We Usually Make These 4 Money Moves In December – What Do The Experts Say About This Strategy?
Excessive shopping isn’t the only annual ritual that accompanies the winter vacation – the lead-up to the New Year is also the season for year-end money flowing. December offers one last chance to make an impact on the year that is ending, and it’s the last and the best time to get a head start on the year ahead before it arrives.
Read: $ 1 Million Isn’t the Standard Little Nest anymore – here’s how much most Americans think you really need to retire
Useful: unplug those devices that increase your electricity bill
Everything looms at the end of the year, from health insurance and taxes to investments and retirement savings. COVID-19 has upended much of the traditional year-end financial management that has lasted through the ages, but some of it still holds true today. GOBankingRates asked experts what they think of these moves.
Discover: 12 essential financial tips for every phase of your financial life
Declare a New Years Financial Resolution
The December money move that is probably universal for most people is the good old-fashioned New Year’s resolution. Of course, the vow to make positive changes when the calendar is ticking doesn’t help. But it can put you in a good frame of mind that sets you up for success, especially if you write down your resolutions and break them down into manageable goals.
It’s not hard to find silver professionals who think there is still a lot of value in the annual ritual of promising to do better next year.
“Make sure your financial resolutions are tied to the economy and reducing expenses,” said Sam Spratt, Managing Director of BlueChip Financial. “This year I think we’re all focusing a lot more on saving, saving, saving. It’s going to be a difficult and unpredictable year, and I would advise everyone to be prepared, just in case.
The key is to prepare your resolution for success by entering the New Year on a solid financial footing – or at least without any new debt.
“Spend prudently on vacations and save more than you normally would,” Spratt said. “This is not the year to make a big unnecessary expense, so if you had a sports car, a designer bag or something like that planned, I would wait until 2023 and see how it goes. . Prudent is the key word to move forward in 2022. “
More Tips: 25 Things You Should Never Do With Your Money
Use this year’s savings to invest in next year’s side activity
Historically, making a plan to save money throughout the coming year was always a standard year-end cash move. But the pandemic has proven that in a long-term crisis, a consistent second stream of income can be much more valuable than a limited reserve of savings. For many, December’s new decision is to budget the remaining cash not for savings but for seed money to finally get that side off the ground.
The logic behind the trade-off between savings and secondary activities is understandable but flawed.
“Putting money into a traditional emergency fund and creating a second income stream is neither a recommendation,” said Clayton Wood, CFP, managing partner of CB Wood Financial.
The trick is to create an extra layer of protection by doing both, but in the correct order.
“Our clients are encouraged to first make three to six months of spending in cash or similar investments before investing in a second stream of income,” said Wood. “Especially in this volatile market, we prefer that clients have the support of an emergency fund, so that they feel confident to take the risk of investing in other sources of income, such as real estate. or a related activity. “
Rebalance your portfolio
Investors with an “and-to-forget” mindset may notice that market movements disrupt their portfolios if they don’t register for a long period of time. This reality has always made December a good time to review your investments and re-evaluate your assets at the right percentages throughout the rebalancing process.
“While this has always been good advice, it is something that really needs to be highlighted at this time, which is not always the case,” said Jeff Tsai, co-founder of JAVLIN Invest. “Proper rebalancing can help reduce your risk while maximizing potential return, especially when you use a portfolio optimization tool to help you. “
It also provides a great opportunity to verify your investments and take inventory.
“A good first step is to reassess how much risk and volatility you can handle right now,” Tsai said. “The stock market is always unpredictable, and this is especially the case right now due to so many factors related to COVID like inflation, a possible increase in the Federal Reserve’s key interest rate and more. Much depends on your time horizon for when you think you need the funds for your investment – retirement, a savings goal like a wedding, etc. Second, investors should then find out how their stocks have performed over the long term, not only in terms of their returns, but from a risk / reward perspective, and compare them to a benchmark like the S&P 500. “
Learn More: 25 Money Experts Share the Best Way to Invest $ 1,000
Evaluate last year and budget, plan and prepare for the coming year
Some December cash moves are so timeless that even a global pandemic cannot diminish their need from year to year. The most sustainable of all is the end-of-year family budget.
“In fact, my financial advice hasn’t changed,” said Jake Hill, CEO of DebtHammer. “I always advise our clients to take a look at their spending over the past year and reconfigure – or create – their budget for next year based on their goals. I think this is the best use of time when it comes to financial planning.
More from GOBankingTaux
This article originally appeared on GOBankingRates.com: We Usually Make These 4 Money Moves In December – What Do Experts Say About This Strategy?