We Usually Make These 4 Money Moves in December — What Do Experts Think of This Strategy?
Binge shopping isn’t the only annual ritual that comes with the winter holidays — the run-up to the new year is also the season for year-end money moves. December offers one last chance to make an impact on the year that’s winding down, and it’s the last, best time to get an early jump on the coming year before it arrives.
Everything looms large at year’s end — from health insurance and taxes to investments and retirement savings. COVID-19 threw a wrench in much of the traditional end-of-year financial housekeeping that has endured through the ages, but some of it is just as relevant as ever. GOBankingRates asked experts what they think of these moves.
The one December money move that’s probably universal to the largest number of people is the good, old-fashioned New Year’s resolution. Vowing to make positive changes when the calendar turns, of course, doesn’t actually accomplish anything. But it can put you in a good frame of mind that sets you up for success — particularly if you write your resolutions down and break them into manageable goals.
It’s not hard to find money pros who think there’s still plenty of value in the annual ritual of promising to do better next year.
“Make sure your financial resolutions are related to saving and cutting expenses,” said Sam Spratt, chief executive officer at BlueChip Financial. “This year, I think we’re all focusing a lot more on saving, saving, saving. It’s going to be a difficult, unpredictable year, and I would advise everyone to be prepared, just in case.”
The key is to set your resolution up for success by heading into the new year on strong financial footing — or at least without any new debt.
“Spend cautiously for the holidays, and save more than you normally would,” Spratt said. “This is not the year to make a big unnecessary expense, so if you were planning on a sports car, a designer bag or anything like that, I would wait until 2023 and see how this shakes out. Prudent is the key word moving forward in 2022.”
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Use This Year’s Savings To Invest In Next Year’s Side Hustle
Historically, making a plan to save money throughout the upcoming year was always a standard end-of-year money move. But the pandemic proved that in a long-term crisis a consistent second income stream can be much more valuable than a finite stash of savings. For many, the new December move is to budget any leftover cash not for savings but for seed money to finally get that side hustle off the ground.
The logic behind the savings-for-side-hustle tradeoff is understandable but flawed.
“Putting money toward a traditional emergency fund and building a second stream of income isn’t an either/or recommendation,” said Clayton Wood, CFP, managing partner of C.B. Wood Financial.
The trick is to create an extra layer of protection by doing both — but do them in the right order.
“Our clients are encouraged to have three to six months of expenses in cash or cash-like investments first before investing in a second income stream,” Wood said. “Especially in this volatile market, we’d rather clients have the support of an emergency fund, so they feel confident in taking the risk of investing in other income streams, like real estate or a side hustle.”
Investors with a set-and-forget mindset might notice that the market’s movements throw their portfolios way out of whack if they don’t check in for a long spell. That reality has always made December a good time to revisit your investments and reweigh your assets to the right percentages through the process of rebalancing.
“While this has always been good advice, it’s something that really needs to be emphasized right now, which is not always the case,” said Jeff Tsai, co-founder of JAVLIN Invest. “Proper rebalancing can help lower your risk while maximizing potential return, especially when using a portfolio optimization tool to help.”
It also provides an excellent opportunity to check in with your investments and take inventory.
“A good first step to do so is to re-gauge how much risk and volatility you can handle right now,” Tsai said. “The stock market is always unpredictable, and that’s especially the case right now due to so many COVID-related factors like inflation, a possible increase in the Federal Reserve’s key interest rate and more. This very much depends on your time horizon for when you believe you will need the funds from your investment — retirement, a savings goal like a wedding and the like. Secondly, investors should then find out how their stocks have fared over the long-term not just from their returns, but from a risk/return perspective, and compare those to a benchmark like the S&P 500.”
Evaluate Last Year and Budget, Plan and Prepare for the Coming One
Some December money moves are so timeless that even a global pandemic can’t diminish their necessity from one year to the next. The most enduring of them all is the end-of-year household budget.
“My financial advice actually hasn’t changed,” said Jake Hill, CEO of DebtHammer. “I still advise our clients to examine their spending through the past year and reconfigure — or create — their budget for next year with their goals in mind. I think this is the best use of time when it comes to financial planning.”
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