This year has brought a robust economy. Millions of Americans are enjoying higher incomes or new jobs thanks to the economy. The stock market has swelled the retirement investments across the board.
It has also been a year ripe with opportunity. There is still time to make some positive changes in your financial situation. Before you make financial resolutions for 2020, we have a few suggestions for ending this year on a stronger note.
Do not be too extravagant during the holidays. The momentary enjoyment of giving gifts can easily disrupt all your budget plans. Do not succumb to unnecessary spending. Especially do not take on new debt that you cannot quickly repay. Instead, focus your attention where it matters most: quality time with family and friends, rather than paying for expensive gifts or outings. Numerous studies reveal that we derive more emotional benefit from experiences rather than possessions, so create a budget that prioritizes togetherness over expensive gift-giving.
Consider this idea to avoid the temptation to overspend: First, identify how much you spent last year. Look through credit card or bank statements to formulate a rough idea of last year’s spending. Then, assess how much difficulty you had affording it. Did you take on debt to do so? If so, aim to create a holiday budget that won’t get you into debt, remembering how long it took to pay off the debt last year.
Identify the source of money for spending, such as from a holiday bonus, regular income, savings or a side gig. Finally, realistically evaluate your own expectations, as well as family and friends. Time well spent is preferable to big parties or gifts.
I realize that budgets are not a fun topic but now is also an appropriate time to reconsider yours so that it reflects your current income levels and goals. The average American enjoyed and increase in income increase of about 4% this year. This may seem a reason to spend more, but ask yourself honestly whether you really should.
You need to understand where you spent your money this past year in order to establish a budget for the following year. If you kept track throughout the year, great. If not, look back over the past 12 months to see exactly where your money went. Compile the real data because it helps to gain and maintain control of your financial life.
If you can continue living well on without spending the extra income, then apply the extra money to savings, debt repayment or investments. Pay yourself with it rather than the holiday retailers. Money is hard to earn. Keep more of it for your own financial future.
Then there are the unavoidable payments, also known as taxes. Review and adjust tax withholdings now, based on your current earnings, career and home circumstances. New dependents, a higher income bracket or a change in address are all examples of situations that may affect your tax calculation. Nobody likes writing an extra check for taxes, so do some planning. Work with your accountant or tax software. Then adjust your withholding at work for next year.
Nothing represents your financial future more than your retirement savings. Check it. Increase your annual contributions to a tax-advantaged retirement savings plan such as a 401(k) plan or individual retirement account. Even an increase of 1% adds up over time. Honestly, you should be contributing 10% to 15% of your income, but at least put away what you need to get your full employer match. Otherwise, you are leaving free money on the table.
Next look at your retirement investments. Do these still match your overall objectives? Make adjustments that reflect your long-term goals and needs. For some, an early retirement and aggressive savings now are the key to happiness, while others may choose to work until retirement age or beyond. Have an honest conversation with yourself about your vision for the future.
Your long term vision of life is important. Consider how you want to live 5, 10 or 20 years from now. The steps you take today are part of that plan. The entire planning process is all about you. Do not neglect yourself.