We are already 4 months into the new year, which is hard to believe. As accountants we often see people wait until the end of the year to start organizing their finances. If you have procrastinated in getting your finances in order, it’s never too late to start. In fact, as we face worse economic times than we have seen in many years, it is even more critical that this be done now. There is no more time to put off starting on some of the tasks below, which will help prepare you financially.
Look Back at Last Year
The amount of detail you choose to go into will determine how long this will take. Some good questions to explore and answer are:
- How would you characterize your spending last year? Did you spend more or less than you planned to?
- Based on your response to that question, where do you need to make adjustments for this year?
- How many and what kinds of unexpected /unplanned expenses did you have?
- Would you handle those types of expenses the same way or differently this year?
Work on Getting Out of Debt
Even if you think you can’t completely get rid of all your debt this year, you can certainly eliminate a good bit of it with good planning. This is primarily for credit card debt, which carries the highest interest rates. There are different methods for getting cards paid off or down, but the easiest is to start by making a list of all cards and their balances. Starting with the ones that have the highest interest rate, make a plan for paying those down first and work on them, one at a time.
If you have a card with a very low or zero rate, consider transferring the balance of a high interest rate card over to it. The idea is to get rid of the most interest at the beginning that you can, which will free up more capital to pay down the principal balances. Don’t be discouraged by how long it may take. As long as you’re making progress, your finances will be in better shape as you work toward being free financially.
Increase Your Contribution to a Retirement Account
If your employer matches a percentage of what you put into your retirement fund, be sure you are putting at least this much in, to take advantage of the full amount they will match. Limits on how much you can contribute have increased since 2021, so if it’s possible, put in the full amount that is allowed. Increasing your contribution by just 1% is usually doable, as that is a small number every month. Depending on your age, this can have an enormous effect on the money that will be available when you get to retirement age due to compounding interest. A good goal to aim for is putting away 15% of your income every year.
Have an Emergency Plan
Most people don’t like to think about getting their affairs in order, but if you knew how difficult it would be for your family to have to figure out where your papers are and all the info they will need, the best thing you can do for them is save them the time and trouble and make it as easy as you can. Put all pertinent papers together in one place.
Be sure all beneficiaries are updated, put a power of attorney in place, and designate whoever you want to make decisions if you are not able to do it on your own. Be sure your will is updated and specifies your wishes as to who will inherit your belongings and assets. This is especially important if you have dependent children. Arrangements should be specified as to who their guardian will be and where they will live.
Take the Time to Do a Life Audit
A life audit is similar to a financial audit, which is also a good thing to do. A life audit is simply taking an assessment of your life, where you are now, and what you want to do. Think about what your goals are so you can make a financial plan for accomplishing them. You will need this in order to be able to make a budget that works for you. Here is a good site to help with doing a life audit – Life Audit.
Make a Budget
For a lot of people, budget is an ugly word. We don’t like making a plan and sticking to it, we’d much rather just spend on whatever we want. However, there isn’t any way to get out of debt and achieve your goals without budgeting your income. There are many ways to do this. Start with the fixed items like rent/mortgage, insurance, etc. and go from there. Here is an easy plan to follow when creating a budget – How to Make a Budget.
Use the site above as a guideline as you work through this. You can download a budget app for your phone that can help you stay accountable and on track. Your financial health is just as important as your physical health, and it can affect your physical health if your financial situation gets out of control.