Getting your finances organized can be about as fun as a trip to the dentist. Many investors push it off as long as they can. Year-end is a great time to check in on your money, ensuring you've made any desired account contributions (or distributions), and establish your plan for next year.
While the topic of money can be complex, this guide will give you 4 areas of focus. It's designed to be a starting point towards financial organization. Here we go...
What are your income sources? How much do you spend? Answering these two questions will get you started. Income is the lynchpin to your overall financial picture. Whether your working or retired, your first step towards organizing your finances is to calculate your income for 2024, as well as your expected income for 2025.
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Let's be real, budgeting is painful. Most people don't have the time or energy to stick with it. But, if you hope to to simplify your financial life, having a rough estimate of what you spend is a critical.
Reverse engineer your expenses: Start with your monthly take home pay; let's assume is $10k per month. Now, check your last few bank statements- does the $10k cover your needs? Is any left over? Are your borrowing from savings? This will at least point you in the right direction. Track your inflows versus outflows for a few months to make sure you're at least in the ballpark.
Tax season may not be until April, but there’s a plenty of planning that can be done before the end of the year. Calculate your taxable income for this year, as well as what you expect to earn next year. Your tax rate will dictate which strategies to consider.
The US has a progressive tax system, meaning as your income increases, so does your tax rate.
Tax rates are marginal, which means all of your income is not taxed at your highest rate.
Here's a look at the tax brackets for next year:
Looking to reduces your taxes? In years when income is high, contribute to tax-deferred plans like 401k's, & IRA's (Click Here to review current contribution limits). If you are retired and taking portfolio distributions, lean on after-tax accounts before tapping into your IRA when possible.
In years when your income is low, funding a Roth should be strongly considered.
With a general understanding of your cashflow and taxes, it becomes much easier to to optimize your overall investment strategy. But before you strategize, consider a major consolidation effort!
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Seems simple, but its easy for investment accounts to become scattered. A job change here, a stock bonus there...the next thing you know you have accounts in 5 different places. Determine where you want your money, such as Schwab or Fidelity. Make some phone calls, perform some rollovers, combine your old accounts. De-clutter your financial house. Consolidating is healthy for your estate. Your old accounts should fit into one of these categories:
With a better understanding of your account types and balances, it becomes easier to personalize your investment strategy. Some things that generally important to consider as you build your plan:
These are a few things to consider, and it will be different for each person and their situation.
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It's imperative to get an estate plan in place. If you have yet to do so, make sure you meet with an estate planning attorney and get a living will/trust established. Don't allow the state to decide who gets your money!
Aside from creating or updating an estate plan, be sure to review/update your account beneficiaries frequently.
Do you have accounts at Schwab? Here's how to update your beneficiaries:
Money is a very complex and emotional subject. While this guide won't solve all of you problems, it will at least get you started. Getting a handle on your cashflow, tax rate, investments, & estate is a huge step towards achieving financial organization.
Feeling overwhelmed? Consider working with an advisor to help get you on track!
Important Disclaimer: The information provided in this guide is for educational purposes only. Nothing here within should be considered investment or tax advice. Please consult with a financial advisor and/or CPA when considering investment and tax decisions.
We generally serve families with $500k or more in retirement/investment assets. Our clients are seeking a trusted advisor to oversee investment decisions and retirement planning. Schedule a meeting to explore our services:
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