Review Your Year-End Spending
Not to play the role of Grinch, but as the year comes to a close and you remembered you still need to buy your Christmas gifts, it is also a great time to review how much money you have spent this year.
In our conversations with clients and prospects, we often find that people drastically underestimate the amount of money they are spending on discretionary items (ex: travel, entertainment) and do not have a firm grasp on spending for non-discretionary items (ex: housing, taxes, groceries). We are by no means chronic budgeters here at “The Riv”, but we do strongly advocate having a good idea of what you are spending and how you are spending it. Here are some spending tips and other helpful ideas to get your new year off to a great start.
1. Review Your Spending:
Credit card companies and banks now make it easier than ever to quickly analyze annual spending and many give you the ability to observe trends on an annual basis. Analyze your spending habits over the past year to identify areas where you may have overspent and when expenses are higher compared to other months. This will provide significant insights into areas where you can cut back and allocate more funds toward your financial goals.
2. Evaluate Your Annual Goals:
What do you want to accomplish in the new year? Do you want to save for house improvements? Travel more? Spend more time with family and friends? Work more (joking)? If you do not have a sense of how you want to spend discretionary income, it becomes difficult to prioritize and evaluate your goals.
3. Assess Your Emergency Fund:
We typically advocate having about six months of cash on hand for clients (where you are holding that cash is a topic for another day). Financial surprises can happen at any time, and having a robust emergency fund provides a safety net during challenging times.
4. Maximize Retirement Contributions:
This is also a great time to review contributions to retirement accounts. Employer plans have become much more robust in recent years so you may have more options. Also, having money that is out of sight and out of mind before it hits your checking account is a great way to save. If you can save at least 15% of your income, that should help set you up for increased success in retirement. There are also many tax advantages to these plans that we have highlighted in other blog posts. If your current financial advisor is not reviewing this for you, find a firm that has experience in reviewing and analyzing these plans.
5. Plan for Taxes:
Be proactive in planning for your tax situation. Consider consulting with your tax professional and financial planner to explore potential deductions and credits. Assess your withholding to ensure it aligns with your current financial situation, and explore any last-minute opportunities to reduce your tax liability.
Conclusion:
A year-end financial checkup is a valuable exercise that empowers you to make informed decisions about your financial future. As a fee-only financial planning firm, we help our clients evaluate and prioritize their goals to align with their values. If you need guidance or a plan to start, let us know and we would be happy to help you start the year off on the right foot. Cheers to a prosperous new year!
Authored by Stephen Blahovec and Michael Rausch of North River Wealth Advisors. We are an independent, fee-only financial planning and investment management firm located in Pittsburgh, PA servicing clients locally and across the country. To learn more, contact us here.
This content is developed by North River Wealth Advisors from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.