End-of-Year Financial Checklist: 5 Tasks to Complete Before Dec. 31
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5 tasks that should be on your end-of-year financial checklist
Everything from groceries to energy costs skyrocketed in 2022, so take a close look at your spending patterns. Jose Luis Pelaez Inc./Getty
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- The last few months of the year are a good time to check in on your finances.
- Your expenses tend to shift over time, so make sure you account for these changes by updating your budget.
- With the help of a financial advisor, rebalance your investment portfolio and consider tax-saving strategies.
Each year as the summer heat begins to chill and the leaves start to change color, it's a signal that we're approaching the end of the calendar year. It should also be a reminder to check in on your finances, as key deadlines approach that may have an impact on your money.
We spoke with financial professionals to compile a list of some of the most important things you should have on your year-end financial to-do list. See them below, ordered from least time intensive — tasks that can be done in 10 minutes or less — to items that may require an advisor and careful calculation.
1. Update beneficiaries and passwords
Any time there is a change in your family such as the loss of a family member, marriage, divorce, or birth, you should consider adjusting your beneficiaries on each of your accounts. The beneficiary is the person (or people) who will receive the money when you die.
Beneficiaries can be updated for your retirement accounts like a 401(k), IRA, as well as life insurance. But in some cases you can add a beneficiary to your checking and savings accounts too.
"This is a simple step that can avoid major headaches for your heirs because the money could get tied up in probate for several months if there is not a designated beneficiary," says Doug Carey, a chartered financial analyst (CFA) and owner and president of WealthTrace, a retirement and financial planning software company. By not updating beneficiaries you run the risk of your assets transferring to an unintended recipient.
"Don't assume that your will covers all of this, either, because many times the will misses what happens to some accounts if you pass away," Carey adds.
In addition to updating beneficiaries, consider updating your passwords to each of your financial accounts. As the world is becoming increasingly digital, financial security blends in with online security. A password manager can help with this process as most have a feature to generate and save complex passwords for you, and alert you if you have used the same password across multiple sites.
2. Review your tax withholdings
If you've had some major changes during the year it could be a good time to check your tax withholdings and update Form W-4. For example, a change in marital status or dependents could affect the amount of money taken out of each paycheck.
"Every year both employees and business owners underestimate their tax burden," says Camari Ellis, an enrolled agent and founder of the Philly Tax Team. If your withholdings are too high, you end up paying too much in taxes and therefore collect a smaller paycheck—but get a refund at tax time. If your withholdings are too low, your paycheck will be bigger but you may end up owing money to the IRS. "This tax debt often causes undue stress and anxiety on taxpayers," Ellis adds.
Quick tip: The tax code allows you to deduct a portion of your charitable donations to lower your taxable income. To qualify, you must make those charitable donations by December 31 each year and itemize your deductions.
3. Max out your retirement accounts and HSA
Hitting the maximum contributions to your retirement accounts has both long-term and short-term effects.
In the short term, you may be able to lower your taxable income when you contribute to accounts like a health savings account (HSA) if you have a high-deductible health insurance plan, a 401(k), or a traditional IRA.
"If you cannot contribute the maximum, at the very least make sure you are getting the company match. If you are not taking advantage of the company match you are leaving money on the table," says Carey.
Quick tip: You have until the federal tax deadline—April 18, 2023—to contribute to an HSA or IRA for the previous calendar year.
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Chevron iconIt indicates an expandable section or menu, or sometimes previous / next navigation options.4. Adjust your budget for inflation
The end of the year is a good time to assess your budget and make adjustments for any expenses that may have changed over time. For example, insurance rates for your car, grocery costs, streaming service subscriptions, and utilities tend to rise year over year, especially when inflation is high. If you don't account for these you may not have the most accurate picture of where your money is going.
There are several apps that offer features to easily see what you've spent and how those expenses may have changed throughout the year. "Completing such an exercise can help you realize how much you are actually spending and set you up for success for the new year," says Connor Spiro, a CFP® professional and senior financial consultant at John Hancock Advice.
Not taking note of these subtle changes in your income and expenses could lead to spending more than you intended or compensating for these higher expenses by contributing less to your long-term savings and retirement goals.
Quick tip: If your student loan payments are subject to change, make sure these expenses are updated in your budget. For federal student loans, if you have an income-driven repayment plan and your income has increased, your student loan payment may increase as well.
5. Rebalance your portfolio and employ tax-loss harvesting
Rebalancing your portfolio on a regular basis is an important part of managing your risk as an investor. Rebalancing is the act of adjusting your portfolio's holdings back to their intended allocation.
For example, at the beginning of the year you may have invested 80% of your portfolio in stocks and 20% in bonds. As the year progresses and the market moves, the value of your assets may have shifted to 65% stocks and 35% bonds. Rebalancing will get you back to the target allocation of 80% stocks and 20% bonds.
"Before making any adjustment, also consider your investment time horizon and risk tolerance. Have these changed since the beginning of the year? If so, you may want to rebalance your portfolio into a slightly different asset mix to account for such changes," Spiro says.
In some cases, rebalancing will require selling off assets to reallocate them in other areas or contributing more to your investment account to make up the difference. If you are selling portions of your portfolio to rebalance, pay close attention to the account type, as this could be a taxable event if it's a non-retirement account. If you sell for a loss before the year ends, you may be able to offset your capital gains in a process known as tax-loss harvesting.
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