The end of the calendar year is an opportunity to do more than ponder a new hobby or fitness routine to jump into in January. Just as you reflect on the past year in your personal life, take time to also reflect on your financial wellness, including progress toward important financial goals.
Even if your financial success has fallen short of the goals you set at the start of the year, use this check-in as an opportunity to start anew. Here are some easy steps you can take to review your end-of-year financial performance and use your insights as a springboard into 2021.
Compare your savings goals with your savings success.
If you had a savings plan at the start of 2020, it’s time to break down the numbers and find out whether you hit your goals. Did you meet your savings goals? Maybe even beat them? Or did life get in the way and cause you to miss the mark?
If you hit your goals, congratulations! Now it might be time to see if you can push that number higher in 2021.
If you fell short, take some time to figure out why. Financial struggles such as a job loss are challenging to overcome. But if some of the obstacles were within your control or related to your money habits, now is a great time to think about how to make progress in the new year.
If you’re having difficulty saving money, one useful strategy is to set up automatic savings contributions, which you can schedule to make sure you’re consistently working toward your savings milestones.
Determine if you need to adjust your tax withholding.
Most people want to make sure they’re withholding enough tax to ensure they don’t owe money come Tax Day. A little tax refund is a nice gift in the spring, but you don’t want to be in a situation where Uncle Sam is holding onto a large sum that you’re owed as income.
If you owe money every April, you might want to increase your tax withholding to spare yourself the big bill due to the IRS every tax season. Having children can also affect your withholding, giving you another allowance that gives you the option to reduce your tax withholding on every paycheck.
Review your existing subscriptions or memberships.
Looking for ways to spend less in the year ahead? Review all of the subscriptions and memberships you currently hold. These can range from streaming services to fitness apps to charitable contributions.
By taking stock of these recurring payments, you can increase your awareness of your spending and ensure you’re not losing money each month without realizing it.
Adjust your budget for the year ahead.
The end of the year is a perfect time to review your spending and make adjustments where needed. Have your living costs increased? Do you anticipate greater spending or other upcoming costs (such as having a baby) that will change your spending needs?
Review your spending over the past year to identify trends and opportunities for smarter financial management in the year ahead. Use your spending performance to challenge yourself to make modest cuts that increase your savings potential while also adjusting your budget to account for emerging financial goals.
Set your 401(k) or retirement savings amounts.
Whether you’re already making 401(k) contributions or you haven’t taken advantage of this savings tool yet, the end of the calendar year is a good time to review your retirement savings and increase your contributions from each paycheck.
If you have extra money in your savings account, you can also make a one-time contribution to these accounts. Doing so may help you receive more of your employer’s matching contribution. And, because these contributions are usually tax-deferred, an end-of-year contribution can help you reduce your overall tax obligation in April.
Don’t rest on your financial laurels.
Whether the past year has been a year of financial success or struggle, use the end of the year to build momentum for 2021. Now is a perfect time to take stock of your successes and areas for improvement and use those insights to plan for an even better year to come.
Don’t wait until the new year to start planning for greater financial success.
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