End-of-year financial checklist, pt. 2

Vincent Price’s rap at the beginning of Thriller was a warning: “Darkness falls across the land. The midnight hour is close at hand …” October certainly has been a spooky month for some investors. Nevertheless, fall is time to wrap up your personal finances for the year.

Here are five additional items to include on you end-of-year financial checklist:

30-minute family financial report card

How do you want your personal State of the Union address to read? Two planning mantras are “control what you can control” and “have a written plan.” However, long-term planning can be frustrating – delaying gratification and fuzziness of the future. It can feel like walking to the horizon – and you never get there. What if you periodically paused to assess your situation and celebrate the year’s achievements? Did you meet your financial goals? Are you on track with your budget? What adjustments should you make for the New Year?

Stay on your debt diet

What if you approached debt reduction like a weight-loss program? The average American with personal debt (excluding mortgages) holds the following balances according to NerdWallet.com – credit cards ($15,482), auto loans ($27,669) and student loans ($46,950). On a parallel path, many of us eat too much and about 70.7 percent of Americans are overweight or obese, according to NBC. Similar analogies between excess pounds and debt include how easy it is to add but difficult to shed, how it can grow with little effort, and how it can cause problems later in life if left untreated. The programs for weight loss and debt reduction often include setting reasonable goals, changing one’s lifestyle, avoiding temptation and having a buddy or cheerleader. Stay in shape!

Tax reduction

Are you paying the minimum amount legally required? Profitable companies tend to command higher stock prices. Two ways to increase the bottom line include growing revenue or reducing expenses (including income taxes).

Financially successful households run their personal finances like a business. Common tax reduction strategies include:

  1. Deferment: Pushing income into future tax years and accelerating deductions (e.g. retirement plan contributions, buying business equipment and installment sales).
  2. Tax-free income: i.e., municipal bond interest).
  3. Preferential capital gains treatment and matching gains with losses.

Taxes are complicated and the biggest tax law changes in over 30 years took effect this year. Review your situation with your CPA, enrolled agent and trusted financial advisers.

Charitable giving

Would you consider making a charitable gift, or possibly one in the name of a family member? People share their wealth (or volunteer their time) for many reasons, including trust (making a difference), altruism (helping others in need), social (couples make giving decisions together or the cause benefits someone close to you) and egoism (it feels good, or you enjoy the recognition).

Year-end giving for tax reasons might be straightforward or not. Writing checks is pretty simple. However, you may be giving appreciated stocks, real estate or collectibles, or distributions from your IRA (if you’re 70 1/2 or older) that require paperwork or special services (tax, legal, appraisers, etc.). Give yourself sufficient time.

Protecting loved ones

When’s the last time you updated your estate plan? Estate plans can be magical – helping you maintain control of your assets and protect you should you become incapacitated. They can take care of family and pets, and can save you time, money and stress. Estate plans can protect your privacy and help keep harmony in the family. However, they can’t update themselves.

Have your estate plan reviewed if your situation has changed — for example: marriage, divorce or death; financial status; a new baby or grandchild; moving to another state; or other circumstances. Maybe your successor trustee is your college buddy and he or she is as old as you. Kids get older and can serve in trusted helper roles. Relationships change or you feel the need to protect beneficiaries from bad habits or overspending.

Life is full of opportunities and distractions. And as humans we are influenced more by psychological factors in making financial decisions – fear, overconfidence and biases – than by rational factors.

Don’t get spooked! Plan out your finances with your trusted financial advisers.

About Brian Loy

Brian Loy writes insightful and inspiring articles about the ever-changing world of personal finance and the global trends that affect the risk and return on investments and shape the financial- and retirement-planning process.
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