The new year is almost here, and you may be busy with plans, trips, and shopping for the end of the year. However, if you want to do well in the coming year, you need to do some planning now. If you start early, you'll be able to make a good plan for your income, debts, and savings. You'll also be able to ensure you're still progressing toward your short- and long-term financial goals.
Here are six ways to get your money ready for the new year
If you have some free time before the new year, you should use it to get your finances in order. Some easy steps to think about:
Take a look at your budget
Before the new year starts, going over your budget can help you figure out where you need to make changes. Since you last looked at your budget, your income has changed, or you've taken on new debt or paid off a loan. Taking stock of how much you're spending and how you think that will change in the new year can help you stay on track to reach your goals and make sure you're saving enough to cover your expenses and reach your goals on time. If you spent a lot on gifts or other holiday expenses, now is an excellent time to think about how you'll add to your savings or pay off any debt you got because of it.
if your pay changes, you should look at your budget again and figure out how the change might affect your cash flow. "Pay raises are chances to save more, pay off debts, and set aside more money for fun things like entertainment and trips."
Try to think ahead about any big expenses you'll have next year so you can start saving now and keep your budget on track. Expenses like annual insurance premiums or tax payments can sneak up on you and use up your cash. "If you know when big expenses are coming up, you'll be better prepared for how to pay for them and won't have to go into debt or use credit cards." Maximize your retirement contributions Even though saving for retirement may not be at the top of your mind every day, it's important to keep track of your savings and increase your contributions as you get older so that you can take advantage of any employer matches and continue to grow your nest egg for the future.
"Most of the time, it takes one to two pay periods for changes to show up in your 401(k) contributions. If you think you will need more time to make these changes, there's good news: you have until April 18, 2023, to make any 2022 IRA contributions, says Morgan Veth, vice president, and financial adviser at Bogart Wealth.
Plan how you'll spend your holiday bonus
If your boss gave you a year-end bonus, you might be tempted to spend it on a trip, gifts, or something else you don't need. Try to be patient and make a plan for that money; think about where it will have the most impact. You might be close to paying off your car loan, and that extra push could help you get there. You still owe money on your credit cards, and the interest costs you hundreds each month. Putting that money to good use now can help you save in the long run.
Fill up your emergency savings account.
If you had a hard year and unexpected costs came up, you may have used some or all of the money in your emergency fund. After all, that's why it's there. But if you use that safety net, the most important thing is to have a plan for how you'll get those funds back. A survey by Bankrate found that less than half of Americans have enough savings to pay for a $1,000 emergency. Over 30% of the people surveyed said they would use a credit card, a personal loan, or borrow money from family and friends to pay for an emergency. Taking on high-interest debt is risky, but if you plan ahead and keep at least three to six months' worth of expenses in your emergency fund, you can make sure that short-term financial emergencies don't keep you from reaching your bigger financial goals.
Use any FSA money that will soon run out
If you put money into a flexible spending account (FSA), it's important to know that you usually have to spend the money within a year or lose it. The money may not carry over from year to year. Your employer, on the other hand, may give you a grace period at the start of the new year that gives you more time to spend some of your money. You can use these funds to pay for medical bills, dental bills, items for personal care, and more. You might want to make your doctor's appointments ahead of time to save money on any costs that might come up.
The main point
If your finances are still not where you want them to be, use this time before the new year to figure out what to do. Small changes to your budget, how much you save, how you pay off debt, and how you spend your money can add up to big progress toward your money goals over time.
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