A new year is upon us, and while you may be preoccupied with year-end plans, trips, and shopping, setting yourself up to thrive this coming year requires a little planning. Getting started early will help you create a solid plan for your income, debts, savings, and ensure you’re on track to make progress toward your short- and long-term financial goals.
6 ways to prepare your finances for a new year
Consider using any downtime you have before the new year to get your financial house in order. Some easy steps to consider:
Dust in your budget
Re-examining your budget before the new year will help you know where you need to make adjustments. Say your income has changed since the last time you checked in on your budget, or you’ve taken on new debt or paid off debt. Looking at how much you spend and how you hope to change in the new year will help you stay on track to achieve your goals and make sure you have enough set aside to pay off your expenses. cost and reach your goals in a timely manner. If you’re spending less on gifts or holiday expenses, it’s also a good time to consider how you’ll replenish your savings or pay off any debt you’ve incurred as a result.
“If there are changes in your payment, it’s wise to reassess your budget and find out how the change will affect your cash flow,” says Patrick Marcinko, certified financial planner and partner financial advisor at Bogart Wealth. “Salary increases are opportunities to increase savings, pay off debts, and set aside more funds for personal items such as entertainment and vacations.”
Try to plan ahead for any big expenses you will have in the coming year so you can start saving for them now and not throw your budget off course. “Expenses like annual insurance premiums or tax payments can creep up and become a drain on your cash balance,” says Marcinko. “By having an idea of when big expenses will occur, you will be better prepared for how you will pay them and avoid using debt or credit cards.”
Maximize your retirement contributions
While saving for retirement may not be top of mind on a day-to-day basis, it’s important to monitor your savings and increase your contributions as you age so you can benefit from potential employer matches and continue to grow. in your nest. eggs for the future.
“It usually takes one to two payroll cycles to see any changes in your 401(k) contributions. If you think you can’t make these changes in time, there’s good news—you have until Apr. 18, 2023, to make any 2022 IRA contributions,” said Morgan Veth, vice president and financial advisor at Bogart Wealth.
Make plans for your holiday bonus
If you received a year-end bonus from your employer, you may be tempted to blow it on year-end trips, gifts, or other impulse buys. Try to practice restraint and make a plan for that money; consider where it will have the greatest impact. Maybe you’re close to paying off your car loan and that extra motivation will help you get to the finish line. Maybe you have lingering credit card debt that’s costing you hundreds in interest payments every month. Using that money wisely now will pay off in the long run and help you save.
Get your emergency fund back
If it’s been a tough year for you and you’ve had unexpected expenses come up, you may have dipped into your emergency fund a little…or a lot. That’s what it is out there, after all. But the most important part of using that safety net is having a plan for how you will replenish those funds. Less than half of Americans have enough savings to cover a $1,000 emergency, according to a Bankrate survey. And more than 30% of those surveyed said they would finance their emergency with a credit card or a personal loan, or by borrowing money from family and friends. Taking out a high-interest loan 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 needs are covered. purpose not to be derailed by short-term financial emergencies.
Use any FSA funds that are expiring soon
If you’re making contributions to a flexible spending account (FSA), it’s important to note that those funds often have a “use it or lose it” provision and may not roll over from year to year. Your employer, however, may offer you a grace period that will give you more time at the start of the new year to spend some of your money. You can use these funds to cover the cost of certain medical expenses, dental expenses, personal care items, and more. Consider making appointments with your doctor in advance so you can save on any costs that may arise as a result.
If your financial situation is still a work in progress, use this time before the start of the new year to figure out how to make a course correction. Small changes to your budget, savings contributions, debt repayment strategy, and spending habits can add up to significant progress toward your money goals over time.