The end of the year is the perfect time to review your finances and think about your budget for the coming year. What expenses can you take care of now, what expenses should you cut, how much should you save? These are a few of the questions to ask.
Here are end-of-the-year money moves you should make now, according to the experts.
Check your credit
To get a handle on your finances, you will have to know how much credit you have and how much debt you have on your credit cards.
“Get a grip on your credit record and ensure that it is under control as you plan to enter the new year – the worst thing you can do is overspend over the holidays,” says Thomas Mirmotahari, founder and CEO of PerkUp.
Call your creditors and get them to decrease your interest rate.
“It’s a little-known fact, but your credit card company will often cut the APR on your credit cards and give you hundreds of dollars in past interest if you ask. From the $17.3 million of credit card debt we’ve negotiated so far, debtors in good standing can expect to lower their APR 5 percent+ and get one to five months of past interest back,” shares Allison Cruz, head of operations at BillSmart, a negotiation service for phone/cable bills and credit card debt.
Pay down your debts
You don’t have to start the year with high debt.
“The last thing you probably want to do with your year-end bonus is to throw it at high-interest debts, but think of it this way: you’re actually saving more money. If the interest you’re paying on a loan or credit card is higher than the returns you’ll get on the stock market, you’ll save more by paying off your debt first—you can always invest later, once you’ve cleared your debts,” says Kenny Li, director of Investments at LNG Management.
Is your saving up to snuff?
Going into the new year, you’re going to want to make sure to have some money saved up, and if you don’t, it’s wise to create a new savings plan for 2022.
“Ascertain if you managed to save enough from the last year and take a full look at your spending patterns by justifying essentials and marking off consumables that you could have done without for the year. In this way, you’re bound to improve your financial accountability in the new year,” says Mirmotahari.
Need to start saving? Here’s how
“If you haven’t been saving at all, start now. Even $10 per paycheck – start somewhere, but start today,” suggest personal finance expert and life coach Debbi King. “And if you have been saving all along, increase your savings by 5-10 percent. You never know what is going to happen in life, and you need to be prepared financially for whatever may come your way in 2022. You want to be able to pay cash and not go into debt when life happens.”
Think up a master plan
Great finances don’t just happen; you need a blueprint. “Draw up a master plan for success for the new year, and include your financial goals with regards to financial commitments for the next 12 months, including specific amounts, savings projections, debt pay-offs, and opportunity to create new revenue streams,” Mirmotahari advises.
Think about your 2022 goals. What do you want to accomplish financially in 2022? Prepare a rough budget for 2022 based on what you know and what you have spent this year,” offers King. “Once you have a budget laid out, you can see what is left over to achieve your goals or what you might need to change in order to reach your financial goals.”
Create a budget
To establish financial independence, you’ll first need a budget.
“This is important because it helps to create a plan for how you’re going to use your money now and in the future. Everyone has different needs, so developing a budget that works for you will help you set priorities around how to spend your money in the most efficient way possible,” explains bankruptcy law specialist Ahren A. Tiller, founder and supervising attorney at BLC Law Center.
Tiller suggests using the “50/20/30 budget rule, which is a general guideline of what percentage of your income should be used for certain budget categories. The categories are: ‘essential’ spending, entertainment, and saving. Under the 50/20/30 rule of thumb, you spend 50 percent on essentials (rent, mortgage, food), 20 percent on entertainment (shopping, travel), and 30 percent on savings.”
Rebalance your budget
If you already had a budget in place for 2021, going into 2022, you’ll want to reexamine it.
“Going into a new year is a great time to declutter your budget of wasteful bills and useless services and subscriptions,” says nationally-recognized consumer finance expert Andrea Woroch. “Spend time reviewing your bills to figure out where you can trim back to save and meet financial goals you set for yourself. Begin by canceling subscriptions or memberships you aren’t using, then try negotiating with cable, internet, and other monthly providers.”
Get your tax deductions in order
Like it or not, taxes are a big part of our finances. So the time is now to look for deductions and get your paperwork for tax time.
“Filing taxes is unavoidable, and many of us wait until the last minute to prepare our returns,” says financial analyst Erica Seppala of MerchantMaverick .com. “Waiting until the eleventh hour may also cause us to overlook tax credits and deductions that can help lower our tax liability. While it’s easy to put off something that we all dread, start getting ready for tax time now. Explore different self-service tax software options to find the best option.”
Get all your documents in order.
“Gather receipts, bank statements, and other documentation if you plan to itemize your deductions. And don’t forget to do your research on current tax laws, deductions and credits that may apply to your situation, and other vital information that can help simplify your tax return while potentially lowering your tax liability,” says Seppala.
Also, look for ways to maximize your deductions.
“Diversifying your investment portfolio at the end of the year can help you to receive deductions from tax losses. Offsetting capital gains taxes can increase savings and reduce the money lost to the IRA,” advises Brad Cummins, owner and principal agent at Insurance Geek.
You might need help to get all the tax deductions available to you.
“Make sure you have taken advantage of all tax deductions. Consult a tax accountant or financial advisor and make sure you have contributed as much money to your 401k and IRAs in order to take full advantage of the tax deductions allowed. This will lower your tax owed and make you money in the process,” notes personal finance expert and life coach Debbi King.
Make sure to have an emergency fund
Emergencies can happen at any time, and it is a good idea to have finances set aside for that.
“No one knows what the future holds, but that doesn’t mean you can’t prepare for it. Having the equivalent of 3–6 months’ living expenses in an emergency savings account can keep you in the clear should you run into financial trouble. That said, don’t overpay into your emergency fund. If you’re using a low-yield savings account, you may have quick access to your funds, but you won’t beat the inflation rate. Instead, once you’ve hit your savings goal, start depositing your money into another high-interest account,” says Kenny Li.
The time is now to cut back on unnecessary spending. “As an example, let’s consider that you order Starbucks every day. From a financial standpoint, buying a latte every day may not seem like a lot of money, but it certainly adds up over time. Let’s say you buy a latte Monday through Friday throughout the year, at an average cost of $4 per drink. At 261 working days, that equates to $1,044 per year. Over five years, that number inflates to $5,220,” Tiller points out.
Tie up loose financial ends
Have you done your estate planning?
“We tend to prioritize spending over creating financial security, so take some time to tackle those big financial concerns that need addressing, such as finally setting up your will and appointing a legal guardian for your kids. You can get it all set up online in a matter of minutes right from home using a site like TrustandWill.com. They offer step-by-step tips with live chat support to help you through the process, and you can even print documents from home,” suggests Woroch.
Woroch adds, “This is also a good time to make sure you have adequate life insurance coverage. If you don’t have any, go to a site like LadderLife .com to use their life insurance calculator and apply within five minutes.”