2023 is on the horizon and presents a great time to take a fresh look at your finances. By understanding where your money went and how your investments performed in the past year, you can build momentum and set money resolutions that will align with your values for the New Year.
“As we approach the holiday season and the end of the year, it’s important to take a few moments to focus on year-end money decisions,” says Eric Bilger, lead financial advisor of Bilger Financial Group with Thrivent, based in Westbury, New York.
As you focus on starting 2023 on a solid financial footing, consider these eight money moves.
As we approach the holiday season and the end of the year, it’s important to take a few moments to focus on year-end money decisions.
1. Review and adjust your budget
A good first step is to review your expenses from the past year. It helps you understand where your dollars are going and how they align with what’s most important in your life.
“Not having a budget is one of the biggest oversights for most people,” says Bilger. “Often, they don't want to confront the numbers or question their spending. But it’s important to have those tough conversations with yourself.”
“People are having to spend more for gas and food,” Lutes says. “You might need to make some decisions about what to give up—and hopefully it's not your savings or retirement contributions. It’s important to find a way to balance your budget.”
It also could mean finding ways to increase your income—selling things you don’t need or use, working more hours, asking for a raise, applying for a higher-paying job or picking up a side job.
2. Maximize your retirement contributions
If you haven't fully funded your 2022 retirement investment vehicles, check out what contribution options you have, says Lutes.
“See if you’re eligible for a Roth or traditional IRA contribution by calling your financial advisor,” he says. Also see if you can make changes to your employer-sponsored plan. Some plans do limit when you can make changes.
Lutes reminds people that they have until April 18, 2023, to make IRA contributions for the 2022 tax year.
3. Take advantage of current tax rates
The Tax Cuts and Job Act (TCJA), which was passed in 2017 and changed tax rates, is scheduled to sunset at the end of 2025. If this happens, rates will revert to inflation-adjusted 2017 rates. Lutes says these rates will be in effect without any action by Congress. A previous attempt to extend the act to 2035 failed.
“Tax rates are lower right now,” he says. “If somebody has money in an IRA or any pretax retirement account, you may want to look into doing a Roth conversion.”1
4. Consider rebalancing your portfolio
In good and bad markets, it’s important to review your portfolio to assess risk, says Brian Anderson, a Thrivent wealth advisor with Unity Wealth Advisor Group in Downers Grove, Illinois.
“You may have started the year with a 60/40 portfolio balance of stocks and bonds, but due to market fluctuations, your portfolio ended up with a 50/50 mix,” he says. To get in alignment with your risk tolerance, you may wish to reallocate back to the 60/40 mix.
Top money priorities
5. Donate to your favorite causes
The end of the year is often viewed as a season of giving, making it a great time for charitable donations to your church or favorite nonprofit organization. Lutes says there are a variety of different ways you can contribute, including giving cash or
“Stocks may not be something you’re looking at liquidating in 2022 because the markets were down,” he says. “But you may have stocks that have done well that you could consider donating.”
The deductibility of your charitable contributions of non-cash assets, like stocks, cannot exceed more than 30% of your adjusted gross income, Lutes says. You also can contribute cash, with a deductibility limit of up to 60% of your adjusted gross income. If you exceed this amount, you are allowed to carry over the deduction for up to the next five years. Note: These are 2022 limits and have varied in the previous tax years.
“For example, a 70-year-old married couple could put $100,000 into a charitable gift annuity, which would create an annualized payment for the rest of their lives,” says Lutes. “They would get a tax deduction on a portion of the $100,000 and an income of about $4,800 annually while at least one of them is living.”
It’s always important to discuss these topics with your accountant or tax advisor.
6. Check your credit
The year end is also a good time to pull your credit report. It’s easy to do at annualcreditreport.com, a site authorized by the Federal Trade Commission. It provides free credit reports from all three bureaus to you once a year.
You will want to do this to keep an eye on your credit history and
“You can see what credit lines you have open,” Bilger says. “You also can check for identity theft. Sometimes criminals will open a credit line on your credit and wait and see if you notice. A few months later, they could go to town and build up a big bill.”
7. Review life changes that may impact your finances
Looking ahead, Anderson likes to ask clients if they have any life changes on the horizon, such as a wedding, aging parents who are moving into assisted living, or a child graduating from college. Or are they planning any major purchases, like a new car or home renovation?
“You may have money that you've been allocating toward something, like tuition, that can be reallocated toward something else, like retirement funding,” he says. “Or maybe you expect a change to happen two years from now. Being in the position of understanding what’s ahead can help you prepare financially.”
8. Make an appointment with your financial advisor
At the start of each year, you should start receiving financial statements in preparation for filing your tax returns. Anderson says it’s a good idea to schedule time with your financial advisor in January or February to get a checkup of where you are now and where you want to go in the future.
“Make sure that things are still in order,” he says. “If there have been any changes, such as getting a new job, we’ll review how it may affect your financial strategy and if you need to make any changes.”
When it comes to making smart money moves, it helps to look both forward and back. By understanding and assessing your financial performance, you can focus on improving your money wellness. This will put you on the path to financial clarity and help you meet your future goals.
Action equals results
While Americans have a good understanding of the healthy financial behaviors that could improve their financial well-being, few are acting on these behaviors, according to the 2022 Consumer Financial Outlook Survey* by Thrivent. The survey finds:
- 85% of respondents say living within their means is very or somewhat effective; in practice, only 68% currently do it.
- 82% say actively following a household budget is very or somewhat effective; in practice, 53% currently do it.
- 76% say establishing a financial strategy to address short- and long-term goals is very or somewhat effective; in practice, 43% currently do it.
- 77% say automating savings is very or somewhat effective; in practice, 41% currently do it.