Want to prepare for a prosperous new year? Start by getting your financial house in order. Your year-end financial checkup isn't just about closing the books; it's about setting up your next chapter. Having a strong understanding of your financial situation can help you prepare for uncertainty and set yourself up for future success.
To make the process easier, here's a quick checklist of smart, simple actions that can help lead to long-term results. By staying on top of your finances, you can keep one eye on what you need in the short term and the other eye on your long-term goals.
Review Your Financial Goals: Set Achievable Targets
First, review and refine your past year's goals and how well they went. Then, use them as a template for a new set of targets. Important: Dream big, but also be flexible and realistic. Goals should stretch you, not stress you.
- Refine your short- and long-term targets based on your evolving life situation. For instance, are you putting money aside for a new car or home? Is this the year you finally build an emergency fund? Or is it time to prioritize retirement savings?
- Ensure you have the right bank accounts set up to match your savings goals. For example, a high yield savings account is perfect for that emergency fund, while a certificate of deposit (CD) is a great pick to lock away the few thousand dollars you've already saved toward a big purchase coming up months (or even a few years) from now.
GET STARTED: Savings Goal Calculator
Analyze Expenditures: Identify Savings and Cutbacks
Life gets busy, and it's easy to lose track of what you've been spending. But smart budgeting starts with understanding where your money goes.
- Spending habits: Review your monthly and annual spending habits. What's draining your budget? Looking back, what expenditures could you have happily done without?
- Budget leaks: Identify "leaks"—subscriptions, unused services and impulse buys. Even small costs can add up fast.
- Convenience costs: Think of the money you spend on convenience, like overnight shipping or food delivery. Would a little extra effort or patience lead to big opportunities to save more?
- Spending triggers: Figure out your spending triggers, and consider using a strategy such as loud budgeting to get friends and family on board with your savings goals.
- Expense tracking: Find tools to help you track your spending, such as apps, spreadsheets or old-fashioned notebooks.
READ MORE: 7 Tips To Help You Save $3,000 in One Year
Retirement Planning: Maximize Contributions
Retirement might seem far away, but it's getting closer every year. Review your retirement savings goals and whether you're contributing enough. If not, can you add more?
- Contribution amounts: Check your 401(k), IRA or Roth IRA contributions. Are you on track? Should you boost your contribution next year?
- Contribution limits: Understand your contribution limits and catch-up opportunities, especially if you're over 50. Remember that experts generally recommend you have one year's salary put aside for retirement by the time you're 30, three times your salary by 40, six times by 50 and eight times by 60. If you haven't reached those numbers yet, now is a great time to increase your retirement savings.
- Tax benefits: Consider making extra contributions before year-end to maximize tax benefits.
- Automatic savings: If you've been having trouble putting money aside for retirement, consider setting up an automatic savings plan.
READ MORE: 5 Ways It Pays to Fund Your IRA
Investment Portfolio: Assess and Rebalance
Investments need to be reviewed periodically, even if you've got someone managing them for you.
- Asset allocation: Look at your asset allocation. Does it still align with your age, goals and risk tolerance?
- Balance: Rebalance your portfolio to ensure it's on track with your goals.
READ MORE: 10 Lessons You Should Learn Before Investing
Tax Strategies: Plan for Efficient Filing
Yes, tax season is right around the corner again—so don't put off getting organized. Now is an ideal time to recall any hiccups or annoyances that can be smoothed out by better planning, and to consider things like donations and savings contributions for the upcoming year.
- Refine your organization system and ensure that all important documents are going to the right place so you know where to find them at tax time.
- Check your withholding and ensure you're able to maximize any year-end deductions, such as 401(k) contributions.
- Think about making end-of-year charitable contributions, and consider setting up monthly donations for next year rather than waiting until year-end.
- Check the balance in your flexible spending account (FSA). Is there any left to use up?
READ MORE: 3 Tax Planning Tips to Help Reduce Your Taxable Income
Debt Management: Reduce and Eliminate
As the year winds down, take stock of your debt. Borrowing money can be a good thing when done responsibly, but it's still important to understand your debt situation and minimize your costs.
- List your debts. Write down all current debts—mortgage, student loans, credit cards and personal loans—along with their interest rates and minimum payments.
- Prioritize debts based on interest rates and payoff potential. For example, you might choose to make extra payments on a credit card with a high interest rate, or to completely pay off a smaller debt to simplify your accounts (and feel accomplished!).
- Pick your payoff plan. Choose a debt payment strategy, such as debt snowball or avalanche, and stick with it heading into the new year.
- Look for better terms. Explore refinancing or consolidation to lower your rates, and pay off any promotional financing before offers expire.
READ MORE: Want to Be Debt-Free? Start with this Checklist
Estate Planning: Ensure Your Affairs Are in Order
You don't need a will... until you really need a will. In other words, it's best to get it done sooner rather than later.
- Review (or create) your wills, trusts, medical directives and beneficiaries. Check in with your parents and other family members to ensure they've done the same.
- Consider speaking with an estate attorney if your life situation has changed, such as if you've had a child, gotten a divorce or received an inheritance.
READ MORE: What Is a Trust and How Does It Work?
Financial Wellness That Lasts Longer Than the Calendar Year
A solid financial foundation isn't just about money. Your year-end financial checkup is an investment in the moments that matter—family, health and purpose—and a way to empower yourself by taking control of your financial health to help you head into the new year with confidence.
READ MORE: 7 Money Management Tips for Your Peak Earning Years