Your 3 steps for fall financial planning
Fall is here. Here are three steps to take to end the year feeling good.
By
Betterment Editors
Published
Your 3 steps for fall financial planning Oct 9, 2023 4:24:07 PM Fall is here. Here are three steps to take to end the year feeling good. By the time December rolls around, the last thing most of us want to think about is finances. That’s why we’ve compiled three steps to take this fall to make the end of this year (and the start of next year) less stressful. By spending a few hours looking at your investing plan, potential charitable donations, and tax situation, you can decrease year-end stress, and set yourself up for long-term success. Your three steps for fall financial planning: 1) Review your asset allocation based on your goals Review your investment accounts outside of Betterment: To get a full understanding of your asset allocation, be sure to review your investments across all platforms. Look at your 401(k), taxable investment accounts, and even cash. You may have appropriate asset allocation on one platform, but when you look at your accounts holistically, you may notice you are over or under-invested in a specific asset class. Tip: To make sure you are not forgetting any accounts, use our “connected accounts” feature to get a clearer picture of all of your financial assets (and debt). Review your investing goals: To make sure your asset allocation is still appropriate, review each of your investing goals. For shorter-term goals, a Cash Reserve account can be a good option. But for longer-term goals, we recommend diversified investment portfolios. You can set up a new goal in your Betterment account and we’ll recommend the asset allocation based on your inputs. 2) Plan your year-end charitable giving Set a budget: If you have a larger budget for your spending, make sure to include charitable giving as a line item. Even if you don’t track a budget, think about how much you can afford to donate this year. This can help make sure your giving fits into your spending during the final months of the year. Tip: If you feel like your budget is not as high as you’d like, you can also volunteer time. Consider donating shares: Donating shares that you’ve held for more than a year can boost your charitable giving and offer a tax benefit. We've partnered with well-known charities across a range of causes to make it simple for you to donate. Learn how to donate shares. 3) Optimize your tax planning Plan for a tax bill: Look at your past year’s sources of income. If you have income from freelance work or interest income from high-yield savings, make sure you plan ahead to be able to pay your tax bill. Increase 401(k) contributions: You have until December 31st each year to contribute to your 401(k). Consider increasing your contribution during the final months of the year which can lower your taxable income. Consider tax coordination: If you are investing in multiple accounts, a sophisticated tax optimization strategy known as asset location can increase your after-tax returns. While asset location requires detailed, continual work if you're trading on your own, our Tax Coordination approach is automated and can be used with retirement goals at Betterment. Learn more about Tax Coordination. Consider tax loss harvesting: Tax loss harvesting is the practice of selling a security that has experienced a loss. By realizing, or "harvesting" a loss, investors are able to offset taxes on both gains and income. The sold security is replaced by a similar one, ideally maintaining an optimal asset allocation and expected returns. Our Tax Loss Harvesting+ service is automated once enabled and available at no additional cost to Betterment users. Bonus tip: As you end the year, review your emergency savings. If you haven’t saved at least three months’ worth of living expenses consider setting up an Emergency Fund goal in your Betterment account. You can automate small deposits each month to start saving today.
By the time December rolls around, the last thing most of us want to think about is finances. That’s why we’ve compiled three steps to take this fall to make the end of this year (and the start of next year) less stressful. By spending a few hours looking at your investing plan, potential charitable donations, and tax situation, you can decrease year-end stress, and set yourself up for long-term success.
Your three steps for fall financial planning:
1) Review your asset allocation based on your goals
- Review your investment accounts outside of Betterment: To get a full understanding of your asset allocation, be sure to review your investments across all platforms. Look at your 401(k), taxable investment accounts, and even cash. You may have appropriate asset allocation on one platform, but when you look at your accounts holistically, you may notice you are over or under-invested in a specific asset class. Tip: To make sure you are not forgetting any accounts, use our “connected accounts” feature to get a clearer picture of all of your financial assets (and debt).
- Review your investing goals: To make sure your asset allocation is still appropriate, review each of your investing goals. For shorter-term goals, a Cash Reserve account can be a good option. But for longer-term goals, we recommend diversified investment portfolios. You can set up a new goal in your Betterment account and we’ll recommend the asset allocation based on your inputs.
2) Plan your year-end charitable giving
- Set a budget: If you have a larger budget for your spending, make sure to include charitable giving as a line item. Even if you don’t track a budget, think about how much you can afford to donate this year. This can help make sure your giving fits into your spending during the final months of the year. Tip: If you feel like your budget is not as high as you’d like, you can also volunteer time.
- Consider donating shares: Donating shares that you’ve held for more than a year can boost your charitable giving and offer a tax benefit. We've partnered with well-known charities across a range of causes to make it simple for you to donate. Learn how to donate shares.
3) Optimize your tax planning
- Plan for a tax bill: Look at your past year’s sources of income. If you have income from freelance work or interest income from high-yield savings, make sure you plan ahead to be able to pay your tax bill.
- Increase 401(k) contributions: You have until December 31st each year to contribute to your 401(k). Consider increasing your contribution during the final months of the year which can lower your taxable income.
- Consider tax coordination: If you are investing in multiple accounts, a sophisticated tax optimization strategy known as asset location can increase your after-tax returns. While asset location requires detailed, continual work if you're trading on your own, our Tax Coordination approach is automated and can be used with retirement goals at Betterment. Learn more about Tax Coordination.
- Consider tax loss harvesting: Tax loss harvesting is the practice of selling a security that has experienced a loss. By realizing, or "harvesting" a loss, investors are able to offset taxes on both gains and income. The sold security is replaced by a similar one, ideally maintaining an optimal asset allocation and expected returns. Our Tax Loss Harvesting+ service is automated once enabled and available at no additional cost to Betterment users.
Bonus tip: As you end the year, review your emergency savings. If you haven’t saved at least three months’ worth of living expenses consider setting up an Emergency Fund goal in your Betterment account. You can automate small deposits each month to start saving today.