It’s Time for Your 5-Point End-of-Year Personal Finance Checkup

Mature woman is reviewing her finances at home.

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It seems the older you get, the faster the holidays get to you. While that may involve joyous get-togethers and festive cocktail parties, the end of the year also means it’s time to do a little financial cleaning.

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Don’t worry: doing a year-end financial review might not be among your most exciting plans in December, but it’s not hard to do. In addition, you will prepare for a more prosperous 2023. Here are five key areas to check before the year ends.

Review your budget

Taking a look at your budget every year is always a good idea. However, given the economic strain Americans have faced lately amid inflation, it’s critical to make sure your budget can support your expenses for the coming year.

Brian Greenberg, founder and CEO of Insurist, suggested first making a list of your assets and liabilities. See your bank statements, credit card statements, investments, and any other document that shows how much money you have (and how much you owe).

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Then find out how much money you have left after paying all your bills.

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“This will help you figure out what percentage of your income goes toward expenses like rent or mortgage payments, utilities, food and clothing expenses, anything else that isn’t considered an investment or savings account,” Greenberg said. Then compare these two numbers and see if anything needs to be changed.

For example, Greenberg said, if you’re spending more than 40% of your income on discretionary spending, you might want to consider putting more money toward savings or retirement. Now is a good time to adjust where your money is going and come up with a better spending plan for 2023.

Review your healthcare costs

Health care costs are one of the biggest recurring expenses people face each year, according to Ari Parker, author of “It’s Not That Complicated: The Three Medicare Decisions to Protect Your Health and Your Money.” December can be a critical time to find healthcare savings.

“If you’re retired and on a fixed income, saving on medical bills is one of the most efficient ways to improve your financial situation in 2023,” Parker said. “My biggest tip is to take the time this month to evaluate what you pay for doctor and specialist visits, prescription drug costs, and any ancillary benefits like dental, vision and health care.”

You may be paying thousands of dollars for these bills alone, but Parker said you can find hundreds of dollars in savings by evaluating whether you’re on the right health insurance plan. Take advantage of open enrollment periods to make the necessary changes.

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Examine retirement savings

Another key area to review at the end of the year is your retirement savings.

“TIAA conducted a survey earlier this year that showed only one-third of American workers say they are very confident they are on track to retire when they want, afford the lifestyle they want in retirement, or live comfortably in retirement without run out of money,” said Jarrod Fowler, head of TIAA’s Investment and Advisory Center.

At the very least, you should be contributing enough to make the most of any employer match, which is typically 3% to 5%.

“Talk to your HR office about different retirement savings options and meet with a financial planner, which many companies offer,” she said. “They can help tailor a plan that works best for you.”

Look for tax loss harvesting opportunities

Tax loss harvesting can be a great strategy in December, according to Ksenia Yudina, CFA, founder and CEO of investment app UNest. This involves selling stocks, ETFs, mutual funds and other investments at a loss to offset capital gains from other high-yielding investments.

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“Since the stock market has gone down this year and many investments have lost value, there are many opportunities to sell investments at a loss,” Yudina said. “If an investor has no capital gains to offset in the year the capital loss was taken, the loss can be carried forward to offset future gains or future income; there is no expiration date.”

However, Yudina added that investors should be aware of the “wash sale” rule. This means that if you sell an investment at a loss for tax loss harvesting, you cannot buy back the same investment for 60 days.

Check yourself too

Finally, Yudina said it is important to recognize and moderate internal conflicts.

“Even the most sensible financial resolution can fall victim to pesky human emotions,” he said. “Impulse purchases, especially during the holidays, can fill a temporary void, but will likely make you feel less than stellar in the New Year.”

So make sure you take some time to relax, reflect and identify your spending triggers before they get the best of you.

“Train yourself to stay focused on the ultimate goal of financial independence for you and your children,” she said. “Once you’re sure you have your priorities straight, allocate a sensible budget for holiday spending.”

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