As the new year inches closer, it’s important to think about your finances and how you want to prepare for tax season, major expenses and simple everyday spending.
Here are seven smart money moves you can make now to set yourself up for financial success in the coming year.
1. Get a Budget if You Don’t Already Have One
It might seem simple, but using a budget is one of the most important ways to solidify your financial plan.
Budgeting not only allows you to see where your money is coming from and where it’s going, but it also empowers you to look for opportunities to cut back on unnecessary spending in order to pay down debt, save money and achieve other financial goals.
Even if you earn enough money that you don’t worry about spending more than you make, it’s a good idea to keep track of your expenses and look for chances to save more effectively.
2. Think About Big Upcoming Expenses
It’s not always possible to prepare for big expenses, but if you have some things in mind that you want to do with your money, now is the time to start thinking about how you’re going to afford them.
For example, maybe you’re considering buying a new car, or you may be thinking about buying a house. Or it may be something smaller, such as a gaming console or home appliance. Whatever it is, it’s a good idea to start saving now to achieve your goal without taking on debt if possible.
Let’s say you want to buy a new gaming console. Take a look at the price and calculate how much you’d need to save each month to get it. If the console is $300, and you can afford to save $50 per month, you can plan to buy it six months from now.
If you don’t plan ahead, though, you may have to delay your purchase. Alternatively, if you make an impulse purchase and charge your credit card, you may be stuck paying back the cost of the item, plus interest.
3. Maximize Your Tax Write-Offs
Tax season typically begins at the end of January each year, and you have until mid-April to file your annual tax return.
However, tax returns are typically based on the calendar year, so with most things, you have until the end of December to make your moves to reduce how much you owe.
Some of the ways you can maximize deductions and credits include:
- Increase your contributions to your 401(k) or Traditional Individual Retirement Account (IRA). You can backdate contributions for the first few months next year, but it’s easier to avoid waiting until the last minute.
- Set aside money in a tax-advantaged account, like a Health Savings Account (HSA), if you’re eligible to contribute to one (you must have a high-deductible health plan).
- Make some improvements to your home office if you’re self-employed.
- Tally up your expenses for classroom supplies if you’re an eligible educator (you can deduct up to $250).
- Make some charitable contributions.
It’s a good idea to consult with a tax professional to get an idea of which actions would help you personally. While some of these and other options can help, they’re not always the best choice for everyone.
4. Revisit Your Debt Payoff Plan
If you have high-interest debt, it’s a good idea to evaluate your repayment plan to make sure you’re maximizing your progress.
For example, are you making just the minimum payments on credit cards, or can you afford to pay more? Are you targeting your accounts with the highest interest rates or choosing accounts at random? Could you potentially refinance some of your debt and get a lower interest rate?
If you don’t already have a strategy for paying off your debt, now is a good time to create one. If you do have one, make sure it’s still serving your needs and helping you achieve your goals.
5. Plan for Upcoming Windfalls
If you’re expecting to receive a year-end bonus from work or a tax refund, start thinking about how you want to use that money to further your financial goals.
There’s nothing wrong with spending some of your bonus or tax refund money on something you want, but consider other ways you can put some of the cash to good use. For example, maybe your emergency fund is a little low because of things that have happened throughout the year, or maybe you have some credit card debt that you can pay off for good.
Alternatively, you could use some of your windfall to make a contribution to your retirement account. Whatever you do, take the time to consider your needs and goals and how you can make your money work for you.
6. Automate Your Savings and Debt Payments
Not everyone enjoys the process of managing money, and that’s okay. The good news is that you can automate some of the more challenging aspects of money management, specifically your savings and debt payments.
Setting up autopay on your credit accounts ensures that you don’t miss payments, which sometimes results in late fees and damage to your credit score. What’s more, some lenders may offer incentives for setting up automatic payments. With student loans, for instance, you can often get a discount on your interest rate.
Automating your savings in the form of monthly transfers to your savings account can also help because it treats your monthly saving goal like an expense, making it less likely that you’ll spend that money instead.
7. Take Advantage of Technology
Budgeting can be time-consuming and tedious if you’re doing everything on your own. Fortunately, there are plenty of apps that can help you automate some of the process. For example, SouthEast Bank’s CardValet app allows you to view all of your debit and credit card balances in one place and offers spending insights.
You may also consider a budgeting app like You Need a Budget, EveryDollar or Mint, which can import transactions from all of your financial accounts across multiple institutions, so you can track your spending, watch your savings and investments grow and look for opportunities to improve.
The Bottom Line
Preparing for the new year can feel like a daunting task, but breaking down the process makes it easier to focus on each task individually. While it may seem like you have enough time before 2022, the sooner you start planning your budget and financial goals for the next year, the better.
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Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as legal or tax advice. An attorney or tax advisor should be consulted for advice on specific issues.