As the year comes to a close, it’s an important time to review your financial decisions and plan ahead for the coming year. With the Fed’s interest rate hikes and rising inflation, the way you spend has probably changed this year. Therefore, it's important to start off the new year with an understanding of where your money is going and how you'll manage it.
Add the following money moves to your end-of-year financial checklist and start 2023 off on the right foot financially.
Review your budget
Before the year is through, it’s a good idea to analyze where your money is going so you can plan accordingly for the future. It’s important to review your budget so it makes sense as you enter into the new year. Now's the time to determine which areas you can cut back on in order to save more and examine what percentage of your income goes to each expense.
For example, it’s recommended that you pay no more than 30% for rent. Decide which areas need prioritizing and adjust your budget accordingly, whether it's saving for an emergency fund or investing.
This also means considering any debt you may have and making a plan to pay it off as efficiently as possible in 2023. Also see our guide on how to pay off credit card debt.
Use up your FSA money
Since the money in flexible spending accounts, or FSAs, is “use it or lose it, you should spend this cash by the end of the year. Some employers have a grace period of a few months after the end of the year, where your money is rolled over. However, make sure you check into this so you don’t end up forfeiting 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 as much as you can to it before the year is through. If you do already have a retirement plan, max out your contributions before January. The contribution limit for a 401(k) is $20,500. The maximum contribution will go up to $22,500 in 2023.
You can also make contributions to your individual retirement account, or IRA, of up to the limit of $6,000 for 2022. You do have a bit of extra time on this one, though, as you can allocate contributions for this year until tax day.
Open a high-yield savings account
If you don't have one already, you should open a high yield savings account before the end of the year to maximize your savings. High-yield savings accounts are similar to traditional savings accounts, except they pay a higher than average APY on deposits. An APY, or annual percentage yield, is the amount of interest earned on an account in one year.
This means that when you save your money in a high yield savings account, this high rate of return will allow you to accrue more over time than many savings accounts offered by traditional banks. Typically, when the Federal Reserve funds rate increases, banks will increase their annual percentage yield.
Check your credit report
Checking your credit report before the end of the year is a good idea to make sure that everything is correct, especially if you plan on taking 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 may think. In fact, in 2021, 34% of Americans had errors on their credit report. Making sure that everything is correct, as well as determining a plan to improve your overall credit score is essential before the start of next year.
