Here Are 7 of the Most Common Mistakes Made When Estate Planning

As 2022 draws to a close, now is the time to start considering what financial moves you will want to make before the end of the year and the start of 2023. This aspect of financial planning is sometimes known as ‘year-end’ planning, and it is a common undertaking when considering your long-term finances.

During this phase of planning, you will assess your finances, reflect on what things went well and what things went poorly during the current year, and start creating a plan for the future. Even if there are some financial moves you may have missed out on up to this point, there is still time to implement them to take full advantage of your financial plan during the coming year. Here are a few financial steps you can take to solidify your finances for the new year.

1. Examine Your Budget and Make Changes

Before you start to assess what things have gone right with your financial situation, it helps to first take a look at your budget, if you have one in place. If you don’t, now is a great time to establish one.

Looking at your budget can help show you how your money is currently being spent, and it can also serve as a tool to determine where your spending can be adjusted. Perhaps you never made it to the maximum amount in one area of your budget but you overspent consistently in another. That could be a place where you make some adjustments.

Think of a budget as a living document, not one that is set in stone. In other words, as you notice your spending habits changing, you can make changes to help ensure you stay within your budget and meet your savings goals.

2. Use Your Savings—Don’t Waste Them

As your income increases over the years, you may start to realize that you are holding too much of your assets in cash. Cash that simply sits in your accounts is not working for you, as it earns little, if any, in interest.

Instead, consider alternative places to move some of your cash savings so that you can put that money to work for you, allowing you to earn more with little upfront effort. One way to use this money is to max out your contributions to any 401(k)s, 403(b)s, or IRAs. If you’re over age 50, you will also qualify for catch-up contributions—$1,000 extra to your IRA or up to $6,500 to your 403(b) or 401(k) account. Also, if you believe tax rates are likely to rise in the future, making these contributions or deposits to ROTH IRAs or a ROTH 401k would be advisable.

In part because of the unique circumstances of the 2020 coronavirus pandemic, interest rates have dropped to historic lows. Consider taking advantage of some of your extra cash by refinancing your mortgage to cash in on these rock-bottom interest rates.

If these moves don’t appeal to you, consider taking some of your extra cash and paying down high-interest debt, like credit card debt, or making payments toward your student loans. Now is also a good time to put as much money as you can into your emergency savings fund. Experts recommend having at least six months of expenses put aside in an emergency fund, but if you have the extra cash, it might help to put aside enough for one year. It certainly won’t hurt you to have a little extra stashed away for an emergency.

3. Take a Look at Your Investments

As you approach year’s end, now is an excellent time to start diversifying your portfolio. This should be a regular activity to keep your investment portfolio working at its best. The end of the year is a good time to consider how your portfolio has been performing, as well as what your risk tolerance is and how that has affected your investments. With the markets up near all-time highs with a very questionable economic backdrop, reducing your risk exposures by selling into this strength may be wise as well.

While you are reassessing your portfolio diversification, consider the opportunity for tax-loss harvesting. It is best to consider these two types of financial moves together to see the most overall benefit.

The process of tax-loss harvesting involves considering your investment portfolio and looking for assets that have lost value, allowing you to realize losses for tax purposes. These losses can be used to offset taxable capital gains, and in some cases, they could also be used to reduce your income by as much as $3,000. After that point, any leftover losses can be carried forward as tax deductions in later years.

4. Consider a Professional

If you are a busy working professional, it can be a challenge to keep up with your financial situation and ensure you are making the best moves possible. If you find yourself in this position, you should consider working with a financial advisor to discuss the best near term and longer term moves for your specific situation. Planning for the end of the year is a great time to start!

Step Five: Choose Your Retirement Investments 

When you open an investment account like a 401(k) or IRA, you’ll have to make decisions about where to allocate your money.  

In general, it’s a good idea to focus on investing more aggressively during your younger years: you can take bigger risks and potentially reap bigger gains, and you have decades to recover from losses. Usually, as you grow older and your retirement draws near, your investment strategy should become more conservative.   

In addition, it’s also important to revisit your investment strategy every year—saving for retirement isn’t a “one and done” job. You may need to adjust your strategy based on job and income changes, family growth, inheritances, and other major life events. 

Start Today 

With these tips, it’s easy to start planning for retirement. By following this process, you can get started saving for your golden years and position yourself for a comfortable retirement. 


Yenis Bejas

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