Three Wise Moves in the Last Six Days of 2022
If your house is like mine, you have been swept up in the swirl of added activities surrounding the holidays. Yet there are a few other things I would encourage you to add to your year-end list, even if that list is already as long as your arm. Some are directly financial, and others indirect. But all have an impact on your life being rich and full.
You might already have added a chunk of change to your credit card balances. If you have, your task is to face the holiday music: Look at what that balance is and make a plan for how you are going to pay it off. That might mean you follow through with the belt-tightening bargain you made with yourself in making the purchases to begin with, like deciding that you will curtail spending for the first three months of the year to pay off the holidays.
If you are a bargain-shopper eyeing those post-holiday sales, review your shopping list and add what you want to spend for each item. (No list? The first lesson in planning is that a written list helps you keep to your goals. Make a list.) I love a bargain, and you know what they say: The more you spend…the more you save spend.
It’s especially hard this year to budget with prices having bounced up and down (and mostly up). Do your best, add in what you are willing to spend for each item, and then add it up. If that total makes your eyes grow wide, recognize it’s better to know now versus later. You have two options: (1) think creatively about whether you *really need* something or whether you can make any substitutions to reduce your costs, and (2) see the earlier discussion for having a plan to pay off your holiday spending. If you’re committed to doing it, commit to getting out of it. You don’t want to drag a holiday spending hangover into a fresh new year.
2. TAX MOVES
By December, you can have a good idea of how your tax year is shaping up. There are several items to check on:
Tax-Loss Harvesting – The silver lining of stock market declines is taking losses on what has declined in value and banking those losses to shield gains from future growth. This doesn’t mean staying out of the market – it means shifting to other investments, either to rebalance your portfolio overall or to maintain your general allocation (stocks / bonds / cash) but shift the specific exposure (investment in a broad market index –> investment in large-cap + small-cap indexes) to avoid wash sales (if you buy back the same or substantially same investment you’ve just sold at a loss within 30 days before or after, you don’t get to keep the tax benefit. It’s a “wash.”)
Note if you have equity compensation (i.e., stock awards that vest regularly), it can be almost impossible to realize a tax loss on your company stock. Each vest is a “buy” and that’s when you have to consider the 61-day window.
Review HSAs and FSA accounts – HSAs (Health Savings Accounts) are perennial, multi-year savings opportunities for those under age 65 with a High Deductible Health Plan; FSAs (Flexible Savings Accounts) are annual, use-for-one-calendar-year savings accounts. You don’t need to use HSA funds each year, and can contribute until April 18, 2023 for the 2022 tax year. In fact, the power of HSA accounts is the years of tax-free growth to build a retiree health care nest egg. HSA contributions have to end when you hit Medicare eligibility at age 65.
FSA funds MUST be used for a specific calendar year or the funds are lost; if you haven’t used your FSA funds by December 31, 2022, your employer may let you use a “grace period” until mid-March to use your FSA funds, or you may be able to carryover up to $610 to the following year. Check with your employer!
Take RMDs (Required Minimum Distributions) – The tax penalties are substantial for missing these, so don’t! Just to make if extra fun, the rules have changed in the last couple of years (and will change again if President Biden signs the “SECURE 2.0” bill on his desk). The rules today:
If you turned 72 this year, you’ll need to take RMDs from retirement accounts. (If you turned age 70-1/2 by December 31, 2019, you are subject to old rules and already subject to RMDs.)
If you have multiple IRAs or 403(b)s, you can combine the RMDs for the same type of account and take that total from one of the accounts in each group (IRA or 403b).
If you have multiple 401ks, you need to take an RMD from EACH ONE (If you have multiple accounts that require RMDs, consider consolidating accounts to avoid this next year).
RMDs are ALWAYS required from inherited IRAs of any kind – Roth or Traditional.
3. START EARLY ON RESOLUTIONS
We all start the New Year together, many of us resolved to do things differently. By all means, make your resolutions for January. But it’s not a cheat if you start them early. You can practice now for January and make a few fumbles before you go “live” in 2023. Here are three typical resolutions, and what you might want to queue up before the clock strikes midnight at month-end:
LOSE WEIGHT – I’m with you! Yet most resolutions fail when they are too vague. Think about one change you can make (skip donuts with your coffee except on the weekend; make your afternoon snack a piece of fruit; trade out one meal for a soup or salad) and start practicing now. At least stock the fridge accordingly for next week.
EXERCISE MORE – Super! And also vague. Use downtime during the holidays to identify HOW you’ll do this. Walk daily? Join a gym? Find an exercise buddy? All are fantastic ideas, and finding a walking route, a gym that fits into your schedule, or someone with a similar exercise goal NOW, when you have time to figure out a specific action, can help you kick your resolution into gear on January 1st.
GET ORGANIZED – Cheers to simplicity! Coming out of the chaos of the holidays, this is a fantastic goal, and also potentially a big project. Or projects: Organize the office, the closet, the digital array of family photos across multiple devices…
If you want to organize your finances, decide on a hub: where will you go to see all the pieces of financial life together? Find a tool to help. Mint can help you see your accounts together, and most banks have a tool to help you link accounts. Quicken offers Simplifi for under $40/year. Don’t overlook a tool like Excel; spreadsheets may be old school, but they work!
If your organization goals are more material, break them down into weekend projects: Cleaning out your closets is a great goal, and also potentially time consuming and overwhelming (which is why you haven’t done it). Pick one closet, carve out some time and set a timer. Even if you just sort out your shoes or coats in an afternoon, that’s progress. (Donate what you cull from your closet by Saturday, and you’ll have an extra tax deduction for the year.)
If getting organized means carving out some time for you — or for you to spend with others — set aside a moment to plan for this. If the pandemic has taught us anything, it’s that we need both space for ourselves and time with others to keep our mental marbles rolling around in the right way. Once a week, once a month – even if it’s just once a quarter to start – make room for the time to take the kind of break you need, with others or on your own.
It’s more likely you have EVEN MORE going on during the last few weeks of the year than at other times. These three areas ones in which you can focus to close out the year with peace, comfort and perhaps a little joy. And whatever doesn’t get crossed off you list before the clock strikes midnight on the 31st, make it part of your plan for 2023.