How to Do an End of Year Financial Review
The most wonderful time of the year is also the perfect time to slow down. When you’re taking a break over the holidays, carve out a little time to get your finances in order. The end of the year provides us with a great opportunity to take stock of how we managed our finances last year and to give us the time we need to make plans for next year.
Let’s take a closer look at how to do an end of year financial review that will help set you up for success in the new year.
Review Your Spending Habits
We’ve all felt the impact of inflation last year and for many of us, that means it’s time to adjust our budgets to account for rising prices. Inflation can creep up on us, so it’s easy to keep spending as usual until you realize just how much more you’re spending than you did in the past. Pull any debit card statements, credit card statements, and receipts that you have so you can take a cold hard look at last year’s spending. Where did your spending increase? Do you need to make adjustments in your budget or can you afford those increases? Take rising prices into account when setting your budget for the upcoming year.
Plan to Increase Retirement Savings
After you gain a general idea of how much you spend and what your budget will look like for next year, you can start to adjust your retirement savings plans. It’s always a good idea to increase retirement savings and to be aware of what the new contribution limits are for the year. For 2023, the annual contribution limit for 401(k) and 403(b) plans is $22,500 (increased from $20,500 in 2022). Traditional and Roth IRA contribution limits are increasing from $6,000 to $6,500 in 2023.
Check in on Your Debt
While checking in on your debt, confirming that you’re making progress towards paying it off is a good idea and now is an especially important time to be paying attention to debt. Why? Rising interest rates in response to inflation are affecting consumers with variable interest rates on debt products (this is especially common with credit cards). You may be paying a lot more for your debt right now, so check in to see what your current interest rates are, what you owe, and what steps you need to take to pay off your debt.
Get a Head Start on Tax Planning
April may seem ways away, but getting organized for tax season now can save you a big headache later. Start by planning out your deductions (make sure to save any relevant receipts) and make any last minute retirement contributions that can help you save come tax season.
It’s easy to focus on the merriness of the season, but take advantage of having some extra time off to reflect on how your year went financially and the goals you hope to achieve next year.