Private equity investor Mark Hauser offers 10 year-end wrap-up recommendations. Each one applies to individuals in different life stages and financial situations. Engaging recognized experts to assist with certain tasks is always advisable.

Analyze Ongoing Income/Expenses and Design a Budget

The COVID-19 pandemic’s large-scale economic upheaval resulted in substantial changes to individuals’ finances. During widespread business shutdowns, many employees retained their jobs by switching to remote work. Sometimes, however, reductions in hours led to decreased household income.

Worse yet, other businesses laid off some (or all) of their workforce. Some companies closed their doors for good. Regardless of the specific scenario, workers at all levels often experienced income disruptions.

Now that businesses have returned to normal operations, it makes sense to revisit household expenses and overall cash flow. With a potential economic downturn on the horizon, Mark Hauser says it’s important to get a firm handle on these numbers.

Create a Monthly Budget

Making a monthly budget is a key step in accomplishing this goal. If necessary, a qualified financial planner can help. Adjusting expenses for inflation is also important.

Finally, a designated member of the household should track actual monthly spending against the budget. If spending exceeds budget estimates, they can make necessary adjustments. If spending is under budget, they should funnel the remaining funds into a savings account.

Revisit the Household Emergency Fund

Financial planning experts typically recommend that each household establish an Emergency Fund. Ideally, this targeted savings account will contain three to six months of living expenses. If a wage earner cannot work due to an accident or illness, the emergency fund should function as a temporary safety net.

Alternatively, the emergency fund could help to cover major vehicle repairs, unexpected appliance replacements, or hefty medical bills. The emergency fund is designed for unplanned expenses, not for discretionary spendings such as meals out or shopping sprees.

If the emergency fund has been substantially depleted, replenishing it during the New Year should be a top priority. Funding the plan via direct deposit is the easiest, most painless way to do this.

Increase Funding to Other Key Savings Plans

Direct deposit is also an ideal way to fund a job-related 401(k) plan, an Individual Retirement Account (or IRA), or a 529 college savings plan. Increasing fund allocations will help lessen the impact of inflation. Private equity principal Mark Hauser says a financial planner can guide the fund's allocation process.

Make (or Recommit to) a Debt Repayment Plan

Regardless of an individual’s income, high-interest loans and/or credit card debt can take a substantial chunk out of a household’s income. In turn, making hefty monthly payments can greatly diminish the amount left for other bills and living expenses. Here, it’s tempting to take out another loan or charge even more on the credit card.

Making (and sticking to) a debt repayment plan can help turn the situation around. A qualified financial professional can guide the best debt repayment strategy.

Consumers should understand that the debt resolution field is filled with less-than-ethical service providers. Mark Hauser urges individuals to perform their due diligence when choosing someone to assist. The United States Department of Justice provides a list of approved credit counseling agencies.

Assemble Relevant Tax Records

Preparing tax returns is easier when all pertinent information is in one location. Gathering prior tax returns, credit card and/or bank statements, relevant receipts, and other documentation is a good start.

When W-2s, Form 1099s, Form 1099-Gs (for unemployed individuals), Form 1098-Es (for student loan recipients), and other relevant documents arrive, they should be added to the tax documents file. Finally, taxpayers should ensure that employers, financial institutions, and other relevant organizations have the person’s correct address before mailing tax documents early in the New Year.

Review All Tax Withholdings and Payments

Before the year ends, each taxpayer should review their tax withholdings and tax payments. If major life events have recently taken place, making withholding adjustments may be appropriate. Examples of life events include marriage, divorce, and bringing children into the family.

Many taxpayers may have received coronavirus tax payments or been subject to a disaster-related tax law exception. Alternatively, certain individuals may have lost their jobs and/or received unemployment compensation. Finally, many people transitioned away from an employee role to a contract worker situation during the pandemic. Each scenario would likely affect the person’s tax situation.

To minimize confusion, the Internal Revenue Service (or IRS) provides an online Tax Withholding Estimator on its website. Employees, self-employed individuals, and retirees can easily determine the proper income tax withholding amount.

Analyze Changing Insurance Needs  

Maintaining active health, life, auto, and homeowner’s insurance policies can help to protect against an insured’s defined risks. Because these risks can often change, regularly reviewing insurance policies with an agent is recommended. Mark Hauser says performing this exercise at the year’s end ensures that nothing slips through the cracks.

Health Insurance Coverage

Changing circumstances may dictate that an insured modify their health insurance coverage. However, this can be a confusing process, as some policies will better meet an insured’s needs than others. Consulting with a knowledgeable insurance agent is key to getting the most appropriate coverage at the best price.

Life Insurance Coverage

Because an individual’s life circumstances may change during the year, they may decide to purchase a life insurance policy. If they have existing life insurance, they may wish to change the coverage amount or otherwise modify the policy.

Choosing the right policy for the insured’s needs can be a challenge. Experienced financial expert Mark Hauser recommends that the insured review their coverage needs with an experienced life insurance agent.

Auto Insurance Coverage

Every state has outlined its minimum vehicle insurance requirements. A typical auto insurance policy includes multiple types of coverage, and premiums are based on a combination of variables. Examples include the driver’s age, driving record, and credit score. The insured’s physical address also influences their insurance premium.

During a given year, the driver may experience life changes that will affect their auto insurance premium. They might move from a large city to a small town. Instead of a daily commute, they may now work remotely from home. And because they now drive an older vehicle, they may not need the complete coverage they maintained on their newer car.

When the insured reviews their coverage with a seasoned agent, they’ll learn if their changed circumstances result in different coverage needs. The agent will also identify opportunities for premium reductions.

Homeowner’s Insurance Coverage

Homeowner’s insurance policies can help reduce impacts from several types of covered incidents. Insurance premiums are affected by the insured’s location and the area’s previous claims history.

During an end-of-year review, an experienced insurance agent can determine if the insured’s coverage needs have changed. This knowledgeable professional will also identify ways to lower the coverage premiums. Examples include specific types of home improvements and/or strategies to mitigate insurance risks.

Update Beneficiary Designations as Needed

Bank accounts, retirement accounts, annuities, and life insurance policies each have beneficiaries. A beneficiary is a person who will receive the insured’s account or policy proceeds when the insured passes away. Having a beneficiary ensures that the insured’s wishes will be respected.

Sometimes, an insured may experience a major life change during the year. Examples include marriage, divorce, or birth of a child. Therefore, the insured may want to make account or beneficiary changes before the year ends.

The insured should keep records of beneficiary changes and their respective dates. Ideally, the insured will store all account and/or policy records in a central location. They should store a second set in a safe deposit box or with another trusted person.

Consider Year-End Charitable Donations

Non-profit organizations across the country are the recipients of year-end financial and in-kind donations. During the last part of the year, groups ranging from major non-profit foundations to local non-profit thrift stores receive a large portion of the entire year’s donations.

Many donors are attracted by the potential for tax deductions. However, depending on an individual’s tax bracket and other factors, donations may (or may not) be tax deductible. Private equity expert Mark Hauser urges donors to consult with a qualified tax professional on this issue.

Set the Process in Motion

Making time for a year-end financial plan is important. If appropriate, a qualified financial planner can analyze each individual’s situation and design a plan to help them reach their goals. This may involve debt repayment and budget optimization, plus referrals to specific experts where needed.

Finally, Mark Hauser emphasizes that financial planners and financial advisors are different. Learn about their distinctions and obtain guidelines for choosing the right type of financial professional.