There are certain times throughout the year that cause people to think and take notice of how close they are to reaching their goals, especially financial ones. As one year ends and another begins, there is no time like this time of year to do just that. It’s a great time to reassess where your finances are currently at and to take action to set yourself up for a better year. You can also do certain things to lower your tax obligation, but these things typically must be done before the year ends.
Here are the five best things you can do to prepare your finances for the end of the year:
#1 – Max Out Retirement Contributions
One of the best things you can do at the end of the year is to ensure you’ve saved as much as possible in your retirement account. An excellent example of this would be if you have an IRA account that allows you to contribute $6,500 per tax year or $7,500 if you’re over 50. If you have only contributed $5,000 to this point in the year, you could miss out on up to $1,500 more tax-free dollars toward your retirement.
#2 – Pay Down Debt
As another year ends, it can be an excellent time to take a hard look at your debt and pay it down if you can afford to. You might even be able to earn a future tax credit when you file your taxes next year if you pay down certain types of debt, such as student loan debt or a mortgage.
It’s also a good time to eliminate as much credit card debt as possible so that you don’t have to carry it forward into the new year. Credit card debt can be a considerable burden, especially the longer you go without paying it down. Many companies pay bonuses during the holiday season, and if you’re someone who receives one, it could be a good idea to get out of credit card debt.
#3 – Open a Savings Account
Being proactive about saving for retirement, that vacation you want, or just for an emergency are all great ways to improve your financial picture. As the year ends, consider opening a savings account or an additional savings account. You should have one for your emergency or rainy-day fund and one to save for specific goals, such as a vacation.
You can also keep a savings account with money for special occasions. Learning to save properly can come in handy this time of the year, especially as you get ready to buy holiday gifts or prepare for Black Friday. Keeping money put away before the holidays can help prevent you from using a credit card to buy things you may not be able to afford.
You can receive one free credit report from all three major credit bureaus every year. This credit report will give you your score and all the details of each credit account you have on file. This time of year is an excellent time to get your yearly free credit reports, check-in and see what you can do better, and ensure there is no fraud. You should be checking in on your credit report routinely, and potential risks are greater this time of year than at any other time.
#5 – Review Spending and Make Budget for the New Year
While budgeting should be a monthly task, taking a hard look at how your budget has performed this year is a good idea before it ends. You can review your spending and see where you can cut back, potentially. This exercise can help you see where your budget has fallen off track and help you prepare for the new year by making sure you have a budget that you can stick to. This is one of the best ways to protect yourself financially from making bad choices in the new year.
As you can see, you can take plenty of steps to ensure your finances are on track for the new year. You can also do many things to put yourself in a better financial position, but some of those things must be done before the end of December every year, such as improving your tax position. Taking these steps and getting your savings in order can put you on the right track to having a better financial year as January begins.