The holidays can be a stressful time of year for your wallet, and it can be tempting to simply ignore your finances until the new year rolls around.
However, the end of the year is one of the best times to take a hard look at your money situation and make adjustments. And there are a few money moves in particular that can ensure you're starting the new year off on the right financial foot.
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1. Increase your retirement fund contribution rate
If you're contributing a set dollar amount or a certain percentage of your salary to your retirement account -- such as your 401(k) or IRA -- that's a great start. But saving for retirement isn't a "set it and forget it" situation, and it's important to update the amount you're contributing on a regular basis.
You don't necessarily need to increase your contribution rate significantly to see a major difference in your overall savings. Sometimes saving just a little more per month can seriously add up.
For instance, say you currently have $50,000 in total retirement savings, and you're stashing away $150 per month. If you continue saving at that rate, you'll have around $267,000 after 20 years, assuming you're earning a 7% annual rate of return on your investments. But if you increased your contributions by just $50 per month, you'd have around $292,000 saved in that time period, all other factors remaining the same. And that's assuming you don't make any additional adjustments to your contribution rate during those 20 years. If you were to increase your savings by $50 per month every year for 20 years, your savings will grow exponentially.
2. Double-check that your retirement savings are on track
The end of the year is a good time to take a look at how your retirement investments have performed over the last year and check that you're still on track to reach your long-term saving goals. One way to do that is to plug your information into a retirement calculator to see how much you should be saving each month to achieve your goal. If the results the calculator gives you match up with how much you're currently saving, you're right on track. But if your results show you should be saving more than you really are, that means you have some catching up to do.
Another year-end task to tackle is to think about whether your retirement expectations are still the same. For example, think about the age you plan to retire and how much you expect to spend each year in retirement. Have these numbers changed at all in the last year? If so, you'll need to adjust your retirement plan.
3. Review your spending from the past year and set budget goals for next year
One of the best money decisions you can make is to start tracking your spending. Then at the end of the year, it will be easier to look back at exactly how much you spent in various categories of your budget.
From there, you can see if there are areas where you overspent, as well as set spending goals for next year. Of course, you won't be able to budget for every expense throughout the year in advance, but try to at least think about the bigger costs like vacations and holiday gifts. Also, try to determine if there are any patterns in your spending throughout the year. You may be surprised at how much you spend, and if you realize you're overspending during certain times of the year, you can be extra careful about sticking to your budget.
The end of the year can sometimes be financially overwhelming, but it's also a prime time to sit down and get your finances in order. By taking a little time each year to review your money situation and make adjustments, you can set yourself up for success for the new year.
