In this week’s post, I explain several more financial planning items to review before the end of the year:

• Savings rate

• Spending

• Tax preparation

• Goals

This is the third and final post in a brief series discussing different financial planning strategies or areas of your financial life that you may want to review before the end of the year. So far, we have discussed: career planning and compensation, charitable contributions, required minimum distributions (RMDs), tax-loss harvesting, contributions to certain accounts, portfolio rebalancing.

#7 – Savings rate

The end of the year is a great time to evaluate how much you have saved in the past year, and if you are saving enough. A healthy savings rate is incredibly dependent on the saver's particular circumstances.

For example, a doctor who spent 8+ years in medical school and residency before earning a substantial income may need to save a higher percentage of their income to make up for the time devoted to their education and training. They will also likely need to pay off a substantial amount of student loan debt. An opposite extreme would be a tradesman who started as an apprentice straight out of high school, started saving immediately, and never took out any student loans. These two situations are very different and will require a different level of savings. Again, every situation is different and although rules of thumb are helpful, they may not work perfectly for everyone.

With all of that being said, a commonly given rule of thumb is that most people should be saving 15% of their income toward retirement. Again, there are a variety of circumstances that would result in this being too low or excessive, but it does not seem like a bad place to start.

#8 – Spending

Closely rated to evaluating your savings rate is examining your spending over the past year. It is important to know how you are spending your money. In my experience, very few people examine their spending and would be able to answer basic questions about how much they spent on various budget categories.

There is a sense in which the exact categories of your spending do not matter too much, as long as you are saving toward your goals. I believe this is true, but it can be difficult to have control over your spending if you are not tracking it. Examining spending in detail will also allow you to identify waste and things that you are spending money on that are not truly important to you. For example, if you are spending several hundred dollars a year on products/services you barely use, wouldn’t you rather give or save that money instead?

Examining your spending and cash flow can be especially important as you are creating your budget and other goals for the new year. For example, if you are planning to make a major purchase, such as buying a house, it is helpful to know for certain that you will have sufficient cash flow each month to cover all the added expenses.

#9 – Tax preparation

It is never too early to start thinking about your taxes for the year. It is always a good idea to be well organized. Regardless of your situation, this means gathering all documents related to your income and deductions from throughout the year – although many of these will not be available until early next year. If you own a business, you will want to make sure your books and records are all accurate and up to date. Any documentation related to unusual events or transactions that occurred during the year, such as selling an asset, will also need to be gathered.

If you are interested in hiring someone to prepare your taxes for you, it is a good idea to arrange this ahead of time. You do not want to try to hire someone right before the tax filing deadline when most tax preparers are incredibly busy. Waiting until the last minute to hire someone may leave you with limited options.

#10 – Goals

The end of the year is a great time to evaluate your goals, both financial and personal. We have already discussed several areas that this would apply to: career planning, giving, saving, spending. Of course, you do not want to make unreasonable goals that are carelessly thought through and are unlikely to succeed. The tricky part is balancing your competing priorities, your resources, and your abilities in order to set goals that are desirable and that you can realistically achieve.

Once you think through and establish your goals, you need to determine the actual steps required to achieve them. For a career related goal, this may involve: setting up a meeting with your boss to ask for a raise, updating your resume, applying for a different job, pursuing more education. For a savings goal, the practical steps may include: logging into your 401k portal and increasing your contribution, setting up a Roth IRA or Traditional IRA account, getting a roommate to reduce your housing expenses, etc.

I would not worry about the circumstances being perfect to pursue your goals, as the timing will likely never be perfect. The important thing is to start on something. You do not want to be aimless with how you are handling your money or your life.

Hope in the Gospel

Optimizing your financial life and strategically thinking through your decisions is important. However, we must remember that putting our hope in anything other than the Gospel of Jesus Christ will lead to disappointment. We have all sinned and fallen short of God’s glory. The right punishment for our sin is death. Instead of leaving us to die in our sin, God sent his son, Jesus, into the world to die for our sin. Jesus took the punishment for our sin on Himself. Anyone who believes in Jesus and repents of their sin will be saved and be made right with God.

The saying is trustworthy and deserving of full acceptance, that Christ Jesus came into the world to save sinners, of whom I am the foremost.

1 Timothy 1:15

If you have any comments, questions, or ideas for future posts, please let me know

I hope you found this post helpful and educational. If you have any comments, questions, or ideas for future posts, please let me know. You can reach me directly via email at crawford@ulmerfinancial.com.