As the year winds down, it's the perfect time to take stock of your financial situation and set yourself up for a prosperous new year. Making strategic moves now can pay off in the long run, helping to improve your financial health and work toward your goals.
Here are some tips to help set you up for lasting success.
Update Your Budget
A refreshed budget is your reality check on how you save and spend. Track your income and expenses, including fixed costs like rent or mortgage, utilities and insurance, and expenses like groceries, entertainment and transportation. Look for places to free up money. Allocate 20% of your after-tax income to savings and paying down debt.
Once you have a comprehensive view of your finances, it's time to set achievable financial goals for the upcoming year. Whether you aim to save for a big purchase, pay off debt or build an emergency fund, having specific targets will keep you motivated and on track. Automate your savings and bill payments to ensure consistency and reduce the risk of overspending.
Review Your Credit Card Rates
If you pay your credit card balances off each month, the annual percentage rate doesn't matter so much. But if you're carrying a balance, having higher APRs can hurt your progress in managing your debt. Taking a few moments to check them can save a lot of money over time.
Transferring your balance to a lower-interest card can make financial sense, but be aware of any associated fees or charges. Many credit cards offer promotional rates for balance transfers, but these often come with fees that can add to your overall debt. For example, many balance transfer fees range between 3%-5%. Make sure to read the fine print and understand the terms and conditions before making a transfer.
Max Out Your 401(k) or Other Retirement Accounts
Boosting your contributions to your 401(k) or other qualified retirement accounts is always a good idea, especially toward the end of the year. The IRS sets contribution limits each year and catch-up contributions for those ages 50 and above. By ensuring you're contributing up to these limits, you can significantly improve your retirement savings and take full advantage of the tax benefits these accounts offer.
One of the key advantages of contributing to a 401(k) is the potential for employer-matching contributions. Many companies match a portion of your contributions, essentially offering you free money toward retirement. By maximizing your contributions, you ensure you’re taking full advantage of this employer match, which boosts your savings over time. Remember, every extra dollar you put in now has the potential to grow over time because of the power of compounding.
If you find yourself with some extra funds at the end of the year, consider making a one-time catch-up contribution to your retirement account. This strategy can be helpful if you haven't been able to contribute the maximum amount throughout the year. You also have until April 15, 2024 to contribute.
Use Up Your FSA Money
A flexible savings account is useful because you can save money before you pay taxes to cover medical costs and child care. Many employers offer FSAs as a benefit to help pay for things not covered by your insurance. The one potential downside is that your savings don't roll over to the next year, so you need to use it by year's end or lose what you've saved.
If you have available funds, use it for eyeglasses or contact lenses, prescriptions, over-the-counter medications and any household health items you use.
Give to Charity
Giving to charity always feels good, but it can reduce your taxes, too. If you itemize your deductions, you can usually deduct up to 60% of your adjusted gross income for your charity contributions.
You can also give securities, such as stocks or mutual funds, instead of cash. This approach allows you to avoid capital gains tax on the appreciation while still benefiting from the charitable deduction.1
- Please consult a qualified tax professional for your specific circumstances.