As we step into the new year with a chance to start afresh and improve our financial health, there is more than economy and luck that we need to rely on. We need to know how to take control of our finances.
Read on for some great tips on how to prepare your budget for the new year in one afternoon!
Get Rid of the Financial Clutter
The beginning of the year calls for a thorough going-over of the piles and piles of documents you’ve been cramming in your drawers and shelves for the past 365 days. Don’t panic if the thought of accidentally throwing away an important document strikes you. Yes, you need to keep some important documents on hand like social security cards, birth certificate, identity card, etc. However, since most of the important financial documents are digitized these days, you don’t need to panic.
So, if your junk drawers are inundated with electric bills and outdated credit card statements – and you’re having a hard time controlling the deluge of your financial records – verify with IRS guidelines and start shredding.
Get Organized
Maintaining accurate financial records is necessary if you want to save yourself frustration in the months to come. This year, get rid of the time-consuming old school budgeting journal. Rather, get your hands on one of the online bookkeeping systems to get an overview of your net worth and manage all your finances in one place. One of such popular free tools is MyEasyFi expense tracker that lets you create your ideal budget and then track your spending. In addition to that, it syncs data automatically from your banking account so you stay updated on your money matters.
If this app doesn’t work for you, you may try out other alternatives, such as Good budget, You Need A Budget and Mint.
Start an Emergency Savings Fund for Unforeseen Situations
One important tip when preparing your finances for the new year is to allocate budget for the emergency savings fund. Make sure you save up for emergency and keep the money saved for an unexpected circumstance.
If your family, for instance, requires $2,000 a month to pay all of its expenses, then it should strive to accumulate $12,000 in an interest bearing emergency savings account.
Here’s how you can do it: cut back on nonessential items such as buying fancy clothing or eating out every day. As the account begins to grow, you’ll start to feel a real sense of accomplishment. You never know, this emergency fund might get you through tough economic times and help you easily overcome healthcare cost challenges.
Check Your Credit Report
Once every 12 months, you retain the right to getting free credit reports by the three credit reporting agencies (Equifax, Experian, and TransUnion). If you want to avoid paying a fee for the access, we suggest downloading the bureaus report in January while setting reminders for the other two to be accessed later. Downloading one in April and the other in August is a good idea.
Identity theft and fraud are also rampant; in case you find any incorrect payment statuses or false information, report the problem right away.
Know Where Your Retirement Savings Stand
Whether you are just starting out or close to your golden years, it is imperative to save for retirement. According to the US census bureau, retirees today get less than half their income from Social Security. So, there’s a rule of thumb: in order to retire comfortably, the rest of it needs to come from other sources, like pension plans and personal savings.
If your employer matches 401(k) or IRA contributions, make sure you contribute enough to receive the maximum matching contribution, so you don’t leave money on the table.
Break Free of Debt
Carrying a large amount of high-interest debt can derail your financial plans. On the other hand, keeping debt in check and ensuring that your credit score stays solid makes a plethora of things easier, such as getting a job, a loan or even insurance.
A study conducted by NerdWallet shows that many American adults struggle with debt. The average amount owed on credit cards tops $16,000, while the average mortgage debt stands at about $155,000-plus.
This year, set an aim to pay off your debt as much as you can. Figure out how much you owe and then gradually start paying it down. Start off by paying your high-interest debts first to save money on finance charges.
Make Charitable Donations
Many charities – in fact, many people in need – rely on end-of-year giving. Giving to charities you care about not only makes a difference to other people’s lives, it also makes an enormous difference for your year-end tax planning.
This is because donations to 501(c)(3) nonprofit organizations are tax-deductible, which, in other words, mean they can lower the amount you owe in taxes.