This time of year is a whirlwind. Between preparing for the holidays, traveling, spending time with family, and hopefully squeezing in some time to relax, there’s a lot going on at the end of the year. This makes it easy to overlook some less fun, but equally important tasks like checking in on your finances. If you haven’t yet already, here are 6 things to do before the year ends to maximize your financial benefits and get ready for the new year.
- Make a budget and review your spending
This year was vastly different from 2020 and 2021. With the shadow of COVID-19 largely lifted, some sense of normalcy has returned to Americans’ spending habits. More people spent their money on flights, hotels, concerts, and going out. On top of that, the Federal Reserve raised the benchmark interest rate a good deal. So, it’s probably a good idea to review your spending, and reevaluate your budget for next year. “Rising prices may have soaked up whatever additional income came from your last pay increase, leaving you wondering where all the money is going,” says Greg McBride, Chief Financial Analyst at Bankrate. “Make a monthly budget for 2023 and resolve to track your spending against it throughout the year. You may need to make adjustments during the year as certain expenses increase and that may require cutting back in another area. Calibrate your spending with your income, and any month you spend less than budgeted, transfer the difference into savings.”
- Check your progress on paying down debt
“How much debt do you have relative to the beginning of the year?” asks McBride. “Congratulations if you’ve made steady progress on paying it down, and if you’ve gone in the other direction, make a game plan to pay down debt over the next year.” If you’re still struggling to pay off your debt – especially higher interest debt like credit card debt or auto loans – McBride suggests looking for additional sources of income. Another alternative could be a cash-out refinance. Mortgage rates are much lower than credit card rates.
- Review your savings progress and set goals for 2022
Savings are a key part of a strong financial position. If you haven’t set up and emergency fund yet, it might be a good idea to get started. To review your savings, McBride says, “add up the amount you’ve contributed to your retirement accounts, 529 college savings plans, savings accounts and other investment accounts and subtract out any withdrawals taken during the year.” For the coming year, “set goals for 2023 and put the plan into action by increasing your workplace 401(k) plan contributions, setting up a direct deposit from your paycheck into a dedicated savings account and arranging for automatic transfers into an IRA and/or 529 college savings account.”
- Contribute to your 401(k) by Dec. 31
Maxing out your 401(k) is an easy way to take advantage of all the savings you can. If you haven’t maxed out your 401(k) yet, now’s the time to do it! If you end up receiving a holiday or year-end bonus, you may want to consider putting it towards your 401(k), suggests McBride.
- Review your asset allocation and rebalance your portfolio
It’s a been a wild year for interest rates and the financial market, so it’s a good idea to check in on your investments. “Taking the opportunity to rebalance back to your intended mix of stocks, bonds, cash and alternative investments means lightening up on things that have fared better – like cash – and adding to asset classes that have slumped, like stocks and bonds have this year,” McBride says. “This also enforces the discipline of ‘buying low’ and ‘selling high.’” Real estate is often considered a great way to diversify your portfolio.
- Get a free copy of your credit report
“Regularly checking your credit report is a great way to spot errors or evidence of identity theft,” McBride says. “Knowing what is on your credit report and that everything is correct is important when going to apply for a loan, rent an apartment or even change insurance carriers.” You’re entitled to one free credit report per year, which you can get at AnnualCreditReport.com.
If you haven’t yet already, it’s also a good idea to reach out to your financial advisor for a check in. This can help you review the past year and get ready for 2023!