It is hard to believe it is already the end of another year! Where did the time go? For some people, there are certain things they must do at the close of a year. Some will write their New Year’s resolutions or look at what they’ve accomplished. However, one thing everyone needs to do is analyze their budget, spending, and saving habits.
Before the year ends, it is important to see what worked in your budgeting method and what didn’t. First, look at the method you used and ask yourself: was I able to easily track my income, savings, and expenses? Did this method allow me to budget my finances as I wanted? Next, analyze your income, savings, and spending patterns throughout the year. What trips did you take and when? Was there a month with more expenses than others? Taking the time to understand these patterns will give you a baseline to start your budget for the new year. You’ll be able to plan on what months might be more expensive, where you spent unnecessary money, and where you might be able to save more. This practice lets you plan ahead for upcoming bills at the beginning of the year. For example, winter is coming, which can mean potential expenses in preparing your home to be energy efficient in the cold months. Also, create a strategy to pay off any debt in the new year. If you noticed your budgeting method had flaws and there are areas of improvement, this gives you the chance to make the changes or change your method altogether. Find what works for you and your family!
Don’t forget to give to charities or make other financial contributions before the clock strikes midnight on December 31st. During the final month of the year, many people will donate to their favorite non-profit, because you can deduct this from your current year taxes. Other financial contributions to consider are giving to an individual retirement account (IRA) and any 529 college savings plan. For IRAs, you have until you file your tax return next spring to allot money to the account; however, 401(k) contributions need to be made in the same calendar year to be deductible. Another tip from financial planners is converting money from a traditional IRA to a Roth IRA. You’ll get a lower tax rate on the taxes you’ll pay on income; just make sure the conversion is done by December 31st. Lastly, 529 college savings plan money is tax-free when used for eligible educational expenses. Some states even have additional tax benefits for the plan.
Speaking of taxes, April 15 will be here before you know it. Now is the time to organize your finances and ease the burden of tax season. Begin with setting up your system for gathering all needed information for tax season. Find any needed receipts, review your withholdings, plan for estimated taxes, and create an account on IRS.gov.
Finally, use up any flexible spending account (FSA) money for health care expenses. Order new glasses or contacts, schedule preventative appointments, etc. If you don’t use all your funds, most of the time, they won’t transfer into the next year. Some companies do offer a grace period, but this is rarely seen.
Now, that you’ve done all the hard work for this past year, the start of the new year will be a breeze! Beginning with January 1st, make a commitment to stick with your budget. Remember to always save and spend money in the most profitable way possible. Be specific with your finances and stay accountable. If you are unsure of how to start, there is no shame in taking baby steps. Your cash flow will thank you.