Assessing the state of your finances at the end of the year is a great way to determine what worked and what might need adjustments in the upcoming year. It can also uncover what might be costing you more money than necessary. But before you start the process, it helps to understand what you should be on the lookout for — both big and small — when it comes to your end of year financial planning, so you can be sure your bases are covered.
Step 1: Review your overall budget
Checking in on your current budget can help you determine how you spent your money throughout the year, and whether you were able to generate more revenue than you put out. This can also help you determine where you’re spending too much so you can come up with some ways to save. For example, be sure that you’re using the subscriptions you pay for, including things like cable, land lines and entertainment (such as streaming services, magazine subscriptions, etc.). Cut back on the things you haven’t used in the past few months so you can put that money to better use.
Step 2: Get serious about debt
Whether it’s student loans, credit cards or something else altogether, the end of the year is the perfect time to make a solid plan to pay off your debts within a specific amount of time. Since you’ll also be reviewing your budget — including ridding yourself of subscriptions you don’t use and cutting back on miscellaneous items that aren’t important anymore — you can decide how to divvy up that surplus and put it towards paying off any high-interest debts you might be carrying.
Step 3: Check in on your savings accounts
The end of the year is a good time to check in on work-related options for things like a Health Savings Account (HSA) or Flexible Spending Account (FSA) to determine whether you’re using them appropriately or saving as much as you can for their maximum benefit. You’ll also want to check on your company’s policy regarding roll-overs for unused funds. For example, some plans permit unused FSA or HSA funds to roll over for use in the following year. You’ll want to verify whether yours does, and if so, how much is allowed to roll over.
The end of the year is also a good time to check in on your emergency fund savings (experts recommend keeping at least 6 months of expenses in an account earmarked for emergencies), as well as your retirement and 529 contributions. For retirement you’ll want to at least max out on any contribution matches available from your employer.
Step 4: Make the necessary policy updates to reflect life changes
Whether you bought a new house, had your first child, or started a small business, odds are there were some changes to your life over the past year that require a little financial management. This includes things like reviewing an estate plan and insurance policies, as well as updating any beneficiaries on financial accounts. It’s also a good time to check in on any changes that need to be made to your tax withholdings. For example, if you find that you owe money every year, increasing your withholdings can help avoid this issue in the future.
Step 5: Request a free copy of your credit report and check your credit score
Two of the best (and easiest) thing you can do for yourself financially before moving into the new year is to get a better understanding of where you stand with your credit score (check to see if your bank offers this service, or try Credit Karma), as well as to obtain a free copy of your credit report to check for any fraudulent activity. If your credit score is in the fair or bad range, you can also make a plan to help bring it up in the following year by doing things like setting up automatic payments so you always pay on time, decreasing how much debt you carry on your credit card and increasing your credit limit.
The end of the year is a time for joy, and there’s likely a lot to celebrate with regard to how far you’ve come with your finances. Using the final few weeks of the year to perform a check-in on the above items is a great way to ensure you enter the new year with a financially forward plan for staying on track.