Just like that, another year has almost gone by.
Before you head off to your next holiday party or stand in line to return unwanted presents, take some time to prepare your finances for the upcoming year. Your future self will thank you when you make preparations. Here are five tips you should consider to end your year with a strong start for the new one.
With budgets – like with almost everything else in life – there’s always room for improvement. Looking at what you spent this year will help you identify opportunities to cut back or adjust your spending, and use that money elsewhere.
To start your review, go look at all your expenses. Write them down if you have to, or grab data from your budgeting software (or spreadsheet) and look at the following:
Membership and subscriptions
How much you spent in each category as a whole (entertainment, food, etc.)
Big fixed line items like insurance, transportation and housing
Go through these expenses with a fine tooth comb and see if there’s anything worth rethinking.
Say, for example, last year’s New Year’s resolutions included exercising five days a week, so you purchased a gym membership, plus a pair of dumbbells and resistance bands to do workouts at home. If you aren’t going to the gym, and it’s unlikely that you’re going to do so, you can eliminate your gym membership, potentially saving you hundreds of dollars a year. By finding ways to cut back on expenses, you can use the money you save at the end of this year to help reach your financial goals.
There’s no way around it — having a ton of debt can be stressful. How great would it be if you could celebrate the end of the year in style by becoming debt-free — or close to it?
Start looking at your debt repayment goals to see if you’re on track. Grab credit card statements and loan documents, check the rates, see how much you’ve been paying and how long it will take you to become debt free, if you don’t do anything differently. This is where a calculator may come in handy.
If you have a lot of high-interest debt, such as credit card debt, you could consider consolidating. Depending on your credit rating, you may be able to find a lower rate or negotiate with your current issuer or lender for more favorable terms. Even if you can’t get a better rate, you may want to consider if you can pay off your debt faster by increasing your monthly payments – either by how much or how many times you pay.
There are different ways to approach debt. The debt snowball method and avalanche methods are other ways to help you move forward in your debt repayment goals. The debt snowball method focuses on paying off a loan with the smallest balance first, whereas the avalanche method focuses on paying off a loan with the highest interest rate.
Start implementing one or more of these techniques, or others, so you’re ready to begin the new year off on the right foot.
Now’s a good time to check to see how much you have in your account and use the money towards qualified healthcare costs. Your plan provider or the IRS website should be able to provide you with a list.
An FSA is a type of account to help you pay for out-of-pocket healthcare expenses. You can put pre-tax money into the account. You’ll lose any unused funds in your FSA at the end of the plan year, although some plans may let you roll over $500 to the next year or provide a grace period.
One way to get ready for retirement is to place money in tax-deferred savings plans, like a Traditional IRA or employer-sponsored 401(k) plan. In 2018, the maximum you can contribute to an IRA is $5,500 ($6,500 if you’re at least 50) and $18,500 for a 401(k) plan (plus an additional $6,000 if you’re 50 or older).
Roth IRAs on the other hand, which are not tax-deferred, are useful if you would rather pay the taxes on your retirement contributions now and not have to worry about taxes when it comes time to use those funds. While the deadline to contribute to both Traditional and Roth IRAs is in April, now is a good time to see if there’s any wiggle room in your budget to increase your contributions so you can get on track for retirement.
While you’re planning ahead for next year, it could also be helpful to review your financial goals and spending in the last 12 months. Were you able to set aside money for a home down payment? Or did you finally get to go on that Mediterranean cruise you’ve always dreamed of? If you fell short, what are some changes you can make to meet your goals?
One thing you can do to help ensure that you have enough money for your financial goals is to open a separate savings account and set up an automatic transfer each month. Yes, even something as low as $25 could go a long way towards reaching your goals. The point is to set yourself up for success for years to come.