As we approach the final quarter, it’s time to talk about financial risks that could significantly cost you.
Let’s say you’ve made a financial goal for 2024. If you aren’t paying attention, you may miss that goal because you have to pay more in taxes than expected.
Or you may be really close to having a fully funded emergency fund just to blow it on holiday shopping.
Then again, there are also financially wise opportunities you may simply miss out on, such as employee benefits like health savings account funds.
Review these potential 5 financial risks and make sure you are in a better position come the end of the year.
#1 Review and Adjust Your Tax Strategy
Planning now may prevent a surprise tax bill and help potentially lower your tax bill in April 2025.
If you have withdrawn from your 401(k) and are 59½ and younger, you may be penalized and taxed 20% on the withdrawals.
In addition to 401(k) tax implications, you should also make sure you have a strategy for your taxes.
Meeting with your CPA now can help you optimize your tax strategy before the year ends.
Your CPA can advise you if you need to adjust your withholdings, maximize deductions, or make charitable contributions to reduce your tax burden.
#2 Plan Now for Your Holiday Shopping Budget
Christmas – and all its financial risks – will be here before you know it.
In 2023, “A little over a third (34%) of Americans went into debt [during the] holiday season.”¹
The average debt for holiday spending in 2023 was $1,028.²
However, in 2022, Americans took on an average of $1,549.³
While Americans spent less in 2023, they still took on debt.
And it will happen again this year.
According to Salsify’s “2024 Holiday Consumer Research” report, “ 65% of shoppers plan to spend “about the same” as they did in 2023. Just 21% plan to spend less and 15% will likely spend more.”⁴
Where you fall on the holiday financial risk scale is up to you…
Will you spend less, the same, or more this holiday season?
The best way to prepare for holiday shopping is to create a holiday budget NOW.
Do not wait until Black Friday. Don’t wait until early December.
Take a serious look at your financial situation today and create a realistic budget based on what you currently have for holiday shopping and what you can save between now and then.
And don’t forget to budget not only for gift shopping, but also for holiday travel, décor, and events.
If you know you are only budgeting for $100 per family member, you will avoid overspending when the sales hit.
If you know you won’t have enough time to save up for several holiday outings, go ahead and make plans for the events that you can afford.
#3 Review and Maximize Employee Benefits
As year-end approaches, review your employee benefits, especially if your company has an open enrollment period.
Let’s look at a few examples.
Boost your 401(k) contributions. If you aren’t already getting the company match, start contributing enough to receive it.
Keep in mind that you get a tax break for every dollar that you invest into your 401(k) with pre-tax dollars.
For example, if you make $50k per year and contribute 3% of your pay into your 401(k), it equals a $1,500 investment.
In turn, this $1,500 drops your taxable income down to $48,500.
Utilize your health savings account while you can benefit from pre-tax savings on qualified medical expenses.
Take time to look into other employee benefits that can help you with financial risks.
For example, some employers offer discounted prescription medications as a benefit that may not be covered by health insurance.
Some employers offer company products or service discounts. Sometimes, these may even include services you are already paying for (such as streaming services).
Many companies now offer wellness benefits, such as gym memberships and mental health coverage.
Taking full advantage of these employee benefits can improve your overall financial picture.
#4 Plan for the Unknown
Living without emergency savings is one of the most common financial risks.
Yet, over 1 in 5 Americans have no emergency savings at all.⁵
And those who do have emergency savings don’t have enough.
According to the 2024 Empower “Emergency Savings” study, “Nearly 2 in 5 (37%) couldn’t afford an emergency expense over $400. […] Americans have accumulated a median emergency savings of just $600. Baby Boomers and Gen Xers have put aside the most for the unforeseen with median savings of $1,000 and $868, respectively, and Millennials and Gen Zers the least with median savings of $500 and $200, respectively. The median savings for men sits at $1,000 — twice as much as the median savings for women.” ⁶
Emergencies happen.
Where will that money come from if you aren’t prepared to cover the cost of an emergency?
Experts suggest saving enough money to cover three to six months of expenses.
How close are you to this size emergency fund?
Make it a goal to build up your emergency fund before the year ends.
Adjust your budget to accommodate the amount you need to get your emergency fund closer to your goal.
If you lose your job, get sick, or need a new roof, having this cushion will help you handle whatever comes your way without impacting your financial stability.
#5 Get Professional Help to Prepare for Year-End Investment Moves
One of the best ways to avoid financial risks as the year ends is to seek professional help.
It’s far better to get help before you really need it than to wait until the end of the year and receive a surprisingly large tax bill.
[Related Read: How Professional 401(k) Management May Help Account Performance ]
A proactive approach (rather than a reactive approach) allows you to avoid financial risks or losses and take advantage of market opportunities.
For example, get help reviewing your investment portfolio.
A qualified financial advisor will suggest adjustments, including rebalancing your portfolio, selling underperforming assets, or making contributions to retirement accounts to maximize tax benefits.
Your advisor will consider the big picture and advise you on your course of action as you approach the end of the year.
401(k) Maneuver provides independent, professional account management to help employees, just like you, grow and protect their 401(k) accounts.
Our goal is to increase your account performance over time, manage downside risk to minimize losses and reduce fees that are hurting your retirement account performance.
With 401(k) Maneuver, you can wrap up the year and start a new one with confidence, knowing we are managing your 401(k) for you.
Have questions or concerns about your 401(k) performance? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.
Sources
- https://www.lendingtree.com/credit-cards/study/average-holiday-debt/
- https://www.lendingtree.com/credit-cards/study/average-holiday-debt/
- https://www.lendingtree.com/credit-cards/study/average-holiday-debt/
- https://www.salsify.com/blog/consumer-spending-trends-holiday-shopper-spend-predictions
- https://www.empower.com/the-currency/money/over-1-in-5-americans-have-no-emergency-savings-research
- https://www.empower.com/the-currency/money/over-1-in-5-americans-have-no-emergency-savings-research
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