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Rethinking the End-of-Year Financial Planning Ritual

Rethinking the End-of-Year Financial Planning Ritual

January 05, 2024

While the end of the year tends to be a time of reflection, of looking back, and trying to squeeze a bunch of last minute items into the short time before midnight on December 31st, the new year is a fresh page.  A chance to look ahead, plan, and get everything in order.

The same is true of financial planning.

Many people engage in the annual ritual of end-of-year financial planning.  They review their goals, assess budgets, and make strategic decisions, especially ones to help optimize their tax position.  And while this seems sound on its surface, it’s actually a less than optimal away to approach this planning.

The team at ASE Private Wealth™ recognizes that January is the time to start your planning process in order to create the best potential outcome, giving you the time to do things correctly.  Here is why:

Reactive rather than Proactive

One of the biggest issues with end-of-year planning versus start-of-year planning is that it is much more reactive.  When planning is done at the end of the year, it is done in the context of looking back at what happened.  By responding to what has already happened, you are limiting the options available to you and potentially missing opportunities.  

Add in a tight deadline to meet, and you can actually end up engaging in planning that is counterproductive.  A lot of end-of-year planning consists solely of trying to capitalize on last-minute tax deductions to help lower an overall tax bill.  This myopic focus might actually be harmful to other critical considerations, such as diversification, risk management, and long-term wealth accumulation.

A better alternative is a proactive approach at the start of the year.  

With a fresh calendar and lack of an impending tax deadline, you and your advisors can engage in a proactive planning process that avoids rushed decisions and missed opportunities.  Rather than trying to grab random deductions, you can create a plan to effectively deploy your tax capital™.  Instead of restricting your decision-making to a single point in time, you can take the time to view the broader context and implement long-term strategies.

In short, playing catch-up can result in suboptimal outcomes.  Staying ahead of the process allows for a proactive approach to your planning that is considerably more balanced and allows for better overall financial health.

It’s Just Like Exercise

Much like you need to exercise and diet consistently over a long period of time to see results when it comes to getting into physical shape, you need to put in the time and work to see results from your financial planning.

Ignoring your planning for the majority of the year, only to scramble in the final months of the year, does not provide you with the platform for success.  To yield positive results, you need a disciplined and continuous approach that lasts all year long.

Much like you may need a trainer to help with those fitness goals, expert advice can also be a crucial part of any successful planning effort.  At ASE Private Wealth™, we strongly believe in coordination and second opinions. Having a team of experts working together with a client allows for a sharing of ideas that leads to the creation of a tailored plan designed to best meet a client’s unique needs and goals.

Starting your planning at the beginning of the year allows you and your advisors the space to create this optimal plan as well as the time to implement it correctly.  With your team at your side, you are also held accountable to the plan, helping to ensure the outcomes envisioned are realized.

Life Happens

There is another benefit to start-of-year planning that might not be as obvious.  We all know that life happens - unexpected events (both positive and negative) occur and your circumstances may change.  

The rigid structure of end-of-year financial planning may not accommodate major life changes, such as job transitions, family additions, or unexpected financial windfalls or expenses. 

By planning ahead of time, you can create a more flexible and adaptive approach that allows for ongoing adjustments that better address the fluid nature of individual and business financial situations.

January is the New December

While end-of-year financial planning has become a widespread tradition, it is crucial to recognize that it is not as constructive as start-of-year planning. 

A myopic focus, reactive decision-making, overemphasis on tax optimization, inconsistent implementation, and the failure to account for life changes are among the critical shortcomings of this approach. 

Instead of waiting for the year-end rush, individuals and businesses should adopt a more holistic and continuous approach to financial planning, ensuring that their strategies align with both short-term objectives and long-term aspirations. By breaking free from the constraints of a once-a-year mindset, a more dynamic and responsive financial planning approach can pave the way for greater financial success and security.

At ASE Private Wealth™, we work with our clients and their professional advisors, such as tax and legal professionals, to identify and navigate opportunities and obstacles to create a bespoke action plan to most effectively meet their goals.