The Personal Finance Podcast - The Ultimate Year End Money Checklist!

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Starting point is 00:00:56 Find your advisor at IG Private Wealth.com. On this episode of the personal finance podcast, we're going to talk about the ultimate year-end money checklist. This everybody and welcome to the personal finance podcast. I'm your host, Andrew, founder of mastermoney.com. And today on the personal finance podcast, we're going to be talking about the ultimate year-end money checklist. Make sure your finances are in order. If you have any questions, hit me up on Instagram at MasterMoney Co.

Starting point is 00:01:45 That's MasterMoney C-O. and follow us on Spotify, Apple Podcast, or whatever podcast player, you love listening to this podcast. And if you want to help out the show, leave a five-star rating and review on Apple Podcasts or Spotify. And then also make sure you check us out on YouTube as well. We are Master Money on YouTube. Now today we're going to be talking about the ultimate year-end money checklist.

Starting point is 00:02:08 And the reason why we go through this every single year is because towards the end of the year, it's time to reflect on how we deal with our money the previous year. And so today, I'm going to go through the money checklist that I utilize every single year and the things that I like to look at so that I can have a better year going forward. And since this is such a great time to reflect, it's a great time to look back. Some of this stuff we're going to be looking at, say, for example, your expenses and how to improve those. We're going to be looking at your income and how you can increase your income.

Starting point is 00:02:38 We're going to be checking statements and balances and renegotiating bills, all these different things. And then in addition, we're going to do some things and look at the check. to make sure we're taking every tax advantage. We can. So we're going to talk about some of those tax advantages today on this episode as well to make sure that you're taking advantage of every tax advantage you have at year end. Now, what I'm also going to do is I'm just going to leave you a downloadable PDF checklist

Starting point is 00:03:00 so that you can go take that checklist, go through it, make sure that you see that you are completing each and every step and make sure you're covering all your basis so you can have your best year ever this year and carry it forward to the next year as well. So that's why we're doing this today. That's what we're talking about the ultimate year-end money checklist. You can use this every single year so that you can have by far the best money year you've ever had. Because that's what we're all trying to do, is have the best year with our wealth,

Starting point is 00:03:25 build as much wealth as possible for our families next year. So if you're into that, let's get into it. Okay, so the first one we're going to be looking at, the first category, is we want to check our costs. We want to see, are we overspending in any area, or are we spending money on things that don't bring us value? Because if you are spending on things that don't bring you value, this is the time to look at. it figure out what am I spending money on that I really don't want to be spending money on and how do I allocate more of those dollars towards things I want to spend money on and that's the biggest thing that we can do with our money so the first thing you really want to do is check the big three expenses

Starting point is 00:03:59 now we've talked about the big three expenses a few times on this podcast but what they are is it's housing food and transportation because if you can control the big expenses if you can control those big three expenses then you don't have to worry so much about everything else you want to go get a latte every day at Starbucks? Well, you can go ahead and do that because it makes a much greater impact to reduce your transportation costs by hundreds of dollars than it does to save in a latte every single day. Now, can that add up if you're buying a latte every single day? Absolutely. But to think that that's going to make the biggest impact is absolutely not true. So here at the Personal Finance podcast, here's the percentages that we look at to see,

Starting point is 00:04:36 are we on track to financial independence, are we pursuing financial independence in the correct way? Is housing is the first one. And housing is everybody's biggest expense. Now, housing is a tough one because it is very location dependent. So this is something that you're going to have to look at your location and see how can I fit this into my budget. But here at the personal finance podcast, we want you to have at least 30% or less of your spending on housing. Now, if you're in an area where it's really high cost of living, that may be tough to do.

Starting point is 00:05:05 But if you're in a normalized area, which most cities in the country, you can keep it at 30% or less of housing. And if you want to pursue financial independence, I would put it. push it closer to 20% on your housing because you can retire so much earlier by saving that additional 10% and increasing that gap between the two. So trying to keep your housing anywhere between 20 to 30% of your net income is what you want to be doing. The next one is food. So the biggest thing when I coach people and I talk to people about their budgets is that they do not realize how much money they spend on groceries and food. And it's one of the things that surprises

Starting point is 00:05:41 people all the time. I have never had a person accurately depicts how much they spend on food. It's always over every single time. So food is an amazing one where you can cut back hundreds of dollars a month if you're just conscious about what you're doing. So this is not a perfect number because everywhere is different. Inflation is rising obviously the cost of food is going up. But right around 15% of your net income usually works out for most budgets. Now you have to tweak that a little bit and see how it's going. If you feel deprived or it's something that drives you crazy to have it at 15% then raise it up a little bit. Give yourself some comfort level. Give yourself a buffer. And if food is your thing, if you value food, then spend as much money as you want in that category. But that's just a

Starting point is 00:06:21 rule of thumb that you can think through as you're doing this because a lot of people when I talk to them are saying, well, what percent should I be doing? And then the third one is just checking your transportation. So if you want to be super aggressive, retire in 10 years, extreme fire, then you want to be around 10% of your income. But if you don't care that much about getting to fire within 10 years and you can take 15, 20 years, can go closer to the 20% range, maybe even 25% if it fits into your budget. Now, all of these categories have given take. If you're spending 20% on housing, you can increase your transportation or your food or whatever else you want to do because you can afford anything.

Starting point is 00:06:55 You just can't afford everything. And that's the big thing to understand as you're doing this. The next thing to check is check your subscriptions. This is just one quick way to get rid of a bunch of recurring expenses that add up over time. If you have a bunch of $10 subscriptions, that's $120 per year, per subscription that you can be knocking out and taking that money and investing that money instead. Now, the thing to associate with reducing costs and the things to understand about reducing costs is you need to go invest that money once you take that cost away.

Starting point is 00:07:23 Because otherwise, it's just going to get lost and commingled, and you're not really cutting any costs in helping yourself build wealth at all. If you don't take the savings and start investing those dollars, you're not building more wealth. Or if you don't take the savings and start putting in your emergency fund or whatever, puts more money into your pocket. if that's what you need to be doing when you save money like this and cut back. Otherwise, why cut back? If it's just going to get commingled and lost somewhere else.

Starting point is 00:07:46 The third thing you could do is you can start looking at negotiating some bills that may have become too high. A lot of times a cable bill is a great example of this because they start to creep the bill up as year goes on. So you can call the cable companies try to reduce some of your bills, especially if you're overspending and you overspent the entire year. And then look at the rest of your spending. Is there anything else that's not bringing you value that you're spending money on?

Starting point is 00:08:07 If not, cut it out. If something's not bringing you value and you're spending money on it, cut it out. Now I'm not saying the electrical bill or something like that. But what I'm talking about is things that you spend money on that you really don't care, but you're frivolously spending money every single month. And if you don't know how to figure out if it's bringing you value, we have an episode talking about that. I'll leave a link to it in the show notes.

Starting point is 00:08:25 But in addition, just think about these couple of things. Does the thing make you more free? Does it make you better? Does it make you happy or does it make you more money? Because if it doesn't check any of those boxes, then it's probably something that doesn't bring you value. That's free, better, happy, or more money. And you can do this with anything in life, whether it's fitness, whether it's hobbies,

Starting point is 00:08:44 whether it's work, all of those different things are ways that you can look at just those four questions and say, hey, does this bring me value? The next thing you want to do is you want to look at your net worth statement. Now, my favorite tool to do this is personal capital. I'll link it up in the show notes so you can check it out. It's a free tool to track your net worth. But your net worth needs to be checked at least once a year. Now, this is the time I typically do it.

Starting point is 00:09:06 I check my net worth towards the end of the year. And sometimes I'll check in the mid-year as well. But all you really need is once a year. And this is a great time to do it. Now, as you're starting to build up wealth and you're just starting, you need to be checking it more often because you need that motivation. You need to see your income rising. You need to see your wealth growing overtime.

Starting point is 00:09:25 And that's extremely important for this. But if you've been doing this for a while, you're a season veteran, you're building wealth on autopilot. You know exactly what you're doing. Then you only have to check your net worth statement once a year if you want to. Because you're doing the right things. you know what to do every single year, and this is the perfect time to do it at year end. So make sure that you're on track for the next year.

Starting point is 00:09:42 Because a net worth statement is extremely motivating. It shows you where there's holes in your finances, and it helps you propel your wealth forward and give you as much information as possible. So it's incredibly important to do this, especially at the end of every single year, and making sure you're using cool tools like personal capital, because that is one of the easiest ways to do it. It just links all your accounts in one place, and you can see it all in one spot. So lately, I've been noticing how fast things are changing at home.

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Starting point is 00:12:51 drop-off to off-road, and the car that hulls groceries and hockey teams, or the van that's gone from just practical to practically family. Whatever you want, wherever you're going, start your search at auto trader.ca, Canada's car marketplace. Now, the next step that we're going to look at is some year-in tax strategy, some things that you can do to save money on taxes next year. And the first thing at the year-in that you can do is you can give to charity, because any charitable contribution is a tax deduction. So it's going to lower your tax bill next year if you give the charity by the end of the year. So this is one of the most important things for me when building wealth is I want to give money to causes and things I believe in,

Starting point is 00:13:36 whether it's a cause you believe in, whether it's your church. It doesn't matter what it is, but giving money away to people in need and helping people out is extremely important. And the amazing thing is, the government rewards this as well because it is a tax deduction. So if you haven't given your money to cherry that you want to give and you've had it sitting in an account, this would be the time to do it so that you can get that tax savings. The next one, if you're planning on giving money away to family or friends, then this is the the time to do it as well because if you can give it away by year end, you have the annual gift tax exclusion where you can give away as much as $15,000 to individuals for kids or grandkids

Starting point is 00:14:12 or spouses or whatever else you want to do. And next year, it's actually going to jump to $16,000, which is extremely cool. So each year this starts to creep up and you can give away more money tax-free. So using that gift tax deduction, if you're going to be giving money away or you're coming to a place where you're going to start giving away an inheritance or something like that, This would be a great time to start giving pieces away so you can give it away tax free. So if you're planning on giving an annual gift to an individual, then I wouldn't delay because the check has to clear by the end of the year. The next one is to fund a 529 education savings account.

Starting point is 00:14:48 So if you're saving for college for your kids, we have not done an episode on this. It will be coming up next year to talk about the 529 plan and how it works. But if you want the tax savings of saving up for your kids college, A 529 plan is fantastic, and you want to make sure that you're funding that at the end of the year, if you're trying to max it out or whatever else you're trying to do, then you want to make sure that you're actually putting money into the 529 plan. The cool thing about a 529 plan is your money grows tax-free and comes out tax-free.

Starting point is 00:15:15 And if you have a lot of extra cash sitting around, a cool thing about a 529 account, is you can contribute up to five years of annual gift exclusions up front, which is a very cool way to front-load it and allow yourself to have much more money into that 529 account. And you can also use it now for K through 12 tuition. So if you want to send your kids to private school or something like that, up to $10,000 a year can be utilized from that $529 account. So it doesn't only have to be for college anymore. But you can use it for college, graduate school, trade schools.

Starting point is 00:15:41 There's all different ways that you can use it, studying abroad, for example. So a $529 account has a bunch of benefits baked into it. But you have to make sure that you're getting your year-in bonuses and getting that tax break. So make sure you're funding it at the end of each year. The next one is fund your HSA. Make sure you're checking your HSA looking to see if you are maxing it out and you want to max it out, then you want to go ahead and do that before the end of the year. So for 2021, you can contribute $3,600 as an individual or $7,200 if you have family coverage.

Starting point is 00:16:13 And if you're over 55, you can contribute additional $1,000, and that's a major tax deduction as well. The next thing to look at is looking at your IRAs and your 401ks. Now, you don't have to max these out until tax time, but this is a very good time of year to just check it as you're going through your check. every single year, making sure you're trying to get as much money as possible in those accounts before tax time rolls around. So for 2021, you could put $19,500 bucks into a 401k plus a $6,500 catch-up contribution if you're over 50. And then next year, it's going to jump to $20,500. So it's going to go up on an additional $1,000. We've talked about that a couple of times on Instagram and other stuff as well. But you're actually going to be able to contribute and max out

Starting point is 00:16:54 an additional $1,000 next year. So each year that starts to tick up as well, which is an amazing benefit for everybody so you can get that tax-free money into your 401k or your IRA or your Roth IRA because you can't get those years back. You want to make sure you're contributing to those because you can't get lost years back. The next one is to check your tax withholding. So if you have a side hustle, we always talk about side hustles on this podcast or you have a side business or you own a business, you want to make sure that you've withheld some of that money so that you can pay income taxes. Because a lot of people, what they do is when they start a side hustle, they don't realize that they have to pay tax on that money. So you want to look at your money,

Starting point is 00:17:31 figure out how much tax do you think you need to pay, and then go from there. The best way to do this typically is quarterly. So if you have a side hustle, the best way to do it is just set it up where you can pay the IRS quarterly every single quarter so you don't get behind on this stuff because way easier to keep track of it if you're just paying it off quarterly every single quarter. So for next year, I would check in doing that. And if you've never done it before, talk to a CPA or an accountant and have them set it up for you. Because if you're running a business and your business is making money, that's a deduction as well. is paying your accountant, but it's much better to have an account because they can give you

Starting point is 00:18:00 an additional loopholes that will allow you to save more money on taxes because with a business, you can do a lot of things tax-wise. The next one is you can look at taking advantage of tax loss harvesting. So if you're into tax loss harvesting, it's not something I really like to spend a lot of time on. The reason why is that I think it just confuses too many people. But it's a way to take losses with your investments. If you have a couple of investments down or a couple funds down and then a bunch of them are way up, you can take some losses on those investments to offset the capital gains. Now, this is just something I don't like wasting my time on too much. And a lot of companies like Betterment or Personal Capital's Advisors, they will all do this stuff for

Starting point is 00:18:38 you. Like, Robo advisors will do this for you if you want them to. You can set it up that way. But at the same time, it's just not something I spend a ton of time looking at. But if you're into tax loss harvesting, because it can be very beneficial, then you can look at doing it at this time as well. The next thing you consider is if you're doing backdoor, IRA conversions or any Roth IRA conversions at all, then you want to try to look at doing that now because a Roth IRA conversion doesn't have to be a one-time move. You could do them yearly like we talk about all the time. And you can still do backdoor Roth IRA conversions as of next year right now. It survived another year. So we'll see where it goes in the future. And if anything

Starting point is 00:19:11 happens, we will talk about that on this podcast. But right now you can still do backdoor Roth IRA conversions. So this is the time to look at it, depending on your tax bracket and what your strategy is. You could do some backdoor Roth IRA conversions. at this time as well. The next one is check your flexible spending account balances. So if you contribute to a health care flexible spending account, you got to check your remaining balance for the year. Because some employers don't let you carry over balances to the next year.

Starting point is 00:19:38 So you've got to figure out what are the rules with my flexible spending account, and can I carry over the balances? You usually have to spend it all, and you can usually not carry over more than $550. So if you have money in that flexible spending account, I would look at spending that on some health care costs, maybe get your checkups done or anything like that, before the year ends.

Starting point is 00:19:55 The next one is to get your estate documents in order. So for family get-togethers, if you guys are getting together for New Year's or something like that or getting together for the holidays, then that's a great time to review estate plans, get things together, make sure everybody's on the same page, and get all those basic documents in order, signed, all that good stuff.

Starting point is 00:20:13 This is the time to do it year-in because everyone's around each other and they have get-togethers. So that's another thing to just look at as you're doing this. Now the next one, and this is the biggest one of all, is to figure out how, How are you going to increase your income for the next year? Because this is the time to start thinking about your plan on how you want to start increasing your income.

Starting point is 00:20:31 Are you going to ask for a raise at your job? Well, our system that we utilize takes three to six months to ask for a raise, and it's a system that builds up respect and rapport with your boss. It's not just walking into their office and saying, I would like a raise. Instead, what we talk about is going through this system and saying, I want to take on more responsibility. I want to be paid more.

Starting point is 00:20:51 So how can I do that? and having conversation with your boss, and we have scripts and things like that in the free e-book that we wrote on this, to show you how to do this. So if that's something you're looking at as asking for a raise for next year, put together your plan so that you can do that.

Starting point is 00:21:03 Check out the e-book. I'll link it up in the show notes as well. It's free so that you can start planning for that. Or do you want to start something on the side? Maybe it's a website where you want to start an authority site talking about a topic you love. Maybe it's a YouTube channel

Starting point is 00:21:16 where you want to start talking about things that you like on YouTube. Maybe you want to start flipping items, which is a very profitable thing where you can start flipping items on Facebook marketplace or Craigslist or anything like that. But thinking about how are you going to make more money next year? Because increasing your income, as we've talked about, is the catapult to building wealth. It is the way to get to the next level with your wealth.

Starting point is 00:21:38 Because as your income increases, you can take those additional dollars and start investing those dollars for you and your family's wealth and your financial future. And what happens there is those dollars start to spit off more cash and more dollars. and the snowball begins to grow. And eventually, the snowball is going to grow so large that you don't have to work anymore. And once you don't have to work anymore, then you're completely free with your time

Starting point is 00:22:00 and money did the ultimate thing. It bought your freedom. And that's what you want money to be there to do. So increasing your income is the best way to do this. It's the catapult to get you to that level so that you can allow money to create freedom for you. That is the biggest thing that you can do. It is absolutely amazing

Starting point is 00:22:18 what you can do with your money. as you see it growing because obviously we've talked about on this podcast before the first hundred thousand dollars is the hardest but as you start building past that first hundred thousand dollars it gets easier and easier over time and your money starts spitting off more money thanks to the beautiful wonder of compound interest and that is how we get to start building wealth and wealth starts to compound and starts to build and it starts to grow and it will absolutely change your life for the better if you can figure out how to do this and how to build wealth so how are you going to make more money next year to increase the gap between your income and your expenses

Starting point is 00:22:53 so that you can be investing more dollars. That's the biggest thing we want to be doing for next year. Make next year your best financial year ever. It's going to be something that's going to change your life, get your finances in order, and develop and put together a plan for next year. I want to thank you guys so much for listening to this episode. If you have any questions, hit me up on Instagram at Master Money Co. And follow us on Spotify, Apple Podcast, or whatever podcast player, You love listening to this podcast, too. And if you want to help out the show, leave a five-star rating and review on Spotify and Apple Podcasts.

Starting point is 00:23:25 And don't forget to check us out on YouTube as well at Master Money on YouTube. Thank you guys so much. I appreciate each and every single one of you. I want to continue serving you guys and teaching you guys how to build wealth. And we'll be doing that next year as well. So get ready. We're going to have some amazing content for you guys. And we're going to take it to the next level.

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The Personal Finance Podcast - The Ultimate Year End Money Checklist!

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