Throughout the year financial decisions are made by individuals around the globe. Most of these decisions focus on how short-term financial transactions are conducted and on how long-term financial responsibilities are managed. However, towards the end of the year a number of unique opportunities develop that can dramatically impact the health of your financial position for the coming year. Knowing how to use these opportunities to your advantage is important.
Tip #1 – Estimate Your Tax Liability
A good place to start your financial housekeeping at the end of the year is to estimate you tax liability for the upcoming tax season. Knowing if you will need to pay additional taxes or if you will be getting a refund can help you to make adjustments to your final tax contributions. For example, if you know that you will be getting a large tax refund and you need money for the holidays, then consider changing your tax withholding statement for the months of November and December so you can take home more money in these months.
On the other hand, if you know that you will need to pay taxes when you file your return, then you can make withholding adjustments so that the extra tax liability is spread out over a few months instead of being due in one lump sum. You can also contribute to your IRA account or pay your January mortgage on the last day of December so that you can claim additional deductions to offset what you estimated that you will owe in taxes.
Tip #2 – Rebalance Your Portfolio
Now that you have an idea about how the economy is recovering it is a good time to talk with your financial advisor to make adjustments to your portfolio. This is a good time to take advantage of lower stock prices and to test new waters for investments.
Tip #3 – Deal with Financial Hangers-on
Throughout the year you have made payments to your credit card companies, subscribed to magazines and looked at a variety of investment, financial and insurance products. Do not let these activities produce a pile of “to-do” activities for the New Year. Instead try to resolve each issue before the end of the year so that you can start the New Year with a clean slate. For example, pay off credit card balances that are under $200, set up retirement accounts and make decisions about whether or not to buy insurance or to invest in financial products.
Tip #4 – Set New Year Goals
Having goals to work towards in the New Year can help you to develop a stronger financial position, despite economy concerns. These goals can focus on saving money, on developing a stronger portfolio or on establishing a financial cushion.
Tip #5 – Evaluate How You Are Spending Your Money
The final tip is to evaluate how you are spending your money. Create a spending journal the details every penny that you are spending during a month. You may be surprised about how much money is being wasted on unnecessary or overlapping expenditures. Use this information to make changes in your spending behavior.