Greg McBride’s Year-End Financial Checklist: 15 Tasks to Complete | News
As 2021 draws to a close, there are a few key money moves you can make to end the year on a strong footing and set yourself up for success in 2022.
Bankrate’s chief financial analyst Greg McBride, CFA, has compiled his list of 15 financial tasks to accomplish before the end of 2021.
1. Make a budget and review your expenses
The past two years have been full of changes with many people working remotely and many facing unemployment. With all of these changes, there’s a good chance your spending habits have changed as well, which means it’s time to assess where your money is going.
“Are you tracking your expenses against a budget?” If so, how did you do this year? McBride asks. âSet a monthly budget for 2022 and decide to track your spending against it throughout the year. Every month you spend less than you planned, transfer the difference into savings. “
2. Check your progress in paying off your debts
âHow much debt do you have compared to the start of the year? Kudos if you’ve made steady progress to pay it off and have gone the other way, make a game plan to pay off the debt over the next year or so. McBride said.
To get closer to paying off your debt, McBride suggests cutting back on spending, even if it’s only temporary, and spending that money on your debt. Another option to consider is debt consolidation, which could be a great option if you have high interest debt.
These are just two potential strategies for speeding up your debt repayment, but of course everyone’s plan may look different depending on your current financial situation.
3. Review your savings progress and set goals for 2022
A key factor in any sound financial plan is having savings to fall back on. You may have had to dip into your emergency fund recently, and that’s okay (that’s what it’s there for). Now, it’s time to focus on how you’re going to replenish or grow your savings in 2021.
âAdd the amount you contributed to your retirement accounts, 529 education savings plans, savings accounts and other investment accounts and subtract all withdrawals made during the year. McBride said. “Set goals for 2022 and put the plan into action by increasing your contributions to the 401 (k) plan in the workplace, setting up a direct deposit of your paycheck into a dedicated savings account and by arranging automatic transfers to an IRA and / or 529 university savings. Account.”
4. Contribute to your 401 (k) by December 31st
If you plan to maximize your 401 (k) for 2021, mark your timeline for December 31, as this is the last chance to do so.
If you’re lucky enough to receive a vacation or year-end bonus, you may want to consider allocating as much as possible to your 401 (k) plan, says McBride. Plus, if your business offers a match that you haven’t maxed out, get it done before it’s too late.
5. Consider a Roth conversion
If you’ve suffered a loss of income this year, McBride advises you to consider taking advantage of your lower tax bracket to convert some of your pre-tax retirement assets, such as a traditional IRA, to a Roth IRA.
âBe aware that the conversion will result in taxes on any contributions that are not already taxed, so be sure to consult your tax advisor,â McBride said.
If you earn too much to contribute to a Roth IRA, consider a backdoor Roth IRA contribution.
âIf you cannot contribute to a Roth IRA directly because of your income, you can benefit from contributing to a traditional IRA and then converting the funds into a Roth IRA,â says McBride. âIf you already have a Traditional IRA, be sure to consult your tax advisor about the tax implications before converting anything. “
6. Review your asset allocation and rebalance your portfolio
Financial markets have been volatile at times over the past couple of years, so your mix of investments may need some attention.
âSeizing the opportunity to rebalance your planned mix of stocks, bonds, cash and alternative investments means lightening up things that have worked well while adding to asset classes that have fallen behind,â said McBride. âIt also reinforces the discipline of ‘buy low’ and ‘sell high’. “
7. Review your beneficiaries
Adding a beneficiary to your accounts is essential to ensure that your assets go to the person you intended them for. Additionally, it’s important to note that beneficiaries take precedence over wills, so make sure both documents are aligned in their guidelines.
“If you haven’t reviewed it for a while, or especially if there’s been a change in family dynamics like a marriage or divorce, review the beneficiary designation on your life and retirement accounts. to make sure it reflects your current intentions, âsays McBride.
8. Reap tax losses
Did you know you can write off investment losses? The IRS qualifies them as capital losses for your income taxes, which reduces your taxable income and gives you a small tax break in the process.
âIf you have stocks that are losing and they no longer meet your investment needs, consider selling them to make up for the other gains you’ve made. If you haven’t realized any gain, the tax loss can be used to offset up to $ 3,000 in ordinary income and any unused loss can be carried forward to next year, âMcBride said.
These losses must be realized, that is, you have sold the stock, in order to qualify for the deduction. Additionally, this must be done before the last trading day of the year, which is usually December 31st.
9. Check your flexible spending account balance
If you take advantage of a Flexible Spending Account (FSA) offered by your employer, check your balance and see how much you have left to spend as those balances are âuse it or lose itâ.
âMany employers offer a grace period until mid-March, which gives you an additional 2.5 months to use the money set aside this year, but if not, you will have to run out of funds by the 31st. December to avoid confiscation. “, says McBride.
10. Complete the open registration and select your advantages for the employer.
The fourth quarter usually marks the start of open enrollment, which is when employees can select their benefits for the coming year. If you haven’t already, make it a priority to complete your employer’s open enrollment so you can get 2021 benefits that match your needs.
If you miss the open registration, you will be stuck with previous year’s selections or no benefits at all.
âDon’t miss this opportunity to make changes to your benefits, like adding or removing a spouse or significant other,â says McBride. âConsider using a flexible spending account to pay for next year’s health care, dependent care, or transportation costs. It saves you money by allowing you to pay with pre-tax dollars. Think of it as a rebate equal to your tax bracket.
11. Get a free copy of your credit report
Have you checked your credit report lately? If you answered no, make sure everything is as it should be.
âChecking your credit report regularly is a great way to spot errors or evidence of identity theft,â says McBride. âIt’s important to know what’s on your credit report and that everything is correct when you go to apply for a loan, rent an apartment or even change insurer.
You can get a free credit report every year at AnnualCreditReport.com. Additionally, most credit card companies offer some sort of credit score monitor. These scores may be slightly different from those shown on your official credit report; nonetheless, they are a good free tool for regularly monitoring your credit.
12. Pay off your credit card debt
Credit card APRs edged up this year, averaging around 16.3%.
âCredit card debt is the most expensive debt of most households, so put some urgency behind efforts to get those balances paid,â McBride said. âPaying off a 16% credit card balance is a 16% risk-free return, when savings accounts and government bonds return less than 1%. “
There are several approaches you can take to paying off your credit card debt, but a good rule of thumb is always to try to pay off the debt with the highest interest rate first.
13. Review your credit card benefits and rewards offers
If you’re careful, you might miss out on untapped money-saving opportunities offered by cards in your wallet – perks like extra cash back on groceries and food delivery, and free access to premium apps like Calm, Spotify or GrubHub.
âCheck your cards and make sure you’re aware of category expense payments that have changed and that you are using the correct card for those expenses,â says McBride.
14. Apply for a new credit card and save money
If you have a good credit score, taking advantage of a good new credit card offer can help you save money in several ways:
– Score a generous sign-up bonus (approximate value of $ 200 to $ 800).
– Take advantage of interest-free introductory periods for 12-15 months, which will allow you to pay for large items or holiday purchases for over a year without incurring interest.
âUse credit cards to your advantage, not to the advantage of the card issuer,â says McBride. âPay the balance in full each month. No annual fee reward card paying 2%, or more in some categories, can put some of those expenses back in your pocket.
When shopping for a new credit card, look for one whose income categories match your spending habits. Also consider your chances of being approved for the card. Tools like Bankrate’s CardMatch give you access to prequalified offers without affecting your score and can help you with the selection process.
15. Review your insurance policies
Review your home, auto and life insurance policies to make sure they still meet your needs. Check to see if your coverage is sufficient or if you need to adjust your deductibles.
âShop around to make sure you always get the best deal,â says McBride. âDon’t think that just because your home and auto premiums go up every year, they do everywhere.
(Visit Bankrate online at bankrate.com.)
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