4 Most Common Mistakes in Year-End Financial Planning

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It’s easy to forget to adjust your 401(k) contributions and estate planning during your year-end check-up. Read on to learn other steps to take, too. 

The end of the year can present an opportunity to plan for the upcoming year, imagining all of the financial goals we’ll accomplish. However, there are a few vital steps to year-end planning that can be easily overlooked. Here are four steps you shouldn’t skip in year-end financial planning.

1. Not maxing out your 401(k) match

401(k) contributions tend to be a set-it-and-forget-it expense. That convenience has a bit of a drawback though: Since that cash is coming out of your paycheck before you get it and you likely aren’t adjusting how much goes in regularly, it can be easy to lose track of how much you’re putting toward retirement. If your employer offers a contribution match, that’s free money for retirement you could be losing out on. Not to mention the fact that your contributions lower your taxable income, saving you money on taxes as well.

Let’s say you get a match up to 3% of your annual salary and you make $80,000 a year. That’s $2,400 in free money for retirement. Over 40 years, that one year’s worth of your company match alone would come to just shy of $36,000, assuming a 7% annual return. If you received a $2,400 401(k) match every year for 40 years at a 7% annual return, the amount would grow to about $480,000. You read that right.

If you aren’t contributing enough to get the match, now’s a good time to reach out to your plan provider and adjust your contribution amount. (And you may want to consider scheduling a mid-year check-in, in case your circumstances change.)

2. Over-prioritizing paying off debt

With interest rates skyrocketing, it makes sense that you may be taking a debt-first approach to your finances to avoid costly high-interest debt. However, the high-rate environment also means that you could be earning more money by saving it in interest-bearing accounts. And if you neglect savings to the point that you don’t have an adequate emergency fund, you could find yourself reliant on high-interest debt, like credit cards, if something goes wrong.

In fact, almost 40% of Americans wouldn’t be able to cover a $400 emergency with cash or its equivalent, and 46% don’t have any emergency savings, according to the latest Survey of Household Economics and Decisionmaking from the Fed.

The typical advice is to save at least three to six months’ worth of necessary expenses (think: rent, health insurance, utilities, food, etc.) in an emergency fund. If you don’t have any savings at all, putting even a small amount of money away is a good idea, especially if you can get a high-interest savings account and set up auto-transfers.

3. Failing to take a close look at your existing financial habits when planning for next year

As the end of the year approaches, the desire to look ahead — toward accomplishing your goals like getting out of debt or finally buying that expensive gift for yourself — can be tempting. But if you aren’t really looking at how you’re using money and the habits you’ve established, getting to those milestones is probably going to be a lot tougher than you expect.

A few things you may want to consider:

What financial tools you have access to (and whether you’re getting enough value out of them to justify the costs)The percentage (or amount) of your monthly paycheck that goes toward debt, savings, living expenses, and entertainmentWhether your existing expenses align with your financial priorities and values

Taking a close look at your financial habits outside of the “ideal” can help you more easily see if your plans are realistic or not. If you aren’t sure where to start, a budgeting app can help.

4. Skipping estate planning

Estate planning can feel a bit morbid and uncomfortable, so it can be easy to overlook it. In fact, according to a survey from Consumer Reports, only 33% of Americans have a will in place. But it’s a vital part of any financial plan, especially if you have dependents. (If you’re in that 33%, now is also a good time to review your existing will and make changes if you’ve gotten married or divorced, moved to another state, or have simply changed your mind about something.)

Talking to a financial professional who understands your goals and needs can help you make sure that your loved ones know exactly what your wishes are and how to attain them, and that they aren’t short-changed in the process. The National Association of Personal Financial Advisors is a useful resource here.

The end of the year provides the perfect opportunity to dig into your finances and figure out exactly how you can make progress on your goals. And if you take the time to consider these often-overlooked aspects of your finances, you’ll be setting yourself up for success in 2024.

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