As the year draws to a close, this is an important time to review your financial decisions and plan ahead for the year ahead. With higher interest rates from the Fed and rising inflation, the way you spend may have changed this year. Therefore, it is important to start the new year by understanding where your money is going and how you will manage it.
Add the following money movements to your year-end financial checklist and start 2023 on the financial side.
Review your budget
Before the year is over, it’s a good idea to analyze where your money is going so you can plan accordingly for the future. It is important to review your budget so that it makes sense entering the new year. Now is the time to identify the areas you can cut back in order to save more and examine what percentage of your income goes into each account.
For example, it is recommended that you pay no more than 30% for rent (Opens in a new tab). Decide which areas you need to prioritize and adjust your budget accordingly, whether that be saving for an emergency fund or investing.
It also means thinking about any debt you might have and making a plan to pay it off as efficiently as possible in 2023. Also check out our guide on how to pay off credit card debt.
Use your FSA funds
Because the money in flexible spending accounts, or FSAs, is “use it or lose it,” you have to spend that cash by the end of the year. Some employers have a grace period of a few months after the end of the year, during which your money rolls over. Check it out so you don’t end up losing money.
Max out retirement contributions
If you don’t already have a retirement account, such as an IRA or 401(k), you should consider opening one and contributing to it as much as you can before the year is out. If you already have a retirement plan, be sure to increase your contributions before January. The contribution limit for a 401(k) is $20,500. The maximum contribution will rise to $22,500 in 2023.
You can also make contributions to IAn Individual Retirement Account, or IRA, with a maximum of $6,000 for 2022. You have a little extra time in this account, though you can set aside contributions for the year until Tax Day.
Open a high-yield savings account
If you don’t already have one, you should open a high-yield savings account before the end of the year to boost your savings. High-yield savings accounts are similar to traditional savings accounts, except they pay higher than average APY on deposits. APY, or annual rate of return, is the amount of interest earned on the account in one year.
This means that when you save your money in a high-yield savings account, that high rate of return will allow you to accumulate more over time than many savings accounts offered by traditional banks. Normally, when the federal reserve funds rate goes up, banks will increase their annual rate of return.
Check your credit report
It’s a good idea to check your credit report before the end of the year to make sure everything is correct, especially if you plan to take out loans in the new year. Here’s how to get a free credit report.
Having errors on your credit report is more common than you think. Indeed, in 2021, 34% of Americans have errors on their credit report. Making sure everything is correct, as well as defining a plan to improve your overall credit score is essential before the start of the next year.
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