The year is almost gone and whew, what a year it has been! Like most people, you’ve probably also been a busy bee – saving, spending, collecting rewards points, paying off bills, and dealing with inflation and high gas prices – problems we have not had since the late 1970s. So, with the New Year just around the corner, now is a great time to de-clutter your finances and start taking steps towards a better financial future.
In this post, we have compiled a list of 7 strategies you can implement today to clean up your paperwork and accounts and make the most of your money.
Make Retirement Planning A Priority
When it comes to getting your finances in order, most people tend to neglect their retirement planning especially if they are in their 20s or 30s. It is crucial, however, to remember that the sooner you start saving for your golden years, the more moolah you’ll have, thanks to the miraculous phenomenon known as compound interest.
Calculate how much money you’ll need to save for a comfortable retirement, then create a realistic plan to put away the necessary amount each month. Better yet, automate the retirement savings transfer so you won’t even have to think about it.
Sort Through All the Paperwork
This is also an excellent time to get your financial documents organized and filed properly, so they will easy to access when you need them during the tax season. If you don’t have enough space to organize all of the paperwork, you can scan the documents like expense reports and receipts, and store them digitally. Please make sure that you create backups of those digital files, in case your computer/hard drive crashes.
Clear Out the Debt
If you have a high amount of debt or high-interest rates, create a plan to pay it all off as soon as you can. You can start with debt with the highest interest, and then start applying more each month to it until you are in the clear.
This may sound like easier said than done but with a good plan, it’s very much possible. Find a way to double down on your payments – this can mean reducing your expenses, asking for a promotion at work, or starting a side hustle or taking another, part-time job. Working is good, it’s healthy, and all the facts indicate this.
Save For A Rainy Day
The last couple of years have shown us that life is unpredictable and you never know when you might need to face a financial difficulty. Make sure you are always prepared for such a situation without having to fall behind on your mortgage/rent payments or take on more debt. Your goal should be to have at least 3 to 6 months of expenses saved up. Calculate an amount that you can set aside each month and automate that deduction.
Check Your Credit Report
A sunny credit score is that Holy Grail that can allow you to borrow money when you need it and get it lower interest rates. Take a thorough look at your full, yearly credit report to check if it has any errors. According to Federal Trade Commission, 5% of people have major errors on their credit report that can lead to loan application rejection, and 25% of people have some sort of minor errors.
Evaluate Your Monthly Budget
Take a good look at your spending habits of the last few months and make note of your spending habits. Have you been spending too much money for one category (say, dining out) and not enough for another (say, saving)? Where can you cut back?
If you want to save more or reduce your expenses in one area, create a realistic plan to make it happen. For example, use only cash for all of your spending needs; no checks, debit, or credit cards are allowed. And when you are planning for a vacation or a birthday party, come up with a budget for it and plan ahead, so you don’t overspend.
Evaluate Your W-4 (Employee’s Withholding Certificate)
Look at your W-4; you may want to withhold less taxes. If you generally receive a tax refund, it’s wise to consider having less tax withheld. Think about it – this money has been essentially handled by the government all year long when you could have invested it or used it to launch a business or added it to your emergency fund.
Use the IRS Tax Withholding Calculator to see if you can claim more allowances and have more money with each paycheck to save for emergencies. However, be careful, if you fail to withhold enough money, you will owe to the IRS which is never a perspicacious idea.