Be 'proactive' with your finances: Make 3 year-end money moves now to have a great 2022, planners say

"The year-end is a great time to review where your money went."


Now is the time of year when many people think about finally getting it together but, you know, in January. The beach bod you're going to start working on, the more cooking you're going to do, the pile of books you've vowed to read — all that can wait until after another few weeks of eggnog and chestnuts roasting over open fires.

Still, starting now might be better if you actually want to get your finances on track in the new year. While many year-end financial moves, such as those aimed at trimming your tax bill, are backward-looking, financial professionals recommend a number of strategies you can execute this holiday season to make sure that you have a holly, jolly 2022.

"It's all about being intentional with your money," says Haley Tolitsky, a certified financial planner at Cooke Capital in Carolina Beach, North Carolina. "If you're not being proactive with any surplus money you may have, chances are you're going to spend it instead of putting it toward your goals."

Here are 3 moves the pros say you you'd be wise to make now — your future self will thank you.

Review and adjust your budget

Looking back on your spending in the past 12 months can help give you a framework for how you want to use your money going forward. "The year-end is a great time to review where your money went," says Carl Holubowich, a CFP with Armstrong, Fleming & Moore in Washington, D.C. "Reviewing your bank and credit card statements offers an opportunity to see if there are areas you want to adjust your spending on."

No matter your situation, some adjustments will likely need to be made. If you owe student loans, for instance, expect to resume payments in February as a nearly two-year pause on federal student loan payments lifts. "Don't wait for February 1 to get there to start thinking about it," says Tolitsky. "You should start planning to add those payments to your budget now."

When it comes to planning for other financial goals, Tolitsky recommends breaking down the total amount of money needed to achieve them into monthly or biweekly installments. By breaking your goals down into digestible payments, you're more likely to stick to the plan, she says. Building an emergency fund, for instance, can seem "overwhelming," she says, even if you're only aiming to stash away $1,000 at first. But to get there within a year, you'd only have to sock away $83 a month, or $38 per biweekly paycheck.

Update your estate plan

The original lyrics to the holiday classic "Have Yourself a Merry Little Christmas" weren't always quite so lighthearted. "Have yourself a merry little Christmas / It may be your last," wrote lyricist Hugh Martin. Morbid, but true!

Part of good financial planning is having contingencies in place for your assets in case you die or become incapacitated. It's worth it, then, to think about how those plans may have changed based on the events of your life over the past year. If you've had a big change, now is a great time to take action, says Holubowich. "Make sure to review the beneficiary designations on your retirement accounts," he says, including IRAs, 401(k)s, and other types of investing accounts. "Especially if you have had life-changing events in your family. Birth, marriage, and death are some examples."

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Tolitsky notes that beneficiary designations on such accounts as well as life insurance policies supersede your will. If you don't list a beneficiary at all, the money will become part of your estate in the case of your death, which could mean that your family may have difficulty accessing the money or that it doesn't go to the people you most care about.

"Make sure money is going where you want it to go," says Tolitsky. "Now is a great time, while you're setting other goals, to protect your loved ones and your stuff."

Consider harvesting your investing gains

If you're a savvy investor, you've likely heard of "harvesting" your losses as a savvy way to trim this year's tax bill. The strategy involves selling an investment at a loss, and using that loss to offset a realized capital gain. In doing so, you can avoid paying capital gains tax on your winning investment, plus, if your losses exceed your gains, you can use up to $3,000 in losses as a deduction against your regular income. It's a move that can be very lucrative in the immediate term for folks in higher tax brackets.

If you were in a lower tax bracket this year, you may be able to turn this strategy on its head. "An often-overlooked year-end move is 'reverse' tax harvesting," says Joseph Clemens, a CFP and founding partner at Wisdom Wealth Strategies in Denver, Colorado. "Planners love to focus on selling losing positions to take a loss, but those in slightly lower tax brackets should consider intentionally selling gains."

Here's how tax brackets actually work

Video by David Fang

This works because of the way gains are taxed. Gains on investments you've held for less than a year are taxed as regular income, but if you held on for longer and sell for a profit, you'll owe a long-term capital gains rate, which ranges from 0% to 20%. Individuals with less than $40,400 in taxable income in 2021 (or married couples with less than $80,800) pay no long-term capital gains tax. If you fall into this category, you can sell an investment at a profit, and as long as the gain doesn't push you into a higher bracket, you'll owe no tax on the gain. Then, you can buy the same investment back for what you sold it for (this isn't allowed when harvesting losses), and your basis (the starting point from where the IRS measures your profits) starts over.

You'd be smart to consult a tax advisor to see if this strategy is right for you before making any trades. Here's an example of how this theoretically works. Say you bought a stock for $1,000 two years ago, and today sell it for $5,000. If you qualify for this strategy, you owe no tax on the $4,000 capital gain. Then you take your $5,000 and buy your stock back. Two years from now, the stock is worth $6,000, and you've moved up a tax bracket. Were you to sell then, assuming capital gains rates don't change, you'd owe a 15% capital gains tax on a $1,000 profit ($6,000 minus your new basis of $5,000), or $150. Had you not harvested the gain, you'd owe 15% of a $5,000 profit ($6,000 minus your original $1,000 investment) for a total of $750.

This information is being provided for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal, or tax advice. You should consult your accountant, tax, or legal advisor regarding such matters.

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