With the holiday season in full gear, you likely have wrapping presents on your to-do list. While it’s not quite as fun as gift-giving, now is also the perfect time to wrap up your finances for the year.
As the year comes to an end, you’ll want to ensure all your financial ducks are in a row. That way, you can get a jump start on your goals in the new year. A lot can happen fiscally speaking in a year, and we’ll help guide you through the steps of performing a year-end financial review.
Step #1: Evaluate Your Spending Habits
Log into online banking for your financial and credit card accounts. Either download your past statements or scroll through the months one by one. If your spending is regular, consider examining a quarter or two to simplify the process.
Knowing where your money is going is the first step to correcting any bad habits. As you review your expenses, look for outliers, patterns, and costly habits in your spending. For example, if you notice that you typically dine out twice a week, set a goal for next year to commit to cooking at home more often. If you overspend with friends, set a budget and take cash when you go out. Little changes can compound over time and lead to significant savings.
Highlight any expenses that you can limit or do without entirely. For example, you may find subscriptions you completely forgot about or no longer use. It’s also worthwhile to review your recurring expenses, such as phone plans and streaming services. Look for better alternatives or opportunities to bundle services to save money. Again, minor tweaks in your spending will add up to greater savings.
Step #2: Assess Your Budget
After you review your spending habits, look at your monthly budget. Do you find that you’re over or under budget frequently? If so, reevaluate your budget and work to create a realistic and accurate version that will guide you throughout the coming year.
Take note of increases in any spending category compared to previous years, especially with rising costs for groceries, restaurants, household supplies, and more. Update your budget to reflect these cost increases. Make sure you also review your budget to remove any expenses that are no longer needed, like canceled subscriptions or services you used to pay for but now perform yourself.
Modify your spending habits as needed to align with your recently readjusted budget. If you need to allocate more of your budget towards shopping for groceries and household items, decrease your spending in another category to offset the increase in your grocery bill.
Step #3: Review Your Retirement Contributions
A popular benchmark is to save 15% of your after-tax income for retirement. While this figure might not be obtainable right away, make it a goal to increase your retirement savings annually. For example, if you can only save 5% now, work to save 7% in the coming year.
You can begin by maxing out any employer-matched 401(k) contributions. For example, if your employer matches 3% of your contributions, ensure you deposit at least that amount – after all, it’s free money! If you receive a year-end bonus, consider using a portion of these funds to top off any tax-advantaged retirement accounts before year-end.
Step #4: Check Your Credit
An excellent credit score not only improves your chances of being approved for a loan when you need it but also reduces the amount of money you pay in interest for that loan. If your credit score isn’t stellar, make it a goal to whip it into shape in the coming year.
Visit www.AnnualCreditReport.com to obtain a free copy of your full credit report. Look for and address any errors or potential fraud accounts to ensure your report is accurate. Correcting errors will provide an instant bump to your score.
Step #5: Create a Plan to Tackle Debt
Build out a payoff plan to tackle your debts in the new year. Make a comprehensive list of all your debts, including their balances and interest rates. There are two main methods for wiping out debt, so you can choose the one that works best for you:
With this method, you’ll start small with your lowest-balance debt first. Continue making the minimum payment on all your other debts but prioritize extra funds toward your smallest debt. Once that debt is paid off, allocate the additional funds you were putting into that payment to your next-lowest debt. Like a snowball starts small and grows bigger and bigger, so will your debt repayments. Keep it growing until your debts are all paid in full!
This approach prioritizes your highest-interest rate debt first. Once that one is paid off, you’ll keep working through the rankings until you’ve completely cleared out your debts. This debt repayment method provides the greatest cost savings - starting strong and continuing until it has wiped out everything in its path, just like an avalanche of snow.
Bonus Step: Schedule a Loan Review
If, after you review your finances and budget, you find that you’re still not set up to make the coming year your best yet, consider a loan review. Our team will review your outstanding loans and credit cards and look for ways to help you save money.
For example, switching your car loan(s) to the credit union can provide instant savings in both the short and long term. If you have multiple credit cards, consolidating them into a personal loan could immediately reduce your interest costs.
There are many opportunities to save on loans. Our team is ready to help you find ways to reduce your monthly payments and put more money back in your pocket.
We’re Here to Help!
Are you ready to whip your finances into shape for the coming year? We’ve got you covered! Our dedicated team is happy to work with you to help you get the accounts you need to succeed and make progress toward your financial goals in the new year and beyond.
If you’d like to schedule a loan review, we’re prepared to help. Please stop by the Credit Union or call us at 410-687-5240 to schedule an appointment.