Year-end and new year financial planning tips

Saving more and making better money management decisions are among the top resolutions people make for the new year. Employing some basic money management strategies can help you reach your personal financial goals and prepare for your financial future. 

“The end of the year is a good time to reflect on those financial challenges of the past year and make any needed changes to your financial planning,” said Nathan Harness, Ph.D., director of the Financial Planning Program in the Texas A&M College of Agriculture and Life Sciences Department of Agricultural Economics. “The past few years have brought a number of financial challenges, and there is still a good amount of uncertainty as to what future economic challenges and opportunities there may be.”

Start the year off right with good financial planning

Harness said there are some financial moves you can make to improve your overall financial well-being in the new year, including:  

• Regularly review and adjust your asset allocation based on your risk tolerance, investment goals and market conditions. This can help maximize returns while minimizing risk.
• Consider using a donor-advised fund to make charitable contributions. This allows you to take the tax deduction in the contribution year while distributing the funds to charities over time. This, combined with a bunching of charitable donations, can allow for tax maximization in bunch years.
• Set up automatic transfers to your savings account to ensure you’re consistently saving a portion of your income. Automation increases the consistency of savings. Aim for 10-20% of your income if possible.
• Make sure you have adequate insurance coverage — health, auto, home and life — to protect against unforeseen events. There are many changes in a lifetime, and it can be easy to forget to review policies to make sure they meet current needs.

Getting ready for tax time 

The end of the year is also an excellent time to contemplate and coordinate your tax planning. Donnie Carpenter, a certified financial planner and visiting lecturer for the Financial Planning Program, provided the following money moves for better tax planning:

• Individual retirement account, IRA, contributions aren’t due for 2024 until April 15, so you can do your taxes and then decide if a traditional or Roth IRA contribution makes sense.
• Try to maximize your retirement contributions to a 401(k) and 403(b) with end-of-year paychecks.
• Utilize any flexible spending account, FSA, money you currently have. Some FSAs allow a short grace period, but generally, you must spend the money by Dec. 31, or it is lost.
• Review your tax withholding. Use the IRS tax withholding calculator to check your withholding year to date to see if you should have extra withholding made for your final paychecks to lower your tax due in April.
• Look for a qualified certified financial planner to help you with your finances. A great resource to find help is the National Association of Personal Financial Advisors, which requires members to only be paid by fees and never accept commissions from clients.
• Check your beneficiary designations to ensure they are up to date. Then, check to see if your will or powers of attorney need to be updated.
• If you don’t already have a fire safe for important documents, look for one during holiday sales. Make sure to tell the people named in your powers of attorney and the executor of your will where to find your safe and how to get in.
• Check your state’s Unclaimed Funds website to see if there are any accounts you’ve forgotten about or checks that may have gotten lost.

Creating a ‘life spending plan’

David Roach, a lecturer in the Financial Planning Program, said his “go-to tip” for the new year or almost any point in the financial planning process is to create a life spending plan.  

“Even if you are prodigious at saving money, you still will spend more than you save throughout your lifetime,” Roach said. “A life spending plan gives you control over where you want to spend and adjusts based on your life situation. Plans are meant to change with time and your spending will too.”

He said a life spending plan incorporates modifications to your personal budget, identifying sources of income along with incoming and outflowing amounts, looking at personal spending patterns and determining specific needs and wants.

“A good rule of thumb is the 50/30/20 life spending plan,” he said.

Roach said this is traditionally divided into 50% for needs, 30% for wants, and 20% to save for financial goals or pay extra principal on existing debts.

“It’s perfectly fine if, initially, you cannot set aside 20%. With time, as your wages increase, you can increase your savings rate. If you get a raise or promotion, spend half to enjoy your hard-earned reward, but save the other half. This one switch can greatly impact your future financial success.”

He said creating a life spending plan does not have to take much time.

“As an instructor in financial literacy, I aim to spend two to four hours a month on my finances,” Roach said. “You can do this through automation, and there is a lot of technology such as budgeting apps that can make it easier for you to develop your life spending plan.”