How To End The Year Financially Strong

Though financial stability is a common goal for all consumers, it's especially venerated around the end of the year. When it comes time to consider your tax burden, budget for the holidays, and create new resolutions to tackle come January, ending the year on strong financial footing is particularly important. Achieving this goal can be tough, however. Plenty of factors come together to make the final quarter of the year a gauntlet of expenses, demands, and constraints.

For example, you might be hosting the family for Thanksgiving or traveling across the country to ring in the New Year with friends, adding substantially to the outgoing expenses on your plate. Add to this the desire to perhaps take a bit of time off from work to unwind with loved ones and prepare for everything to start up once more in January, and the last few months of the year begin to come into focus as potentially troublesome for your budget, to say the least.

But there are some things you can do to organize your mental and monetary spaces, preparing for a strong finale to the calendar year. From ramping up to meet savings goals to basic clutter reduction, these five key areas can help you tackle the financials of a rapidly approaching year's end. With these action areas in mind, preparing for January can be far less stressful and offer good stability for your finances and family.

Each year you're able to invest up to a certain capped amount in your tax-advantaged retirement accounts (for a Roth IRA it's $7,000, while a 401(k) maxes out at $23,000 this year). These max values don't roll over, so come January 1, you'll be starting over again at zero and lose any unused contribution volume from the previous year. Therefore, as you approach the end of the year it's a good idea to consider how you can adjust your household budget to take full advantage of any leftover room you have to bolster your retirement investments.

The more you're able to put away each year, the more you will have on an exponentially growing scale when eventually you reach your withdrawal stage. Net worth grows increasingly quickly as you invest as a result of compounding interest, however, early milestones are the hardest to pass. This makes maximizing your contributions, especially early on in your career, particularly important. Each year, as the calendar starts to dwindle down to its end and the temperature drops for the winter, you should remember the clock is slowly ticking away at your ability to add substantially to your retirement funds. Don't let the opportunity pass you by and you'll be far better off financially.

For older Americans — or those who hope to start gifting their children or other loved ones assets earlier in life — the end of the year is a good time to consider making use of the gift-exclusion options available. In 2023, an individual could gift friends and/or family members a maximum of $17,000 without a tax implication (in 2024, this figure is $18,000). This means that a couple can give a child $36,000 without any tax liability or reporting obligation for this year, and plan for similar transfers going forward. This is a solid option for those thinking about how to transfer an inheritance without worrying about Uncle Sam looking to take his cut or imposing legal red tape on the assets. (Read more on taxes and inheritance.)

Gifting loved ones with substantial assets every year isn't something everyone will be considering, but it's crucial that you know about this scenario, regardless of your circumstances. For instance, you might be contemplating buying a car for your child, rather than cutting them a check. Depending on the vehicle (by the way, this is one spending category you should never purchase brand new within), you may be on the hook for additional reporting or tax obligations if you intend to transfer the title or purchase it in their name. The same goes for recipients of sizable gifts. Maintaining compliance with this cap or organizing a gift so that it comes from two halves of a couple rather than a single gift giver can save a lot of hassle.

Holiday spending is no joke. From traveling to gift-giving, Americans spend a lot at the end of the year. In fact, according to Capital One Shopping, the average American spends an estimated $875 on shopping alone during the holiday season. Considering, it's almost guaranteed you'll be spending more than you plan to around this time of year.

Whether it's emergency spending related to changing weather — your electricity or heating bill is certainly going to start pushing up there, for one thing — or generous gift-giving for loved ones or at end-of-year work events, the financials are often strained to say the least. You might even consider opening up your spending a little to take advantage of Black Friday or Cyber Monday deals, too. (Here, by the way, is how much Americans spend on Black Friday.)

While many people plan to prioritize saving for these expenses, the priority often manages to fall through the cracks. However, the reality is that holiday and year-end expenses are coming for you, whether you're prepared for them or not. This said, if you give yourself a few months of lead time, softening the blow of these expenses is a real possibility. Make a plan to save for this time of year and stick with it; you will be far better off if you do.

Rebalancing your investment portfolio is a practice that should be done on a regular basis, though there's no set number of times or best time of the year in which this should be done. However, many people put off their rebalancing processes because they either forget or don't feel they have the time to engage in the requisite research and trade-placing actions involved in a portfolio rebalance.

Regardless of whether you've diligently curated your portfolio throughout the year or not, though, the final months offer a great time to construct a rebalance. For one thing, setting a date while things are slower at work or you're planning to take time off anyway to perform this can give you the mental freedom required to make these important decisions.

But this isn't the only reason to consider rebalancing your portfolio as the year comes to a close. Selling off underperforming assets offers the ability to engage in tax-loss harvesting, right before the changeover into January and a new tax year. This allows you to shed any underperformers and start fresh, but it also provides the opportunity to reduce your potential capital-gains burden and lower your tax bill as well.

And finally, the end of the year's slower pace makes for a great time to clean up the clutter in your financial life. Whether it's a paper trail of printed files that haven't yet been properly organized, or a digital vault sitting as unlabeled PDFs in your computer's downloads folder, this is a crucial task, to say the least. Reducing financial clutter and organizing your records helps make finding important documents later on far less stressful.

For example, many people may need bank statements or pay stubs when approaching new lending opportunities, or moving into a new rented home. Similarly, keeping track of your utility bills helps you stay on top of critical documents that help prove your home address and personal information when necessary — a need that arises far more often than you might realize.

Keeping your personal records in good order is a hugely underrated feature of thriving personal finance. If you don't regularly file your bills, statements, and other documents diligently, taking the time to organize these files at year's end can make a huge difference going forward. Entering the new year with a clutter-free physical, digital, and mental space is a freeing experience that sets you up perfectly for success in the new year.