January is the magic month in which we all make “new year’s resolutions.” Inevitably, “personal finances” are high on this yearly, revolving list of goals.
To help set you up for success in the next calendar year, as the year rolls to an end, let’s look at five important things you need to do with your money before December 31st.
Watch the video on YouTube. We give examples and important details about each end-of-the-year smart money move.
#1: Make a list of all your subscriptions
A subscription can be anything from your monthly cell phone bill to that cable TV package.
This is not the time to necessarily make decisions about whether you will keep these services, cutting them back, or ditching them altogether.
Here’s why we recommend taking this step.
It will help you to become aware of how much these items are costing you and save you a lot of time in January, when you craft your budget for the new year and set goals.
Setting Up Your Subscription Review Worksheet
Create three columns on a standard 8 1/2 X 11 inch sheet of paper. You can use lined notebook paper, plain paper, or print out a form like the one below.
In the first column, write each subscription you currently have.
The second column is for the average monthly costs and for the final column multiply the monthly costs by 12 to calculate the yearly fees.
The worksheet should look something like, this.
A subscription can be defined as, “Any reoccurring expense for which you are billed monthly.” This means that your cell phone, cable television, and internet bills all fall within the subscription category.
Although not a complete list, here are some more items which would fall into the subscription category.
- Meal plans
- Meal kits
- Craft kits for the kids
Tips for setting up your subscription review list.
- Be sure this is a prioritized list. That means, as you create your list, rank each of the subscriptions from “most important” to “least important”. Items which are most important, go at the top of your list.
- What is each of the subscriptions costing you? (Consider your time as well as your dollars.)
- How much are you truly using each of these subscriptions?
If your budget is tight, when you create your new yearly budget in January, this will allow you to very quickly start at the bottom, eliminating or cutting back on services which you are least likely to use or miss.
Here’s an example of how the finished worksheet might look.
#2: Check balances in your health savings accounts.
These special savings accounts allow you to set pre-tax money aside to pay specifically (and only) for medical expenses. There are two main types of accounts available in the United States: an FSA and an HSA.
It is vitally important that you:
- understand the kind of account you have.
- Know your contribution limitations
Known as an FSA, a Flexible Savings Account is employer sponsored. The top limit to which you will fund this account each year is specified by your employer. Additionally, you must declare in January how much money from each paycheck you will be placing into the account.
You need to be aware that:
- The money may be spent on medical or dental expenses by either you or your dependents.
- Both you and your employer may contribute money.
- Your employer is not required to add funds to the account. So, if they do, that is a tremendous perk of your employee compensation plan.
- All of the money must be spent from the account each year by December 31st.
- Some employers allow a small amount of funds to be rolled over to the next year or a grace period of a few weeks into the new year.
An HSA, short for Health Savings Account, allows workers with high deductible insurance to set aside pre-tax dollars to pay for healthcare expenses in the future. These accounts come with limitations on the amount of money which can be saved yearly and will accrue a small amount of interest.
You need to be aware that:
- Not everyone is eligible for an HSA. Check with your employer to ensure your eligibility.
- You can only contribute up to a specific maximum amount each year – based on the type of insurance policy you have.
- Funds cannot be used for over the counter medications.
- Funds roll over every year, making these tax-sheltered plans a great way to save for future medical expenses.
- Funds may be used after retirement.
- Some plans come with monthly maintenance fees. (Although many major employers cover these fees. So, the employee is unaware of them).
No matter which type of specialized health savings account you have, the most important thing to know is how your plan is working for you.
That way, you can make an informed decision in January about making adjustments to the amount you will contribute the following calendar year.
#3: Assess your car, home (renters), and health insurance
When it comes to insurance, we tend to get stuck in a rut. There are many reasons for this.
- We’ve been with the company for ten years.
- We like the staff.
- We know what to expect when we contact them.
- They know our names (and the names of our kids).
Yet, it can be a costly mistake to stick with the same company. Available plans change over time. More importantly, your life circumstances will dictate the coverage that you need.
Here are some questions to answer before you get new insurance quotes.
- Has anything in your life changed?
- Did you get married?
- Have a baby?
- Retire or change jobs?
- Are you driving either significantly more or significantly less?
- Buy a new car?
- Buy a new home?
- Make home improvements?
- Is it time to take full coverage off of your car?
- Have you retired?
We advise getting new insurance quotes every six months, though many of our readers and viewers say they do it even more often than that.
#4: Max out your retirement savings
There are several different popular types of retirement accounts. They go by names like: ROTH, 401K, 403B, 457 plans. To add further confusion, you can often have more than one of these types of accounts at the same time.
It’s enough to make your head spin!
So, let’s quickly break down what you really need to know.
- The kind (or kinds) of accounts that you currently own.
- The yearly contribution limitations.
- How much money you put into each account this year.
- How much interest you gained (or lost) on each account in the past twelve months.
- The current worth of each account.
After you have those answers in hand, look at your savings accounts. Although the contribution deadline for most accounts is considered December 31st, the IRS allows contributions up until the final tax day in April.
However, if there any additional money that you have not spent from your budget, you might consider making and end-of-the-year final contribution to these accounts to fully fund them, before your forget to do it.
Finally, having a handle on your retirement account balances is an important step to helping you decide how much money you will contribute in the following calendar year.
#5: Figure Your Net Worth
Simply put, your net worth is the difference between what you owe and what you own. In financial terms, it’s your assets minus your liabilities.
Your net worth is like your financial report card.
A yearly net worth statement gives you a snapshot, allowing you to know whether you have made gains or taken a loss. This is really important when it comes to planning your budget for the next twelve months.
By getting these five tasks completed by December 31st, you’ll be ready to write a bright, shiny new budget as soon as you toast the New Year and the clock hits midnight on January 1st.
Need budgeting help?
Check out our personal finance planner.