While any time is a good time to strengthen and revitalize your personal finances, the end of the year can serve as a particularly apt moment to help set yourself up for fiscal success. The earlier you make positive changes in your life, the greater the potential impact.
If you’re ready to realign your financial priorities before the New Year, here are some tips to help you get started.
Update your financial strategy based on major life events
Perhaps you earned a promotion or raise this year, or lost a job. Maybe you received an inheritance or similar windfall. Or got married. Or divorced. Or had a child.
Whatever major life changes you experienced this year should be incorporated into your revamped financial plan for next year.
After all, it can be difficult to navigate to where you want to be if you don’t have an accurate picture of where you currently are. Making the proper adjustments for a change in circumstance today can be invaluable in helping you reach your financial goals tomorrow.
Check for “leaks” in your budget
If you haven’t revisited your budget lately, there’s a chance that you are leaving money on the table by overpaying on certain things or even neglecting opportunities to boost your bottom line.
- Look at recurring expenses such as subscriptions and memberships—gym, cable, apps, themed boxes, etcetera. Reduce or eliminate the ones that aren’t adding value to your life—and redirect those resources to other goals.
- Call your cell phone, cable, internet, and security system providers to see if it’s possible to negotiate a better deal. You may be surprised by how a proactive call can result in a lower bill—especially if you mention you may be in the market for another provider.
- Review your income tax withholding. A common budget leak is overpaying on taxes—try this IRS withholding calculator to get more of your hard-earned money throughout the year to invest or earn interest on, find out your tax liability and pay accordingly.
Reduce your taxable income
Minimizing your tax liability is another way to add more money to your pockets.
Below are a few tips:
- Fund an HSA (if you’re eligible)
- Contribute to an FSA plan
- Maximize your retirement contributions
- Contribute to you3r children's 529 plan
- Take advantage of tax-loss harvesting
- Claim business deductions (as appropriate)
Once again, a modest investment of time and research can pay big dividends in this area.
Plan to pay off more debt
Debt—and the interest you are paying to maintain it—can seriously stunt your financial growth.
Find a copy of your credit report and examine it for inaccuracies and dispute any errors online. If the rest of the information is accurate, work to establish a plan to pay down any debt that you still owe.
Progress can be made fairly quickly. For example, paying an extra $50 or $100 on the principal balance of your debt each month can help you pay down balances much faster. Research more systematic ways to pay off your outstanding balances.
Scrutinize your savings
Do you have enough money in your emergency fund? Having three to six months of expenses in your savings accounts can help you successfully weather a job loss, disability or unexpected expense.
On the flip side, if you’ve stashed too much money in your lower-yield savings accounts it might be time to explore ways to put your money to work so that it can potentially grow faster. Look into higher-yield savings accounts, certificates of deposit (CDs), or securities such as stocks and bonds.
Analyze your investments
Here are a few end-of-year moves to consider making when analyzing your investment strategy:
- Establish automatic contributions to your savings and retirement accounts from each paycheck.
- Increase your retirement contributions by 1%-2% each year.
- Revisit and rebalance 401(k) plans to confirm they support your goals and align with your risk tolerance and target retirement date.
- Consider opening an IRA to supplement your 401(k) plan and help maximize your retirement assets.
Create or update key estate planning documents
As your life changes, so should your estate plan. Here are a few aspects to revisit and update:
- Make sure the instructions and beneficiaries in your will are up-to-date.
- Review your total insurance coverage - is it enough? Does it fit your needs? Shop around for better rates.
- Consult with a lawyer, financial professional, and accountant to gain the peace of mind that can only come from covering all your estate planning bases.
How to get started with year-end financial planning
Reviewing your finances at the end of the year can be an amazing way to set up the next year—and beyond. If you need help getting started, contact a Financial Advisor at PNC Investments to have a conversation about your current financial situation and to create a customized plan through the New Year.