Working Wealthy – Back to School

September 6, 2022

It’s back to school time for millions of Americans. Whether it’s the first drop-off at kindergarten or sending your young adult off for their final year of college, it always reminds me of the academic fresh start we receive this time of year. Everyone handles this time of year differently, but it is a great reminder of all the financial planning items worth revisiting as we wrap up the third quarter and prepare for the last stretch of 2022.

Taxes & Income Matter

Whether you make estimated tax payments or have taxes withheld automatically, now is a good time of year to consider where you are and how much more income you anticipate before year-end.

We often talk to clients about the importance of being aware of all sources of income. Salary, contract work, incentive compensation, bonuses, company stock compensation, and portfolio income are just the tip of the iceberg. Look at your previous year’s tax return to understand what sources you had the year before.

Even if your income is lumpy, it’s a great time of year to gauge where you think you might end up by December 31. If it stands to be a lower-than-normal income year, you could consider Roth conversions or accelerating capital gains for assets you know you may consume in the coming months or year.

If income is higher than normal, maxing out retirement plan contributions, considering charitable contributions and extra savings might be great ideas to consider.

No one likes rushing to the exit at year-end, so use the beginning of the school year to get back to basics and plan for taxes prior to December 31.

What Did You Spend

I’m not referring to a budget—I would not suggest something so painful. But in all seriousness, the end of September is a much better time to look at your last 12 months of spending rather than December 31. Why, you ask?

It’s simple—human nature prevents some of us from having the bandwidth or resolve to look at finances when there are so many other things garnering our attention in November and December. Whether it’s the year-end crush of work, the holidays, or simply the doldrums of winter, it’s tough to focus on your spending at year-end.

And let’s be honest, looking at fourth-quarter spending in December can be discouraging. Many people spend more in the fourth quarter for a variety of reasons. It’s not likely a good baseline and might lead you to give up the exercise altogether.

There’s nothing magical or different about looking at expenses in September/October versus November/December, but in our experience, it’s likely a better time to do so.

Your credit card companies and bank likely have easy-to-download spreadsheets of your spending, which you can customize the time period to capture the last 12 months.

The idea of going through statements and compiling the numbers yourself is daunting; let technology do it for you.

Hopefully, none of what I’ve written feels like homework. Leave that to the youngsters.