It’s the season when financial advisors offer suggestions for saving money, reducing taxes, and making smart money moves for the new year. Many of the proposals haven’t changed much since this time last year, save for significantly higher inflation and interest rates, giving year-end planning a new urgency.
Consider your budget. It is always wise to compare income and expenses, and spending patterns can be skewed in an inflationary environment. Inflation in the country has eased in recent months, but the latest indicator, he remains high at 7.1% for the past 12 months to November. Some commodities, such as electricity, natural gas, groceries and restaurant meals, are seeing double-digit increases.
Be careful with budgeting
Research shows relatively few households create a budget, but now could be a smart move. It’s a simple exercise. Remember to record all expenses, including expenses you may pay once or twice a year, such as insurance premiums and property taxes.
One way people adjust their spending during periods of inflation is to stock up on certain items to avoid price increases later, but that in itself can create problems.
The University of Michigan, in its latest study on consumer finance, found that “such pre-purchasing motives could make future inflation expectations self-fulfilling prophecies.
Universities have been tracking inflation and consumer reaction for decades, yet they are unaware of the many pre-purchases taking place. This is good. “One factor discouraging advance purchases is the lack of supply of durable goods, vehicles and housing to purchase,” the report said. Consumers are also beginning to realize that supply constraints are easing along with inflation, the report added.
Investment review and readjustment
It’s quite possible that your investment portfolio has experienced a lot of stress this year. At some point in 2022, the stock price of the Standard & Poor’s 500 Index has fallen an average of 25% before adjusting for losses in recent weeks. Bonds are also weak, with certificates of deposit and other stable value investments now paying higher yields.
Rebalancing is the concept of periodically adjusting a portfolio to maintain a desired or desired mix of stocks, bonds, or other assets. To give a simple example, let’s say he wants to keep his 60% of his investment in a stock/equity fund and the remaining 40% in a bond/bond fund. If you see the mix approaching 50/50 following a sharp stock loss, it may be wise to shift some money from your bond holdings to the stock side.
It can be psychologically difficult to remove chips from the table from winners while pouring more money into heavily-losing holdings. stay here. If you don’t want to sell your winners, another way to rebalance is to direct new investment dollars or income such as dividends to laggards.
Get a credit report – or two
Getting a new copy of your credit report is another task you should do at least once a year. The impetus is to stop identity theft and preserve borrowing capacity, not to fight inflation. Make sure your information is correct and that there are no surprise loans or lines of credit that the scammers may have opened.
Receive up to three free credit reports per year from major credit bureaus: Equifax, TransUnion, and Experian. To get these for free, visit annualcreditreport.com. A solid credit record will help you get a loan on good terms. For example, you may need it to rent an apartment or obtain an insurance policy.
TransUnion offers tips for spotting red flags and checking other information on your credit report. For example, numerous or unfamiliar credit inquiries or accounts can be a sign of trouble.
Retirement compensation fine-tuning
Social Security beneficiaries would receive an 8.7% COLA, or cost of living adjustment, in 2023 based on inflation measures obtained through the third quarter of this year, when consumer prices were higher than they are today. increase.
Many people who participate in workplace retirement plans also enjoy better benefits, such as employers matching funds to their 401(k) accounts. If you’re employed but haven’t taken full advantage of these plans, now is the time.
Savings contributions from both employees and employers are slowly increasing. Employer-side percentages have reached a record high, with companies offering an average of 5.6% of their salary to matching funds on behalf of workers, the Plan Sponsor Council of America reports in a new study. Workers contributed an additional 8.3% on average.
In general, the study found that employees acted more responsibly in managing their retirement accounts. For example, only 1.9% of retirement plan participants made taxable hardship withdrawals in his 2021, and only 18% of 401(k) balances were borrowed. Participation in 401(k) style plans increased from his 88.5% in 2020 to his 89.2% last year.
Raise awareness of gift cards
It’s not common to hear gift cards mentioned as an end-of-the-year money tip, but perhaps it’s time. People don’t take advantage of gift cards.
For example, mycreditsummit.com estimates that Americans hold more than $21 billion in unused cards. And at least half of the respondents in a survey conducted by the company said he had lost an unused gift card at least once.
Meanwhile, the US Internal Revenue Service warns taxpayers about card-related fraud. Scammers posing as IRS agents often contact potential victims and demand payment of fictitious tax bills. Scammers typically purchase a gift card and demand that the card number and her PIN, or personal identification number, be revealed, allowing the scammer to hijack the value of the card.
The IRS recently sent a warning to taxpayers reminding them not to request or accept gift cards as payment for their taxes. Also, the IRS will not call the person requesting payment before first emailing them.
Preparing for Income Tax Season
The latter few weeks of the year are also a good time to review your tax basics and make some moves if necessary before January 1st. We encourage you to donate a little more to If your tax withholding for 2022 is too low, you have another option to make an estimated tax. Some tax provisions are periodically adjusted for inflation or other reasons (such as standard deductions). Others do not.
If you have stocks or other holdings in your taxable account, this is also the time to harvest your losses by selling depreciated securities. Such capital losses can mask profits earned in the same year. If your losses exceed your gains, you can apply an annual net loss of up to $3,000 against your ordinary income and carry forward any unused losses to future years.
It’s still too early to file your 2022 tax returns, but it’s wise to stay ahead of the curve. Generally, if you’re getting a refund, it’s a good idea to apply early to deter identity thieves from applying in your name to steal your refund. Organizing your receipts and other tax documents during this time will give you a head start.
Please contact the writer at firstname.lastname@example.org.