5 money moves to make now to ensure financial success in the new year

The end of the year is an important time to make financial decisions that may have an impact on the coming year – and years to come.

From your job to your savings and investments to spending and giving back, here are five steps you should consider taking before December 31 that will help set you up for financial success in 2023:

You don’t want to end up paying interest and penalties or a big tax bill next year because you didn’t have enough tax taken out of your paycheck this year. Even if you’ve just been laid off, it’s important to double check so you don’t take an unexpected tax hit. And, if you’re retired, make sure you’re paying the appropriate taxes on your retirement withdrawals.

The IRS says one way to tell if you’re on track to pay the right amount of income tax is to pay the same amount as you did in 2021 or, for taxpayers higher. the income, maybe more. Remember that even if you got a tax refund last year, with no stimulus payment for 2022 and a less generous deduction for charitable gifts, you may receive a smaller refund in 2023 .

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You can also do a “paycheck checkup” by going to the Tax Withholding Estimator on the IRS website to check the amount of tax withheld from your paycheck. You may have time to make a change to your withholding for the last pay period of the year by submitting a new W-4 form to your employer. If it’s too late to make a withholding adjustment that way or if you’re self-employed, you can send an estimated tax payment directly to the IRS. The fourth quarter payment deadline is Tuesday, Jan. 17, 2023.

A 401(k) retirement savings plan is one of the most sought after workplace benefits. You can contribute up to $20,500 to a 401(k) plan in 2022 – or up to $27,000 if you’re 50 or older.

If you can’t afford to contribute the maximum amount to your 401(k), many financial advisors say to put away at least enough money to match your employer’s contribution, if it’s offered. . That’s free money!

Increasing contributions to a traditional 401(k) plan can lower your adjusted gross income while increasing your retirement savings. But with only one pay period left for 2022, you need to make changes to contributions quickly.

Quick access to cash to cover unexpected expenses is also important. Yet a new survey from Betterment at Work found only 59% of employees currently have an emergency fund – a 7% decrease from last year, leaving 41% without any kind of safety net.

With recent layoffs and concerns about a looming recession, getting a temporary job can be very helpful. Part-time retail or restaurant work or doing holiday decorating for a fee may help you earn extra money to save.

The Federal Reserve’s interest rate hike this year has resulted in higher rates for many online-only savings accounts. Some such accounts pay up to 3.5% interest with no minimum balance, according to Bankrate.com.

If you just can’t afford to save more now, just make sure you don’t overspend. Think about how you plan to pay for the holiday purchase before you buy it. Using cash instead of credit can help you stick to your budget and stay out of debt. Some merchants will charge you less for paying in cash to avoid credit card transaction fees. By paying cash, you can in some cases, pay 3% less than the purchase price. Digital payment applications – ApplePay, Venmo or CashApp – can also work like paying cash.

Using a credit card gives you more consumer protections than a debit card and you can also get rewards: cash back, or airline or hotel points. Choose a low-rate card or a card with a 0% interest introductory offer, especially if you don’t think you can or won’t pay your balance in full by the end of the billing cycle.

Beware of store credit cards. The average retail store-only credit card charges 28% interest, according to CreditCards.com.

Also, be careful when using buy now, pay later products, a popular option for online shopping at many retailers. While you can spread payments for interest-free purchases, buy now, pay later loans are not subject to the same regulations that apply to credit or debit cards. There are fewer purchase protections, too, including the ability to dispute a charge if you bought a good or service that wasn’t delivered as promised.

It may be more difficult to claim a charitable deduction this year than in the past two years. You are no longer automatically taxed with an above-the-line deduction for cash donations; you must itemize the deductions on your 2022 tax return.

However most people tend to choose not to itemize because doing so may not provide as large a tax reduction as taking the standard deduction. For 2022, the standard deduction is $12,950 for single filers, $19,400 for head-of-household taxpayers and $25,900 for married couples filing a joint return.