6 ways to fix financial problems before the end of the year
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The New Year is just around the corner, which means it might be time to start thinking about how you think about your finances next year. But before you can do that, you might want to think about wrapping up some details of this year’s financial activities. Doing this now can get you off to a good start towards your goals in January.
So Select asked Brittney Castro, a Certified Financial Planner, to share some tips that will help you prepare financially for 2022. Here’s what she suggested.
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1. Examine how your budget went last year and adjust it for the new year.
Budgeting might not be the most exciting part of managing your money, but getting a sense of where your money is going is important to your financial health. This can help you determine what works for you and what doesn’t, and if there are any expenses that are no longer serving you.
Keep in mind that in some years you may have larger expenses, such as a wedding or school fees for yourself or your children. It’s important to plan ahead for these kinds of expenses so that you don’t feel caught off guard when they arise.
“We have to create a new budget every year because things change all the time, so get used to updating your budget to keep up with all the changes,” Castro said.
Budgeting can also be difficult, as sometimes it is difficult to honestly examine the numbers in our account.
“A lot of times we are afraid because there are additional emotions that we attach to our money,” Castro explained. “We are so self-critical sometimes. But looking at the numbers is the only way to get over that.”
Budgeting may seem like a lot of work at first, but apps like Mint can simplify the process as they connect to your bank accounts and credit cards and can track where your money is going for you.
2. Automate your investments and savings
According to Castro, Automating your investment contributions is a great way to ensure that you are investing money to meet your wealth building goals. Sometimes when faced with the decision to spend money on something we can have now rather than putting it aside for something in the distant future, we choose to spend now. Automating your savings allows you to bypass this decision.
You can usually set up automatic deposits from your bank’s online account to your brokerage account, or you can use an app like Digit, which lets you save small random amounts of money every day. Acorns is another app that automatically invests your spare currency from daily purchases so you don’t even have to remember to invest that money yourself.
3. Check where you are with your 401 (k) account
The end of the year is a good time to take a look at your retirement accounts to see if you’re on track to meet your goals. This will help you determine whether or not you need to adjust your contributions (or any other part of your retirement strategy) in the new year.
Most people have an employer sponsored retirement account like a 401 (k), so this would be a good place to start. Maybe you decide that you can afford to increase your contributions by 1% next year, which gets you one step closer to your maximum 401 (k) contributions. Or, maybe you’ve aggressively contributed to the account this year and due to some lifestyle changes you’ll need to cut back a bit next year.
Think of all other retirement accounts, like a Roth IRA, the same way. And according to Castro, you should also think about your retirement goals and whether you’re on track to achieving them.
4. Create a plan on how you will recover from your vacation expenses.
Spending tends to increase during the holidays as we buy gifts for loved ones, decorations for our homes, and ingredients for holiday meals. Indeed, according to a report by National Retail Federation, Americans can expect to spend an average of $ 998 this year on holiday shopping, food, and decorations.
It’s easy to unintentionally put more money on your credit card than you can actually afford to pay, or dip a little more into your savings than you expect, even if you’re usually good at staying on a budget. These things happen – just create a strategy to pay off the balance as quickly as possible. Maybe that means paying $ 50 for the balance each week until it’s paid off; or on the other hand, you can automatically transfer $ 50 to your savings account every week until you get back the amount you spent on vacation. Or, maybe you like the idea of not using the credit card again until you’ve made enough monthly payments to pay it off.
5. Be clear about how your debt (including your student loans) fits into your financial life.
Debt sounds like a scary word because it seems to imply something negative. While there are many ways to use debt in a positive way, for most people, debt is a drag on their finances. Completely paying off just one form of debt can free up money that you can redirect to your other financial goals, like save for a house or invest more. And the debt problem gets even worse if you don’t even know how much you owe.
“A lot of times people are afraid to look at these numbers,” Castro explained. “But you have to be prepared to overcome these emotions.”
According to Castro, sometimes we attach feelings of shame or guilt to our debt, which can make it much more difficult to manage. However, we need to get over these feelings to start making impactful changes. Just take a look at your debt balance to get started. If you use Experian, you’ll be able to view debt balances for every line of credit you have, including all of your credit cards, car loans, student loans, and more.
Once you know how much you owe, you can figure out the best way to start paying it off. Many people use the snowball method where they focus on aggressively paying off debt with the lowest balance first while making only the minimum payment on their other debts. It helps them pay off an account faster, which gives them a sense of accomplishment and motivation to keep going.
But one form of debt that has come to your mind lately is your student loan debt, as payments will resume next year. However, President Biden announced on December 22, 2021 that the pause on student loan repayments will be extended until May 1, 2022. The transition to payments again may leave some people feeling a bit under financial pressure, but Castro note that it is always important to plan for this reintroduction as well.
This could mean making a decision on where you might need to cut your budget to incorporate payment (read our tips for making student loan repayment easier for more suggestions).
6. Make a commitment to improve your financial literacy
Finally, one of the most effective things you can do to improve your financial situation over the next year is educating yourself about what you don’t already know about your money. Playing a passive role with your finances can lead to mistakes with your money and cost you more in the long run. It’s important to make sure you’re setting yourself up for success and according to Castro, improving your knowledge can help you do just that.
“It is important that we are all committed to the next level of our financial lives, and education is the way to go,” she said. “Financial literacy is a big goal for 2022.”
You can start by listening to financial podcasts and reading personal finance books. According to Amazon, a few top-selling personal finance titles include Rich daddy, poor daddy by Robert Kiyosaki, You have to think to get rich by Napoleon Hill and I will teach you how to be rich by Ramit Sethi.
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Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.