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Financial Checklist

Financial Checklist for End of 2021. It is time for the end-of-year house cleaning of personal finances. We are in the window between Thanksgiving and the New Year, and this is an excellent period to get your finances in order. Before the New Year, it is time to check budgets, debts, insurances, savings, investments, etc. This activity is necessary to see if goals were met for the year. 

For example, my wife and I had a goal of paying off her car in 2021, 2-1/2 years early. We redirected extra money to the car payment and wrote the final check a week ago. Our goal was met, and money was saved on interest at about $1,500. This goal lowered our total debt. Ultimately, investors striving to build wealth and financial independence want to see total debt decline and net worth rise. However, meeting this goal means that our budget is different for 2022. Should we use the extra money to pay down more debt, save, or invest? With that in mind, it is time to go through the financial checklist for the end of 2021.

Financial Checklist
Financial Checklist for End of 2021

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What to Review for Your Financial Checklist for the End of 2021?

Annual Checks

Budget

Review and update your annual budget in 2021 for changes in 2022. Incomes changed during the pandemic, and the government’s largess helped in 2020 to 2021. Things will be different in 2022. Some people have changed jobs and received substantial raises. For instance, the news is full of stories of employees leaving minimum wage jobs to work at national chains for much more. Many others are now working hybrid models where they work at home three or four days and the remainder of the week in the office. This change is an advantage for workers with less commuting and fewer expenses, and budgets can be changed. The bottom line here is to reallocate extra money to debt, savings, or investing.

Debt

What are your total monthly debt payments in 2021, and what will they be in 2022? We paid off a significant expense, a car loan payment in 2021, and met our goal. We do not intend to buy another car in the immediate future. This change to our debt profile means our monthly debt payments are down. In addition, there is extra money in our budget each month. However, we are not debt-free since we still have a mortgage. Hence, the extra money will go there, accelerating our road to being debt-free.

Emergency Fund

An emergency fund is a necessity on the road to financial independence. There are several reasons to have an emergency fund. Furthermore, there are different schools of thought about structuring an emergency fund. I prefer the basic one, use an FDIC insured savings account with enough money for six to 12 months of essential expenses. The money is safe and will be there when you need it. Granted, the interest rates are not too high right now, but a saver can still receive around 0.5% at many community banks.

Credit Report

The end of the year is an appropriate time to check your credit report. By US federal law, you have authorized a free credit report annually. Unfortunately, credit reports are notorious for errors. A recent article stated around 34% of Americans had found errors on their credit report. Common mistakes include personal information, account status, and balances. Errors on a credit report may make it more challenging to obtain a loan, buy a house, or rent an apartment. You can obtain a free credit report at AnnualCreditReport.com. In my opinion, looking at your credit report is one of the most important of the annual checks for the end of the 2021 year financial checklist.

Beneficiaries and Account Information

The end of the year is an excellent time to check beneficiaries and information for retirement and life insurance accounts. This activity is a must-do since both retirement and life insurance accounts need to have beneficiaries listed and life circumstances change. The point is essential since beneficiaries listed on a retirement plan supersede those listed in a will or estate plan. For example, if your spouse is listed as an Individual Retirement Account (IRA) beneficiary in a will, but your children are listed in the IRA plan, your children will inherit the IRA.

If a beneficiary is not listed, then the retirement plan will be inherited by your spouse, provided you are married at the time of death. Otherwise, the retirement plan will pass to your estate. In addition, many IRA plans permit secondary (or contingent) beneficiaries if the primary one is deceased before you.

Finally, it is crucial to update account information, including addresses, phones, and e-mails, as needed.

Insurances are Always Important

Healthcare Benefits

Open enrollment for most healthcare plans sponsored by employers is usually from November to December. It is time to review current selections and change your plan as needed. It is also an excellent time to check the deductible. Our family’s preference is to go with a PPO. The monthly insurance cost is higher than the other plans, but the out-of-pocket costs within the network are low. Prices are higher for out-of-network providers. Different plans have higher deductibles and out-of-pocket costs. If you must choose between a PPO or Health Savings Account (HSA), do research.

In addition, the end of the year is an excellent time to check dental and vision coverage. In general, the costs for these plans are lower for individuals and families. Unfortunately, many families forget about dental and vision coverage, but this too should be added to your financial checklist in 2021.

Auto Insurance

Many people buy auto insurance and forget about it until they buy their next car. They cancel their old insurance and start a new one at that time. However, cars age, and mistakes happen. It is an excellent time to ask yourself about the deductible amount. Coverage requirements vary by state. If you moved, it’s a good time to check about over or under coverage. Finally, changing insurance companies may lower rates.

Homeowners’ Insurance

It is time to check your homeowners’ insurance policy, especially if you completed a major renovation or addition. For example, did you redo a basement or add a deck? Changes like these two will increase the value of your home and thus the amount of insurance needed. In addition, the end of the year is an excellent time to check deductibles and limits. The bottom line is that homeowners must ensure enough coverage for their houses.

Alternatively, if your home insurance costs are rising it might be time to examine ways to reduce your home insurance costs.

Update Your Retirement Plan Contributions

401(k) Plans

A must-do event for your end of 2021 financial checklist is to check your retirement plan contributions. An employee should max out their 401(k) plan, in my opinion. In 2021, the IRS allows a maximum contribution is $19,500 and $26,000 for those 50 or older. In 2022, the maximum contribution is $20,500, and $27,000 for those 50 or older. The IRS allows a $6,500 annual catch-up contribution for those 50 or older.

Retirement statistics demonstrate that most workers do not have enough in their 401(k) plans. If you cannot contribute the maximum yet, then contribute at least the minimum to receive the company match. The company match does not come out of your salary and is tax-deferred.

Contributions to a 401(k) plan will lower your adjusted gross income (AGI) by the same amount. This change will lower taxes in the current year. However, taxes are paid on withdrawals.

IRA

A person without a 401(k) or another retirement plan at work can still lower their taxable income by contributing to a Traditional IRA.  A person can contribute a maximum of $6,000 per year and $7,000 per year for those 50 or older. In addition, the IRS allows a $1,000 annual catch-up contribution for those 50 or older.

If you prefer a Roth IRA, there is no tax deduction for contributions. The contributions are made with post-tax money.  However, the withdrawals are tax-free.

Check Your Asset Allocation and Funds

The end of the year is also an excellent time to check your asset allocation and fund choices. I prefer a lazy portfolio using passive index funds for retirement plans due to their simplicity and low cost. If your asset allocation and fund choices are too convoluted then it may be time to simplify.

Final Thoughts on Financial Checklist for End of 2021

The above list can be longer, but for 2021 we keep our financial checklist focused. Last year in 2020, we had a long list. Not all things on the list will be relevant to everyone, but it is an excellent point to start and improve your financial fitness. If anything seems overly complicated, it is best to talk with a financial advisor or another financial planner. The end of the year is a suitable time, though, to put your finances in order. So a financial checklist for the end of 2021 is an excellent place to start.


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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

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