The end of the year is a great time to reflect on your financial situation and plan ahead for next year. Here are some tips from one of our advisors:
- Update wills/trusts and beneficiaries.
Get married this year? Have kids? Get divorced? Big life events mean it’s time to make sure legal docs like your will or trust, powers of attorney, life insurance policies, and account beneficiaries are all up-to-date. Forgetting to make these updates can be disastrous for families at some of the worst possible moments in their lives. Get in the habit of reviewing these things annually so nothing is missed.
- Get a handle on your debt and plan ahead for next holiday shopping season.
Lay it all out there to get ready to tackle debt in the new year. If you’re like most Americans, you probably racked up some credit card debt you aren’t proud of this holiday season. What can you learn from that going into next year? Figure out how much of a holiday spending budget you need to plan for, divide that by 10 or 11 months and automate your savings into a savings account dedicated to holiday spending.
- Use your raise (and possibly your bonus) to increase your 401k contributions.
Starting this year, get into the habit of taking a portion of any raise you receive and dedicating it to your 401k. For example, if you get a 5% raise, consider bumping up your contributions by 1% or more. Your paycheck still goes up, but your 401k also gets a boost. This habit can help you work toward maximizing your contributions over time, while having no real impact on your cash flow or budget. Also, see if your employer will allow you to contribute all or part of any year-end bonus you may receive toward your 401k. This can help reduce your taxable income come tax season and it also means you avoid the extra tax withholding on bonuses for that money.
- Set aside time for a year-end financial review.
Look back on the year and take note of what you were able to accomplish financially and what setbacks you may have had. Use this past year as an opportunity to continue making smart financial decisions in the new year and learn from any of the times you may have stumbled. If you have a family, talk about upcoming trips, savings goals, and any other things you need to focus on next year. Set goals and even plan to celebrate financial accomplishments as a family throughout the year. Make money fun and before you know it, you’ll feel the freedom that comes along with financial security and eventually, financial independence!