• The first step in determining where you’re going financially is identifying where you’re coming from. You can do this by examining your current finances.
• The next step is to review your employee health benefits, as the change in the calendar year impacts many of them.
• Planning for tax season is a crucial step to take before January arrives, whether you’re maxing out your 401(k) or assessing your side hustle’s potential tax burden.
• Look at your portfolio to ensure your asset allocation is still appropriate for your age, time horizon, and risk tolerance.
• Finally, you can use the data you gather to plan a more financially resilient year in 2025.

You might think January is the best time of year to take inventory of your life and set new goals. However, when it comes to your finances, the best time is now so that you are ahead of the curve once the new year rolls around.

Here are five essential steps to take during your year-end financial planning.

Take Stock of Your Current Financial Situation

Taking an honest look at your finances can be scary. Fortunately, if you can push through that fear, empowerment awaits you on the other side.

First, look at your cash flow. How much income do you earn every month? What bills are you paying regularly? How much debt are you carrying, and what are the interest rates? Do you have any money invested? How much money are you spending on needs vs. wants?

Once you have the answers to these questions, you’ll have the information you need to plot a better path forward through the end of this year and into the next. 

Review Your Employee Health Benefits

Reviewing your employee benefits at the end of the year is important. If your employer offers you something like a flexible spending account (FSA), you typically need to spend these funds before the year ends since it’s use-it-or-lose-it money. However, depending on the plan offered by your employer, you might be able to roll over a max of $640.

If you’re on a high-deductible healthcare plan (HDHP), you may also have access to an HSA. The limits for these accounts change every year, but in 2024, you can contribute $4,150 as an individual or $8,300 if you have a family plan. 

Any money you contribute to an HSA is not taxable, so contributing more now could help you lower your tax burden in April, depending on your total tax bill. You can use HSA money for many medical expenses, including future insurance premiums.

Unlike FSA money, your HSA contributions won’t disappear at the end of the year. You can invest these contributions for the long term. 

Plan for Tax Season

There are other ways you can use employee benefits to lower your tax burden next year. For example, if your employer offers you a 401(k) or 403(b), you can contribute up to $23,000 in 2024 to lower your taxable income. 

Planning for tax season is about more than just lowering your taxable income. For example, if you work a low-wage job and have a side hustle, you might not owe extra money for your W-2 position come April. However, if you haven’t been paying quarterly taxes during the year, you could have a tax bill for the side hustle income, FICA taxes, and late payment penalties. 

If this applies to you, figuring out how much you will owe now gives you time to save enough money to pay the IRS. 

Rebalance Your Portfolio

If you have investments in a 401(k) or individual retirement account (IRA), the end of the year is a good time to look at your portfolio. While one of the most effective investing strategies can be buying and holding, it’s wise to look at your balance of low-risk (i.e., bonds) and high-risk (i.e., stocks, mutual funds, etc.) investments to see if the ratio still matches your risk tolerance. 

Your risk tolerance typically decreases as your time horizon until retirement shortens. By addressing this annually, you can keep up with any necessary adjustments.

Write New Financial Goals for the Coming Year

You’ve detailed your current financial situation, planned for April’s tax season, and evaluated your investments. Now, it’s time to use all that data to make a plan for next year.

Your new financial goals will vary depending on your financial situation. Maybe paying off high-interest credit card debt will be a priority. Perhaps you want to contribute more of your paycheck to your HSA or retirement accounts. You may want to save up for something big like buying a house or something smaller like a family vacation. 

Whatever your financial goals are, write them down and make a plan to execute them. Once you have your plan, you can automate your savings and bills using the Payactiv app. Plus, you can track your progress towards your goals with the Goal-Based Savings feature. 

If you need extra help mapping out the smartest financial moves for 2025, take advantage of the free consultation with KOFE financial counselors you get as a Payactiv member. 

Final Word

While January may feel like the best time to set new resolutions, the ideal time to create your financial goals is before the end of the year. This lets you optimize your finances for tax season, spend money sitting in your FSA before it’s lost, and start the new year with all cylinders firing.