Year-End Personal Finance Checklist

If the pumpkin spice lattes, turkey comas, copper leaves and jack o’ lanterns weren’t a big enough giveaway, 2019 is coming to an end! As we get ready to unwrap a new calendar, it would serve us all well to pay a little attention to our personal finance to-do lists.  There are several opportunities that you could capitalize on before the end of the year that may disappear – much like the aforementioned espresso concoction.  So, don’t let your chance to make use of all that is available to you go to waste.  Here is your year-end personal finance checklist:

Employee Benefit Plans

Many of us have workplace benefit plans.  Most of those plans have spending limits that reset annually.  Use your coverage for massage, vision, dental, health spending accounts, etc. before they potentially expire forever at the end of the year.  Think of these as gift certificates that have an expiry date.  Schedule appointments to make use of them before they go up in smoke!  Why not give yourself a holiday bonus of a massage (that you are likely already paying for)?

Employer Pension Matching

Many employees are unaware that their companies offer a pension matching program.  The way that these programs typically operate is that your employer would be willing to match a certain amount of contributions that you make into the company defined contribution pension plan.  For example, if an employee contributes 5% of their pay, the company would contribute an additional 3% of their pay to the plan in their name.  This example equates to an automatic 60% investment return on your contributions!  Another way to look at it is that you would be receiving a 3% raise.  I don’t know anyone who is opposed to free money!

There is also a behavioural benefit of enrolling in these plans, as it is essentially forced savings.  The best way to change behaviour is to have it happen automatically.

Since this is the end of the year, your employer may offer a catch-up option if you were not participating in the program throughout the year.  This catch-up option may lapse at the end of the year, and like your benefits plan, the chance to gain from this offer may be lost forever.  As an added benefit, these contributions may be treated like RRSP contributions and could potentially increase your tax refund via the corresponding deduction from your income.  Win, win, win.

Related – The Biggest Money Mistake That You Might Not Even Know You Are Making

TFSA Withdrawals

Most of us know that additional TFSA contribution room accrues every new calendar year, but did you know that TFSA withdrawals are restricted annually as well?  Funds withdrawn from your TFSA cannot be re-deposited until the following year.  As such, if you are planning to withdraw funds from your TFSA early in 2020, you may be better off electing to do so before the end of the year.  This would allow you not to have to wait until 2021 to be able to have that deposit room made available to you again.

RRSP Planning

Will your taxable income change significantly in 2020, relative to 2019?  If your 2019 marginal tax rate will be greater in 2019, you may consider making additional RRSP contributions now to shield additional tax owing for 2019.  RRSP contributions are treated as a deduction from your income, which is one of the most powerful personal tax planning tools out there. 

An added benefit of this approach is that additional RRSP contributions made would also be increasing your tax refund, if eligible, or reducing the amount of tax payable for the year. 

On the flip side, if your 2020 tax rate will be much higher than 2019, you may elect to defer the deduction.  Contributions made in 2019 can always have the deduction deferred to your 2020 tax year, but they would still grow tax-deferred in the interim should you elect to defer the deduction — a true win-win.

All things being equal, additional RRSP contributions may be in your best interest, presuming you don’t need the funds until retirement.  RRSP contributions will also increase your tax refund (if you don’t have a balance owing) by your marginal tax rate.  That extra bump to your tax refund could also be the perfect kickstart to your TFSA contribution in 2020, as well.

As with all RRSP planning, your tax rate in retirement should be a key consideration. You can read my article in the Nov./Dec. issue of Canadian Money Saver magazine on how to Supercharge Your RRSP Savings.

Investment Mix

It’s been a bumpy ride for equity markets in 2019.  The ups and downs may have also had a significant impact on your current asset allocation.  Asset allocation is the distribution of your investments between various asset classes.  For example, a sample portfolio may have 60% Equities (stocks/equity ETFs), 30% Bonds, and 10% Cash and Short-term investments such as GICs. What this means, is that the swing in stock prices may have left your equity exposure too high or too low (i.e. 70% of your total portfolio instead of the 60% target).  Perhaps the gains experienced in early 2019 have offset the recent dip, but perhaps not.  Reviewing your asset allocation periodically, as well as re-assessing your risk appetite, are exercises that should be performed at least annually.

Tax Loss Selling

Given the bumpy ride of the market, you may have found yourself in an unrealized loss position in your stock or ETF positions.  Selling your underwater holdings for a loss would allow you to lock in the unrealized losses on your investments.  The realized capital loss could be used to reduce tax payable on realized gains in the current year. 

Note: This would only be applicable to non-registered accounts, as gains and losses in either TFSA or RRSP accounts are not taxable.

There is a caveat for this approach, however.  To avoid the loss being deemed a superficial loss by the taxman, you would not be allowed to repurchase the identical security for at least 30 days.  Also, in the case of ETFs, switching between two similar ETFs would also be deemed a superficial loss.  For example, selling an IShares TSX ETF and purchasing a Vanguard TSX ETF would be considered a repurchase of an identical security, despite them being different securities in reality.

You could also combine the previous two strategies above and sell your losers in an effort to rebalance your portfolio.

Assess The Impact Of Life Changes

Got married?  Had a child? Bought a home or new property? Started a business?

2019 might have been full of exciting changes.  All of which might impact your insurance needs and your estate planning.

Ensure that you have adequate life insurance to cover your new home’s mortgage or provide for your children and spouse.

Review your will to determine if your beneficiaries need to be updated, or if new significant assets need to be contemplated, like a new business or home.

This item may seem like there is no hard deadline like the end of the year, which is true.  However, with all of life’s uncertainties and surprises, this may be the most pressing of all.

The Brass Tacks On The Year-End Personal Finance Checklist

The prospect of a new year brings hope and optimism.  Make your 2020 resolution to take control of your financial wellbeing.  Not all of these ideas may be appropriate for your situation.  However, I hope that some of these may be useful for you to kick off the new year right!

If you would like assistance with the implementation of any of the above strategies, please don’t hesitate to reach out for a consultation.

Have a question or an idea for an article?  Let me know in the comments.