The fall financial checkup

Believe it or not, fall is almost here — which means there are only four months left before we close out the 2021 tax year and start thinking about our 2022 financial goals.

The past two years have been atypical, to say the least. That includes earning and spending opportunities, in addition to everything else. Most of us spent less on travel and more on groceries, for example. Some of us might still be recovering from last year’s layoffs and furloughs, while others might have had the opportunity to start a new career or launch a side hustle.

“The principles of good personal finance haven’t changed,” says Jerry Ziegler, Accredited Financial Counselor® (AFC), owner of JZ Financial Management and a member of the Better Financial Counseling Network. “But the financial landscape has changed some.”

At the beginning of 2021, we asked Ziegler and other financial experts how to set realistic, achievable financial goals during what might be an uncertain year. Now, we’re getting back in touch with these and other experts to learn how you can finish out the year with as much financial certainty — and security — as possible.

“For many, 2021 wasn’t the bounce-back year everyone was hoping for,” explains Jim Wang, founder of WalletHacks. “It’s important to adjust your goals to meet the realities of life.”

With that in mind, here are some of the financial questions you should ask yourself before 2021 ends — and some expert insights to help you answer them.

Is there still time to achieve my 2021 financial goals?

It’s never too late to work towards your financial goals, but if you’re trying to hit a specific goal by the end of the year, it might be time to make a few adjustments to your spending and saving habits.

Start by identifying your most important financial goals. “Pick one goal that means the most to you and work towards that,” says Grant Sabatier, author of Financial Freedom and co-founder of BankBonus.com. “You still have time to make big changes over the next four months, but just focus on one at a time.”

To maintain your financial focus, set aside time to track your progress. “A monthly or even weekly check-in helps make sure you stay on track with your financial goals,” explains Steffa Mantilla, certified financial education instructor and founder of Money Tamer. Pair your weekly check-in with an action that helps you move closer to your big financial goal, such as transferring money into an emergency fund, making a credit card payment or using a budgeting app to track your recent expenses and make sure you’re not spending more than you planned.

You might also want to consider modifying your financial goal to better reflect the reality of your current financial situation. “If you planned on saving up $5,000 towards an emergency fund and have made little progress, adjust it to $2,000 and build in a savings plan to start right now,” advises Wang.

Saving $2,000 between now and the end of the year means setting aside $118 per week, if you start on September 1. If this financial plan feels a little too ambitious for you, try setting aside $50 per week. You’ll still end 2021 with an extra $850 in your emergency fund — and when you need to withdraw from your account, you’ll be glad you set aside the cash.

Or, as Mantilla puts it: “The best thing you can do in 2021 is to make sure you have an emergency fund and pay off as much debt as you can.”

What kind of tax planning do I need to consider?

It’s never too early to start planning for tax season (even if you don’t have to go full Ned Flanders). Here’s what our experts suggest you consider as the 2021 tax year reaches its close.

Start by asking yourself whether your 2021 income is significantly higher or lower than what you earned in 2020. “If your income has drastically increased or decreased during this time, you should check in with your CPA,” explains Mantilla. “They will be knowledgeable about current tax law and be able to tell you what to do in order to lessen your tax bill legally.”

You should also ask your CPA whether the recent changes to the Child Tax Credit are likely to affect your upcoming tax return — or your anticipated refund. “If you are receiving the advance child tax credit payments, make sure you are prepared for any changes to your tax return,” advises Ziegler. “Most people who received the advance payments will see a $200 to $500 reduction of the tax credit per qualifying child. For most this means a smaller refund and for some this may mean they will owe money when they file their tax return.”

Lastly, ask yourself — and your CPA — whether increasing your pre-tax retirement contributions can help you reduce your taxable income. “Try and hit your max of $6,000 for a Roth IRA and $19,500 for a 401(k),” advises Sabatier, referencing the legal limits for those under 50. “The more you can contribute to those accounts the less taxable income you will have — and, of course, the more you’ll be investing.”

Wang agrees. “I’ve been making sure we contribute as much as we can towards our 401(k) because it’s the best way for us to defer income and lower our taxes.”

How can I budget for the holidays?

The holiday season is closer than you think — and if you haven’t already started planning, budgeting and setting aside money for holiday expenses, it’s time to start analyzing your cash flow.

Start by looking at your previous holiday expenses. How much did you spend in 2019 and 2020, and where did the majority of that money go? Did you spend the same amount of money on gifts both times, for example, or did you put more money towards gifts in 2020 since you were spending less money on travel?

Knowing both your typical and your atypical holiday expenses can help you plan your 2021 holiday budget. For some people, this holiday season will be relatively modest — especially if their finances are still recovering from the stresses of the previous year. Other people may view the 2021 holiday season as an opportunity to make up for last year’s constraints.

“While you may have stayed home last year, this year could be different for many depending on restrictions,” explains Mantilla. “You may now need to budget and plan for additional money for travel, gifts and other holiday expenses that you hadn’t factored in before.”

Since we don’t know what travel might look like in December, it’s a good idea to set a budget that you can afford, whether or not airfare is involved. If you set aside money for holiday travel and ultimately decide not to make the trip, you can use that money for other holiday expenses — or you can put it towards another financial goal, such as boosting your emergency fund or investing to support your financial future.

What can I do in 2021 to make 2022 my best financial year ever?

The end of the year will also be here before you know it — which is why it’s a good idea to start thinking about how you’d like to earn, save and spend money in 2022. Setting a savings goal can help you budget and make better financial decisions later on.

“If you start planning early, you’ll have a leg up,” advises Sabatier. “What trips do you want to take? What big expenses do you need to plan for? Will you need more or less money? What changes do you want to make for your career?”

Sabatier suggests beginning your 2022 financial planning in the last quarter of 2021, but if your schedule is already packed, it’s okay to wait until the very end of the year. “I like to develop my financial goals for the next year in the last two weeks of December,” says Ziegler. “This way I start the new year already on track.”

As you start planning for 2022, you should think not only about your financial goals, your projected income and your anticipated expenses, but also about whether the financial tools you’re using are helping or hindering your progress. “Much like the clutter that’s ever present in our home, there is still a bit of clutter in our finances that I’d like to tidy up,” explains Wang. “This includes simplifying the various bank accounts we have but no longer need, reducing the number of credit cards we have and streamlining our financial system.”

Part of a streamlined financial system includes knowing what to do with “extra” money — or with money that might have been set aside for an expense that is no longer needed. “What I really like about having my financial goals established and written down is when unexpected money comes in,” says Ziegler. “Nine times out of ten I know exactly how that money will be used, because I’ve already decided by having the goals in place.”

Not sure which goals you want to put in place for next year? Try thinking about your finances not in terms of numbers, but in terms of the possibilities those numbers can create.

Or, as Sabatier puts it: “Start thinking about what kind of life you want to live in 2022, and start saving for it now.”

You’ve got four months, give or take — so take advantage of them.