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End of Year Financial Checklist

If you’re like most people this time of year, (I know I am) we ask ourselves “where did the year go”. It’s very easy to get caught up in life. We postpone or forget the things that we promised ourselves we would pay more attention to when the year began. This includes our finances.

To make sure we take full advantage of what’s left of this current year, and set ourselves up for a good start in January, here are some tips on how to get your finances in order.

1. Tax withheld at source (your employment income)

If you went through life changes you need to consider how those changes can affect your taxes. Examples of changes that could affect how you file include a new child, a raise in pay, a promotion, separation from your spouse, retirement, or a marriage.

If you find yourself owing money to the government every year, consider withholding more money from your paycheck. BUT only if you are bad at saving money. If you are good at saving money, you are better off keeping the money invested until you need to pay your taxes.

Alternatively, if you get big refunds every year, consider reducing the amount of taxes you pay throughout the year and use the saved cash to invest or save throughout the year. You don’t want to be giving the government an interest free loan using your hard-earned money.

2. Charitable Giving

There’s a good reason most charities see their biggest fundraising dollars come in at the end of the year. Making a charitable donation in someone’s name can make a great holiday gift. And your charitable donation may be deductible. It’s a win for you, a win for your loved one and a win for the charity.

BONUS: It will make you feel warm and fuzzy knowing you are helping.

3. Check your beneficiaries

When you apply for a life insurance policy, 401(k), IRA, RRSP, TFSA and even some non-retirement accounts, you will name a beneficiary. A beneficiary is the legal name of the person you want to inherit the proceeds from your accounts or policies after you die.

Even if you have a will, (50% don’t) many don’t realize that it does not control who receives all your assets when you pass away. Without proper beneficiaries, the distribution of your assets will likely get held up, hurting the very people you are trying to help.

A new marriage will also affect your will, often making it null and void.

4. Get your credit report

In the United States, you’re entitled to one free copy of your credit report from each bureau, every year. The Federal Trade Commission (FTC) website explains your right to a credit report and provides contact information for their authorized vendor.

In Canada you can get your free credit report from Equifax.

5. Insurance Review

Ensuring that you are properly protected is more important than ever. Review any existing policies (life, critical illness, disability) you and your family have. I would include homeowner’s or renter’s insurance, car insurance, and health insurance, and ask yourself a few questions:

  • Does the original reason you needed coverage still exist or should you look at other insurance products?

  • Do you need more or less insurance in the coming year?

  • Do your deductibles need to be adjusted?

  • How do your insurance policies fit into your budget for the year? What changes might you need to make?

Going through each of your policies one by one will help you get a better sense of where your money’s going and help you feel a bit more prepared.

6. Budgeting

Are you overspending or underspending? Now is a good time to review your income and expenses. Modify it where needed. If you don’t keep receipts, you can get a fairly accurate assessment of where your money went by going through your credit card and bank statements.

Going over the past years’ purchases will reveal where your money was spent, and you may discover some shocking surprises. This will motivate you to make some minor tweaks or major adjustments heading into the new year.

7. Monthly subscriptions and automatic payments

Going through this exercise with friends, we almost always discover opportunities to trim and save money. Look for any automatic payments to remove or adjust? You may be paying more for a service than you thought. Or maybe you’re paying for something you don’t use anymore. Eliminate any automatic payments that aren’t working for you anymore.

When was the last time you visited your gym? Even if it’s a minimal amount of money, if you’re not using it, it’s a waste of money. Same goes with Netflix, Spotify, or anything else for that matter.

Optimize your registered accounts and contributions (for Canadians)

Canadians have access to registered accounts with special benefits and rules. The benefits are primarily tax-sheltering or tax-deferral. However, there are specific rules to consider, mainly related to contributions. The end of the year is a good time to review your registered accounts and contributions to ensure you’re optimizing them. Accounts to consider.

Tax-Free Savings Account (TFSA)

Any investment income earned in a TFSA is tax-free. However, there is a contribution limit on your TFSA. You can confirm your contribution room by calling the Canada Revenue Agency (CRA) or logging into your online CRA My Account. If you have room and want to contribute, the deadline is December 31, 2021. Any contribution made before this date will be considered for next year’s contribution room.

The TFSA contribution limit for the 2021 tax year is $6,000. If you haven’t contributed to a TFSA since it was first introduced, the total maximum contribution limit up to and including the year 2021 is $75,500 — as long as you’ve been over 18 since 2009 and have a valid social insurance number.

Registered Retirement Savings Plan (RRSP)

Like a TFSA, any investment income earned in an RRSP is tax-free. However, when you withdraw from an RRSP, you must claim it as income and pay tax on the amount withdrawn. The silver lining is RRSP contributions are tax-deductible. This means in the year you make an RRSP contribution; your taxable income will be reduced by the same amount. For this reason, there is a big incentive to make an RRSP contribution, reducing taxes payable.

The 2021 deadline to contribute is March 1, 2022.

Registered Education Savings Plan (RESP)

The more you contribute to your RESP, the closer you’ll get to saving for your child’s post-secondary education. Another incentive to contribute is to take advantage of the Canada Education Savings Grant (CESG), designed for low to middle-income families. If you are eligible, the government will contribute funds to your RESP as a benefit. The government matches 20% of your contributions to an RESP, up to $500 per beneficiary per year, and up to a lifetime max of $7,200.

The Canada Learning Bond (CLB) is money that the Government adds to a Registered Education Savings Plan (RESP) for children from low-income families. This money helps to pay the costs of a child’s full- or part-time studies after high school at:

  • apprenticeship programs

  • CEGEPs

  • trade schools

  • colleges

  • universities

No personal contributions to an RESP are required to receive the CLB.

The Government of Canada contributes up to $2,000 to an RESP for an eligible child. This includes:

  • $500 for the first year of eligibility

  • $100 each year the child continues to be eligible (up to and including the benefit year in which they turn 15)

The deadline to contribute to an RESP this year is December 31, 2023.

It’s always a good idea to review your finances. But it’s even more important to do it before the end of the year as some of the opportunities expire by the end of the calendar year.

One last tip for business owners. If you know that you’re going to spend money on your business in January, you’re better off expensing it now (December 2022) and reaping the benefits when you file your taxes in 2023. Otherwise, if you spend the same money in January 2023, you won’t see the benefits until 2024.

So, grab your pumpkin spiced latte, kick back and let the numbers flow. You may end up outdoing Santa this year when it comes to putting money back into your jeans.

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