This is an excerpt from the CNBC Make It newsletter. Subscribe here.
Hard as it may be to believe, we have just six weeks left in 2021. And, as always, when we reach this time of year, I'm reflecting on what I've accomplished since January and thinking about what I'd like to do with my money in the months to come.
If you're feeling similarly, now is a good time to check in with your finances and plan any changes you might want to make next year, says Sonya Mughal, CEO of Bailard, an independent boutique wealth and asset management firm in the Bay Area.
"Financial checkups should be treated the same way as an annual [checkup] at the doctor," Mughal says. "Sometimes we forget to make the time, but it's critical to touch base with yourself, your family and your advisor."
With that in mind, here are a few tasks advisors recommend tackling as part of your financial checkup before the start of 2022.
Set aside an hour or two to go through your 2021 spending in all categories, says Wayne Maslyk, a certified financial planner and president and CEO of Ohio-based Great Lakes Benefits & Wealth Management. Are you spending as planned? If not, you may need to make a fresh budget for the new year.
"This is a good baseline for planning for the year to come," says Maslyk.
Record your monthly expenses on a Google doc or in an app like Mint to make listing out your expenses and forming a new budget easier.
Normally, you have to spend any money you contribute to a flexible spending account on qualified medical expenses in the year that you contribute it, or you'll lose it (although some employers let you roll over up to $550).
That said, the rules changed this year. Because of Covid-19, some employers may allow their employees to roll over their full balances into 2022. If you're not sure whether or not your employer is one of them, check with your manager or benefits department.
If your employer isn't letting you roll everything over, click here for some ideas for spending down any excess funds.
This year, the IRS is allowing all taxpayers, even those taking the standard deduction, to deduct $300 in charitable contributions from their taxes (typically, you can only do this if you itemize your deductions). If you plan to donate during the holiday season, or you've been donating throughout the year, you can get a small tax break.
"Donating to charity can be a great way to save money on taxes," Tony Molina, certified public accountant and product evangelist at Wealthfront, says. "Assuming you have a marginal tax rate of 30%, and you maximize the deduction, that's a savings of $90 and you're helping others."
Everyone should have a backup plan. Spend a few minutes updating the beneficiaries on your financial accounts, including retirement, investment and benefits accounts. Then, if you're still feeling inspired, review your estate plan. Make sure you have:
- A durable power of attorney, who ensures that someone you trust will pay your bills and handle other financial affairs should something happen to you.
- A health-care proxy or power of attorney, who can speak on your behalf in medical situations if you are unable to.
- A will, which establishes whom you want to give your assets to after you die. If you have children, you can also name the guardians for them.
All of this is especially important if you've never done it, or if you've experienced a major life change since you last updated everything (say, you got a divorce or had a child).
The maximum contribution limit for 401(k)s increases by $1,000 in 2022 compared with 2021, for a total of $20,500, or $27,000 for those 50 and older. If you have a plan through your employer and can afford to, aim to increase your contributions to account for the new limits. Log into your account and up your contribution rate so you're saving more.
Even if you can't max out your 401(k) or individual retirement account (contribution limits for these accounts remain at $6,000 for 2022), see if there's a way to boost your contributions even by 1% next year. It might not seem like much, but it will add up.
Finally, try something a little more fun. This was a topic of a previous newsletter, but if you haven't done so already, make time for a Life Audit. During this process, you basically list out all of your goals, short term and long term, on Post-it notes.
This can help you think through your goals and re-prioritize what's important to you — or at least, that's what it does for me. Here's a breakdown of how to do it.
Does the coming year feel different for you, or have your goals changed over the past year? I'd love to hear from you. Email me for a chance to be featured in an upcoming story.