The New Year is just around the corner, and while you may be busy with year-end plans, travel, and shopping, it takes a little planning ahead to be successful this coming year. Starting early will help you create a solid plan for your income, debt, savings, and ensure you continue to make progress toward your short- and long-term financial goals.
6 Ways to Prepare Your Finances for the New Year
Consider using any downtime before the new year to get your financial house in order. Consider a few easy steps.
Dust off your budget
Reviewing your budget before the new year can help you identify where you need to make adjustments. Say your income has changed since you last accessed your budget, or you’ve taken on new debt or paid off a loan. Considering how much you spend and how you expect it to change in the new year can help you stay on track and make sure you’re setting aside enough to cover your expenses and reach your goals. on time. If you’ve spent quite a bit on gifts or holiday spending, it’s also a good time to think about how you’ll top up your savings or pay off any debt you’ve taken on as a result.
“If there are changes in your compensation, it’s wise to review your budget and determine how the change may affect your cash flow,” says Patrick Marchinko, a certified financial planner and financial advisor at Bogart Wealth. “Pay raises are opportunities to increase savings, pay down debt, and set aside more money for personal things like entertainment and vacations.”
Try to plan ahead for any major expenses you may have in the coming year so you start saving for them now and don’t blow your budget. “Expenses like annual insurance premiums or tax payments can creep up and drain your cash balance,” Marchinko says. “By having an idea of when larger expenses are coming up, you’ll be better prepared for how you’ll pay them and avoid going into debt or using credit cards.”
Maximize your retirement contributions
While saving for retirement may not be a priority every day, it’s important to keep track of your savings and grow your investments as you get older so you can benefit potential employers and continue to grow your nest egg. eggs for the future.
“It usually takes one to two pay cycles to see any change in your 401(k) contributions. If you don’t think you can make these changes in time, there’s good news: You have until April 18, 2023 to make any 2022 IRA contributions,” said Morgan Vet, vice president of Bogart Wealth. and a financial advisor.
Make plans for your holiday bonus
If you received a year-end bonus from your employer, you may be tempted to blow it on a year-end trip, gifts, or some other impulse purchase. Try to show restraint and make a plan for that money. consider where it will have the greatest impact. Maybe you’re close to paying off your auto loan and that extra boost can help you get to the finish line. Maybe you have lingering credit card debt that’s costing you hundreds in interest per month. Using that money wisely now can pay off in the long run and help you save.
Top up your emergency fund
If it’s been a tough year for you and you’ve had unexpected expenses, you may want to put a little or a lot into your emergency fund. After all, that’s what it’s there for. But the most important part of using that safety net is having a plan for how you’re going to replenish those funds. Less than half of Americans have enough savings to cover a $1,000 emergency, according to Bankrate research. And more than 30% of respondents said they would finance their emergency by using a credit card or personal loan, or by borrowing money from family and friends. Borrowing at high interest rates is a risky move, but by planning ahead and keeping at least three to six months’ worth of expenses in your emergency fund, you can ensure that your larger financial goals aren’t derailed by short-term financial emergencies. .
Use up all FSA funds that will soon run out
If you’re investing in a flexible spending account (FSA), it’s important to note that these funds usually have a “use it or lose it” clause and may not change from year to year. However, your employer may offer you a grace period that gives you extra time at the start of the new year to spend some of your money. You can use these funds to pay for certain medical expenses, dental expenses, personal care items, and more. Consider making appointments with your doctor in advance so that you can save on any costs that may arise as a result.
If your financial situation is still in flux, use this time before the new year begins to figure out how to correct course. Small changes to your budget, savings investments, debt payoff strategies, and spending habits can add up to big strides toward your money goals over time.