Year-End Financial Planning: Strategies to Set Yourself up for Success in 2025

As the year draws to a close, it’s the perfect time to assess your financial health, reflect on the past year, and set actionable goals for 2025. Thoughtful year-end financial planning not only helps you close the year on a strong note, but also sets the foundation for financial success in the coming year. Here are some key strategies to consider, including reassessing the past year, tax-loss harvesting, re-evaluating your asset allocation, and refining savings
and expense goals.

Reflect on Your 2024 Finances

The first step in effective financial planning is to review what worked and what didn’t over the past year. Analyze your income, spending, and savings habits. Did you stick to your budget? Were there any unexpected expenses, and how did you handle them?

Take time to evaluate your major financial milestones. Did you meet your savings goals for retirement, a home purchase, or an emergency fund? Identifying gaps between your goals and outcomes can help you adjust your strategies moving forward.

Look at Tax-Loss Harvesting

Tax-loss harvesting is a year-end strategy that allows you to offset capital gains by selling underperforming investments. If you’ve realized gains on certain assets this year, selling investments that have lost value can help reduce your overall tax bill.

Here’s how it works: If your losses exceed your gains, you can use up to $3,000 of those losses to offset other income. Any additional losses can be carried forward to future tax years.

However, be mindful of the wash-sale rule, which prohibits you from repurchasing a substantially identical security within 30 days of selling it at a loss. Consult a tax advisor to ensure compliance and maximize this strategy’s benefits.

Re-evaluate Your Asset Allocation

December is an excellent time to review your investment portfolio to make sure it aligns with your financial goals, risk tolerance, and time horizon. Over the course of a year, market fluctuations can cause your portfolio to drift from its intended allocation. For example, if stocks have performed well, they may now represent a larger portion of your portfolio than you initially intended, potentially increasing your risk exposure.

Rebalancing involves selling some assets and buying others to bring your portfolio back in line with your target allocation. This assists you in maintaining a diversified portfolio that reflects your financial objectives.

Additionally, consider whether your goals or circumstances have changed. For instance, if you’re nearing retirement, you may want to shift to more conservative investments to protect your savings from market volatility.

Set Savings Goals for Next Year

Saving should always be a top priority, and the new year is an opportunity to refine your savings goals. Start by evaluating your progress toward long-term goals such as retirement. If you haven’t maxed out contributions to tax-advantaged accounts like 401(k)s or IRAs, aim to do so. For 2025, the 401(k) contribution limit is $23,500, with an additional $7,500 catch-up contribution allowed if you are 50 or older.  For those ages 61 to 63, a higher catch-up of $11,250 is available.

Beyond retirement, assess your progress on building an emergency fund. Experts recommend having three to six months’ worth of living expenses saved. If you’ve dipped into your emergency fund this year, prioritize replenishing it.

For shorter-term goals, such as saving for a vacation or a new car, determine realistic monthly savings targets and automate contributions to a dedicated savings account.

Set and Manage Expense Goals

Understanding your expenses is just as critical as meeting your savings targets. Review your spending patterns over the past year and identify areas where you can cut back. This might involve reducing discretionary spending like dining out or subscription services, or finding ways to lower fixed costs such as renegotiating insurance premiums or utility rates.

Next, create a monthly budget that aligns with your income and financial goals. A good rule of thumb is the 50/30/20 rule: Allocate 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment.

Start the Year Strong

Year-end financial planning isn’t just about reflecting on the past—it’s about setting yourself up for success in the future. By reassessing your financial situation, optimizing your tax strategy, rebalancing your portfolio, and refining your savings and expense goals, you can enter the new year with more confidence and clarity.