The end of the year is always an opportune time to reflect on your financial journey and prepare for the year ahead. Taking the time to perform a thorough financial checkup can help optimize your finances, check your progress toward your financial goals, identify areas for improvement, and set the stage for a prosperous future.
Here is your comprehensive year-end financial checklist to guide you through the process:
Review Your Financial Goals
Start by evaluating the goals you set at the beginning of this year.
- What progress have you made? Did you achieve your short-term goals for the year? Are you on track toward your long-term financial objectives?
- What needs adjustment? Identify the factors hindering your progress and determine what adjustments you need to make for a course correction.
- Reevaluate your current goals. Are your current goals still aligned with your long-term financial objectives? If not, adjust them to reflect your evolving needs and circumstances.
- Set new goals for the upcoming year. Establish fresh financial goals for the coming year that are SMART: Specific, Measurable, Achievable, Relevant, and Time-bound.
Analyze Income and Expenses
Your budget is the cornerstone of your financial health. Review and refine it:
- Track your income: Review your income sources throughout the year. Were there significant changes from the prior year, such as salary increases, bonuses, or new income sources? How do you expect your income to change in the coming year?
- Analyze spending patterns. Using bank or credit card statements, analyze your spending habits by categorizing your expenses (e.g., housing, transportation, food, entertainment). Look for non-essential expenses where you can cut back.
- Create a new budget: After accounting for any life events (i.e., a job change, new child, relocation, child entering college, etc.), develop a realistic spending plan to include funds allocated toward new savings goals.
Analyze Your Net Worth
Your net worth is a snapshot of your financial health, so measuring it at least annually is essential.
- Calculate assets and liabilities. Include real estate, retirement plans, investment accounts, cash, and debts.
- Track progress. Compare your net worth to previous years to measure improvement.
- Set goals to increase your net worth. Identify ways to increase assets or decrease liabilities.
Assess Your Emergency Fund
Having sufficient funds in a short-term emergency savings account for emergencies or unexpected expenses provides peace of mind.
- Review your fund’s status. Aim for three to six months of living expenses.
- Replenish as needed. If you dipped into your fund this year, prioritize rebuilding.
- Consider upcoming risks. Adjust the fund amount based on your current circumstances, factoring in any changes to job stability, dependents, or family health concerns.
Manage Your Debt
Debt can hinder your financial progress. It’s critical to ensure it’s under control and you have a plan to pay it down.
- List all outstanding debts. Review all outstanding debts, listing balances, interest rates, and minimum payments.
- Revisit your debt repayment plan: Focus on credit cards or loans with the highest interest rates.
- Explore refinancing. Look for lower interest rates on mortgages or personal loans.
- Review your credit report. Obtain a free copy from AnnualCreditReport.com. Look for inaccuracies to report to the credit bureaus and study the factors impacting your score.
Review Your Investments
Carefully review your investment portfolio to ensure it aligns with your financial goals.
- Assess your current asset allocation. Verify that your portfolio remains diversified and balanced according to your risk tolerance and allocation target mix.
- Rebalance if necessary. If your allocation target mix has changed due to stock market movements, adjust it by adding to and subtracting from asset categories based on current performance.
- Consider tax-loss harvesting: Take advantage of tax-loss harvesting—selling underperforming stocks for losses to offset capital gains.
- Evaluate investment performance. Did your investments perform as you expected? Decide whether to hold or sell underperforming investments based on your long-term strategy.
Review Insurance Coverage
Make sure you, your family, and your assets are adequately protected:
- Review existing insurance policies. Ensure you have adequate health, home, auto, and life insurance coverage, factoring in any increase in your home’s value or changes in family circumstances.
- Update beneficiaries. Ensure your life insurance and all your financial accounts list the correct beneficiaries.
- Consider income protection. If you haven’t already, look into disability insurance to protect your most valuable asset—your income.
- Add riders if needed. Consider umbrella liability coverage or extended coverage for high-value items.
- Shop for better rates. Have your insurance broker compare policies to see if you can lower your insurance premiums.
Review Your Estate Plan
Ensure your estate plan is optimized for smoothly transferring estate assets to surviving family members.
- Review your will. Update your will to reflect life changes such as marriage, divorce, or new children.
- Update power of attorney. Assign someone to make decisions on your behalf if you become incapacitated.
- Consider a trust. A trust can protect your assets and simplify the transfer process for your heirs.
- Organize important documents. Ensure they’re stored securely and inform trusted individuals of their location.
Optimize Your Retirement Plan
Ensure your retirement savings are on track and that you’re leveraging all available tax benefits of your retirement plans.
- Reassess your retirement goals. Calculate if you’re on pace to achieve your vision of retirement.
- Maximize retirement contributions. If possible, max out 401(k) or IRA contributions. For 2024, the limits are $23,000 for 401(k)s and $7,000 for IRAs ($30,000 and $8,000, respectively, for those 50 or older).
- Consider catch-up contributions. If you’re over 50, contribute additional amounts to tax-advantaged accounts.
- Consult a financial advisor. Seek professional guidance to refine your retirement strategy and determine if you could benefit from a Roth conversion.
Plan for Income Taxes
Avoid surprises during tax season by taking these steps:
- Estimate your tax liability. Use an online tax calculator or consult a tax professional to estimate your total tax bill in 2024 and what you can expect to pay in 2025.
- Adjust withholdings. If you owed taxes last year or received a large refund, update your W-4.
- Organize documentation. Prepare for tax season by collecting receipts for charitable contributions, medical expenses, and educational costs.
- Seek tax advice. Work with a tax professional on strategies to move you into a lower tax bracket.
- Review changes in tax laws. Ensure compliance with new regulations that may affect your return.
Finalize Your Charitable Giving Strategies
The tax code offers ways to make a difference by helping others while improving your financial situation:
- Make cash donations. You can make cash charitable donations of up to 60% of your adjusted gross income (AGI) to qualified charitable organizations by December 31 to qualify for a tax deduction.
- Donate appreciated assets. Donations of stocks and other assets can be more valuable than cash to charitable organizations. Also, you can avoid capital gains taxes while receiving a tax deduction for the fair market value of the assets.
- Set up a donor-advised fund. If you want to make a yearly donation but have not decided which charity to benefit from, you can establish a donor-advised fund (DAF). You’ll receive a current tax deduction while waiting to decide on a charity.
- Gifts to family members. Take advantage of the $17,000 per person annual gift tax exclusion to reduce your taxable estate by making gifts to family members.
Expand Your Financial Knowledge
Improve your financial literacy to make informed decisions:
- Take a class. Expand your knowledge about investing, budgeting, or retirement planning.
- Read books or articles. Stay informed about financial trends and strategies by reading books, attending workshops, or following financial blogs.
- Work with professionals. Partner with financial advisors, tax specialists, or estate planners.
Reflect and Reset
End the year with a clear mindset:
- Celebrate achievements. Acknowledge progress, no matter how small.
- Forgive financial mistakes. Learn from setbacks and move forward.
- Visualize your ideal future. Use this motivation to guide your financial decisions in the coming year.
Commit to Accountability
Stay on track with regular check-ins:
- Schedule monthly reviews. Monitor your budget, goals, and progress throughout the year.
- Partner with a financial advisor. Good financial advisors can help you refine your financial plan and are also great financial coaches willing to hold you accountable for your goals and financial plan.
Bottom Line
With your financial health at stake, you must be as thorough as possible in reviewing, analyzing, and planning your finances. As evidenced by this year-end financial checklist, there is a lot of ground to cover, so it’s critical to be organized and disciplined to ensure you address every aspect of your financial plan.
It’s also highly recommended that you work with your financial advisor to review your year-end financial checklist. They can provide objectivity and insight by working alongside you with your best interests in mind. The advisors at ARQ Wealth are experienced in working as partners in their client’s financial success.Give us a call at (480) 214-9572 or use our contact form.
