital Advisors, LC, a registered investment advisor in Independence.