89 – Year End Financial Planning Checklist


Episode Overview:

We’ve reached the final month of a long and difficult year. It’s time to take stock of your situation, do a little financial housekeeping and set yourself up for success in 2021. Ken walks you through a step by step checklist of how to do just that. Review your 2020 goals, how did you do? Review your balances and outline how you want to tackle them in the coming year. Coordinate with your tax accountant to leverage tax benefits. Listen in to get the full comprehensive to do list.

Transcriptions are auto-generated, please excuse grammar/spelling!

Happy day to you. This is Ken Kaufman, and I’m thrilled you’re here for episode number 89, “Year-End Financial Planning Checklist.” So, I’m recording this and you’re going to be listening to this somewhere around the first week of December. And as we’re coming into the end of the year, there are important deadlines and requirements if you want to max out retirement accounts and those sorts of things. I will talk about that as well as it’s just a nice time thinking about going into the new year about doing a little bit of financial housekeeping, looking through everything, and getting yourself set up for success in 2021. So, here we are coming to the end of 2020. I know this has been a crazy year, a difficult year. The COVID-19 worldwide, global pandemic has certainly caused a lot of issues, and I think it’s hurt many people financially from losing their income and from medical bills and lots of other issues for which, you know, it’s just been a tough, tough year and I just wanted to acknowledge that right up front. As we’re coming here in December, there are a couple of things, and I’m going to give you a little sneak peek into even how I think about and process financial planning and how I kind of redouble down as we come into the end of the year.

The first thing I do is I look and see what was my plan for the year and have I executed on it very well? It got a little sketchy there. I had a month with no income, some other things, ups and downs throughout the year financially. We bought a new house, so we have a new mortgage, and we have…Anyways, a lot of things have changed for us financially. In fact, I’ve said this many times before, but I use the…You need a budget or YNAB budgeting software. I did a complete fresh start right at the end of the third quarter of this year just because so many things had changed and so many things were different. I wanted to just have a new, clean look at things. That might be the most telling perspective at least of how this year has been, the fact that I’d be willing to do a complete refresh and restart on my entire budgeting process and what we do as a family around budgeting. So, let’s go ahead and jump in. The first thing here is we take a look and we say, “How did we do against last year?” Now, I keep a really simple Google Sheet. I shouldn’t say simple. It’s not simple. I love spreadsheets and I’m into these things all the time. But very simply at the beginning of the year, I set a goal to max out my 401(k) and individual 401(k) program. Now, I’ve always had self-employed income and W-2 income, and actually, it’s worked out really well, and my contributions into those are 100%. I focus on Roth IRA. I’m a big believer that where I’m at tax-wise today is going to be one of the better places that I’ve been in because of tax planning. I have a lot of kids. I have a lot of deductions, itemized deductions. So, generally, I’m well above the standard deduction, and all of those things help from a tax perspective.

And so, I come into the retirement planning from very much at let’s put the maximum that I possibly can into the Roth option within my 401(k) and individual 401(k). The goal this year was $19,500. I was putting in steadily monthly until April came when I didn’t have any more income. I stopped. I wanted to wait and see what happened. And then in September, when things kind of stabilized and my income was back to where it was supposed to be, and things were rolling along nicely, I reinstituted it, and I made sure that both what I put into the employer plan and the individual 401(k) plan…because you can’t contribute more than the $19,500. And by the way, if you’re 50 and older, you can do an extra $5,000, so I believe that means it’s $5,000, $6,000 more. Anyways, you can do more. I’m not over 50 yet, and so that’s not obviously on my radar screen as much. So, we set this goal, and between the two, in September, I turned it back on, and just a couple of days ago, I made the last payment into my individual 401(k) plan, and my last paycheck of the year will put me right at $19,500. So, I’m really happy, and I’m double-checking that. If you have not put the max in, or if you’ve got some extra cash flow and you want to be putting it away for the long-term and saving it, I would never advise that you put your emergency funds or funds you’re going to need in the next few years away into any type of investments and certainly not into a retirement account. But in terms of the overall financial planning, if you have a plan in place and it’s to fund it some or maybe even all, this is the time to hurry up and get it done before the year is over. And so, with that as a primary objective from a savings and a financial planning perspective, I focused in on that.

Another thing that happened during the year is I started to fund my HSA plan or account. And again, in April, I turned it off, and then was able to turn it back on. It looks like the first month that I started putting money back in there was August. And I have just barely got the full amount, the full $7,100 that I qualify to be able to do because of my family health insurance situation. We’re on the high deductible health plan. So, if you have access to an HSA and you have not maxed it out, it would be really, really interesting and smart of you to think about this. The HSA is the most powerful outside of, like, these…is I think the most powerful from a long-term savings perspective. Most people use the money short-term. You can go back to my podcast episode on this, but you get to put the money in, and whatever you put in is tax-deductible, and then you don’t have to pay taxes when it comes out, and you don’t have to pay taxes while it’s growing and having earnings, and capital gains, and dividend income, and interest income, and so on and so forth. So, I would take a hard look at that and see if you can get that maxed out for the year. Again, this is the year-end planning checklist to get yourself all-situated. I also had a goal this year to put away a certain amount of money every month into a Life Event Fund. I did not meet my goal there. I did not go back and make that up. I instead focused on the missed months over the summer because again, stopped that in April and got it started back up here just recently, but we didn’t really have the cash flow and the ability to get there. And so, this is one where we say, “Hey, we set the goal. We couldn’t quite get to it, but really still proud of what we’ve been able to accomplish.” So, I’m going to fall a little bit short of the goal in our overall savings program.

The next thing, as you go and you look at what your goals are and what you’re trying to accomplish for the year and you’re coming up against this year in checklist, the next thing to do is pull out your personal financial statement, which is that balance sheet that goes through all of your account balances, and all of your debts, and credit cards, and payables, and money due to the IRS, and everything, all your real estate holdings, everything all listed, assets, and then all your liabilities. And the subtraction of the liabilities from the assets gets you to your net worth. Each year, at the end of each year, I take that snapshot and I grab all my balances and I put them in. So, I’ve got my spreadsheet, and actually spent a little bit of time over the weekend doing some prep work so it would be ready so I could get my 2020 actual balances in, and then I’d be set up so, in 2021, I’ll be able to put my new balances in. And actually, for 2021 or for the year that I’m going into, I will keep track of where I’m at currently. I usually update it quarterly, but then I also have a goal column there where I go through and list where I want these balances and what I want to do and what my goals are for the year. So, really important to track it and then watch and see how well you perform on it.

Also, another very, very critical thing, and for me, this was especially important that I get to this year is the way that I’m paid through my employer where I’m a partner, we actually…It changed this year, and I went from receiving what’s called guaranteed payments to W-2 income. And that changed a lot the taxation and what I needed. I didn’t need to pay quarterly estimated taxes anymore. Money was coming out of my paycheck directly and the self-employment tax, or, you know, the employer-employee side of FICA, which is, you know, social security and Medicare. Those pieces were handled much differently this year, and I’ve had to in the past have a certain way of doing it. This year, I made my best guesses, but I am right now preparing. I just made a whole big list to sit down with my tax CPA before the year is over and go through in detail all my withholdings and make sure that I have paid enough taxes in for the year. And I would highly recommend this. If you have any confusion around tax, schedule time with your tax person. Ask them or give them all of your information as well as you know it so far, and before the year is over, have them run an estimate of what your taxes are going to be, and then they can help you look and see if there are opportunities. Maybe they say, “Hey, you need to contribute more funds into this retirement plan and it’ll save you this much in tax and it might actually drop you down a tax bracket because you barely slipped up into the next marginal bracket.”

There are a lot of things you can do. For me, I do this every year, anyway. A lot of times I do the planning myself, but this year had so many changes. I’m sitting down, I’m going to go through it in detail with my tax CPA. I sent him an email with a long list of everything that’s changed, everything that’s different. And I highly recommend doing this because it makes sure that you’re paid up if you need to be paid up. It makes sure that they’re looking at it and seeing if there’s any opportunities for you to save taxes before the year is over because once January 1 hits, you lose some of the opportunities. And there are some of the programs and tax breaks that you can’t take advantage of as soon as you slip into the new year. Or, at best, I think usually, sometimes you can do things by April 15 of the next year. You can get a plan together if you don’t have the cash flow to fund something that your tax advisor is giving you some strong advice to do, and that gives you a few months to pull the cash together and get that in and save those taxes. So, tax planning is a big one. I spend a lot of time at the end of every year doing this, and on your financial planning checklist, that should absolutely be there. One other thing is look around your state and see if you need to change any beneficiaries on life insurance or on your retirement programs, and if you have a will, and if anything significant changed in your life or in what your plans are around your family and continuity planning and all of that, definitely want to dive into that and make sure all of those things are handled legally, financially, and in every other way.

The next thing I do is I sit down and I start to look at, okay, the upcoming year, what is my income going to look like? If I’m getting a paycheck, a W-2, or if I have self-employed income, which again, I’ve always had both, I actually put a schedule together and plan that out to look ahead and say, “What is 2021, in this case, going to look like?” And I get really detailed on this where I list all of the pay dates upcoming for the year so I actually know when…because we receive our paychecks on a bi-weekly basis, which means there’s two months out of the year where we get a third paycheck. So, I highlight where that’s happening. I actually list what my income will be, and then all of the pre-tax benefits, health insurance, dental insurance, anything that I’m contributing to that qualifies for that, reduces the taxable income. And then of that taxable income that’s left it figures out what is social security that’s coming out and the Medicare tax, and then I put in what my deductions are going to be for federal and state income tax, I put in my Roth IRA deductions, and it all…I have a spreadsheet that flows through and it shows everything that’s happening so that I can know exactly what to expect from, one, my paycheck, two, my taxes that are being withheld, and then I can show my tax CPA. Or, in this case, because I put it together for 2021, I’m gonna have my tax advisor go through and tell me if I need to change my withholdings for the next year. Should I increase them? Should I decrease them? Based on the rest of the plan I’m putting together for 2021.

So, again, your tax planning at the end of 2020, or I should say your year-end financial planning checklist, it’s a good idea to start to put some ideas down around 2021 and have your tax advisor get their head around it and start giving you some advice about things you can do. Because I can tell you, if you start in January with an amazing plan, usually, you have enough time to gather up enough cash, change things around, move things around. You can take advantage of it. A lot of things related to just the tax code, and again, nothing illegal. It’s just using the tax code to your benefit as much as you can. And then we all need to pay our fair share into the tax system. I would never deny that or say that we shouldn’t do that. We need to pay our fair share. But my philosophy has always been…but I’d rather pay just my fair share not any more accidentally or…because I could have done something I planned to anyway in a different timing interval and save some tax as a result. So, definitely, if you can tell, I’m big into getting to that tax advisor and getting advice and perspective.

Another thing that I do is I go through…I’ve talked about this before the 5, 10, 15 plan. I’ll set out for the coming year, so 2021. What do I want to do when it comes to savings, charitable contributions, giving? My wife and I have a plan around all this and we update it every year. And so, I start to put that together and that’ll, again, be part of the tax planning conversation. I also look at what…and those of you that have listened for a while, you know I have something called the Life Event Fund. This is a fund where I’ve planned out inflows and outflows for my kids’ education, and their missions, and one-time events like weddings and things like that, and I’ve built a whole spreadsheet that goes through and plans all of that out and then tells me how much I need to be contributing every month into this. Just regular taxable account. The money goes in. It’s not an IRA, it’s not tax protection, just a straight-up taxable brokerage account. And again, I have investments there, oh and by the way, I do not use year-end to review my investments. My investments, I do an annual rebalance on all of them, and it’s on my wife’s birthday, which is during the summer, so no year-end planning around that. We are just charge ahead, buy and hold, no changes to the investment. But what I’m putting in, definitely, we look at that and we build a really nice plan around that. So, the Life Event Fund is something that we jump into.

I also look at the 529 planning. I have done some of this in the past. I’m not the biggest fan of 529s because of just my personal take. My wife and I have taken the position that we’re not really into investing into our kids’ college. We want them to co-invest at least and not just have that given to them because it’s something that my wife and I…We did have parents that helped us some, but we carried a lot of that load financially as well and were able to graduate school without debt, and it’s something that we feel like our kids can learn from and they can benefit from a similar experience. So, I’d rather help them with missions and save for other big one-time life events where we can help them down the road. So, little bit of 529, but again, if that’s your thing and you’re really big into it, you can plan out where you want to go for the next year as well as make sure you’ve put in what you want to this year based on state tax breaks or any other taxation element.

The next thing I do is I actually then take this whole thing and put it together in my overall retirement plan. It’s a simple spreadsheet. I shouldn’t say simple spreadsheet. I’m sorry. It’s a spreadsheet, and it just estimates where my balances are, or it takes what my balances are and it says, “Hey, if it’s going to grow at this rate every year up until a certain point…” because when I get to a certain age I’m going to become more conservative in my investment strategy, and so then the expected rate of return goes down and then it goes down again in several layers as we age and get older and we’ll likely start switching our investments to be more conservative. And I always have this ongoing look. Based on the money I’m going to put in toward retirement and based on everything else that I have going on within the plan, it looks like by the time we retire, and I say that tongue-in-cheek. I don’t know when I’m gonna retire. In fact, my 16-year-old daughter asked me the other day if I ever will retire, and I told her I’m not sure I will. I think I’ll always be doing something, and working, and engaged in things. It’s just my personality. But we can look and see, at any age, how much do we think our investments could grow to by then and how much do we think we’ll need to take out in retirement? And play with these numbers and look and see how long our nest egg could potentially last. And so, I make updates to this as part of year-end planning to say, “What’s happening? What tweaks or changes need to be made, and what do we need to consider moving forward?” Again, I’m just clicking through my spreadsheet here. I have all the investments and things, but again, I wait. That’s something that gets addressed, and all of our rebalancing is done during the summer on my wife’s birthday. And then take a look at your mortgage because you’re going to need to know how much mortgage interest you have if you’re going to try to itemize your deductions. And, again, simple spreadsheet. Amortization schedule tells us exactly what’s happening on the mortgage, so I can take a look at any point in time. So, probably, I won’t go any further down the road through this spreadsheet about, you know, all the details and all the things that I track in there, but the point is here we are at year-end. You have a chance to really make sure that you close out the year strong. I realize it’s been a rough year and it’s been a tough year. And I’m with you. I feel it. It was a very rough year for my family and for things going on here.

Luckily, I think we’ve been blessed with the gift of resilience and we’ve been able to bounce back, and hopefully, we’ll be able to finish the year strongly, and actually looking forward to a great 2021. This is the power of financial planning. This is why I talk about it, why this whole podcast is about net worth hacks because financial planning is ultimately about increasing and growing your net worth so that, ultimately, you can live the life you want and you can become the person you want to become, and finances aren’t the major constraint. It doesn’t mean like multi multi-million. Don’t have to be that. This is just about being able to provide, being able to do the things that are important to you, and take care of and cherish the time you have with the people that you love, so with that as this major focus. And it’s obviously my motivation to even do this podcast and to think about all these things and to want to share it with all of you. There’s so much power when you’re willing to create that financial plan. And put a little bit of brainpower into it, and it gets you into now maybe there’s a way for you to save taxes. Maybe there’s a way for you to invest better. Maybe there’s a way just for you to put an investment plan together in the first place and a strategy around that and build up. Really, you’re investing in your future and build up your future and your ability to build net worth over time.

I sincerely hope this helps. This is a passion of mine. It always has been. How in the world would I have gotten to an 89th episode in a podcast without it being that? Again, I don’t get paid for this. There’s no advertisers. This has just been a labor of a passion and something I want to talk about, and I want to share, and I want to try to help other people with. So, those are some of the key tips, “Year-End Financial Planning Checklist.” It’s about finishing the year strong and putting your plan together next year so that you can take advantage of all 12 months of everything going on to try to create the best outcome, to build your net worth, and ultimately, to create the environment and to create everything around you so that you can be who you’re designed to be and who you are meant to be. Many, many thanks to you for joining today. This is a wrap for episode 89. Happy day.

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Join Chief Financial Officer Ken Kaufman as he helps you track and hack your net worth. For those seeking financial independence, your net worth is one of the most significant measurements of success. Using his two decades of financial experience, Ken Kaufman helps you overcome your financial obstacles and look onward towards a better, brighter financial future.


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