December is a great time of year to look forward. A new year is on the horizon – a chance for many of us “start over” in a sense. But we’re not quite done with this year, yet.
Before we close the book on the year that was, it’s important to take a moment and make sure we’ve successfully checked all of the following financial boxes.
Review your spending
Whether or not you had a budget for the past year, it’s helpful to review your spending versus your expectations for the year. Were there certain categories that cost more than you had anticipated? Any unexpected events that threw off your financial forecast? Taking the time to consider what happened this year is going to make it much easier to properly and more accurately plan for the year ahead.
Review the state of your emergency fund
Having an emergency fund is absolutely crucial to keeping long and short-term goals on track because it helps you weather unexpected rough patches. So it’s important to take stock of your emergency fund before the new year begins. Were you forced to use your emergency savings this year? What do you have available and how much do you need to create a comfortable cushion? Is replenishing your emergency savings account going to be a priority for the coming year?
Review your insurance coverages
A lot happens during the course of a year – the insurance coverage you originally signed up for may not be right for you anymore. Consider any major (and minor) changes that have occurred over the year and review your various insurance coverages. Being over (and under) insured can end up costing you.
Review your will
If you have a will, take a moment to review it and verify that it still represents your wishes. You may want to seek legal advice from a licensed attorney in the event that you decide to make changes.
Use your Flexible Spending Account (FSA) funds
If you opted into a FSA plan those funds usually disappear at the end of the year. Recent federal laws do allow employers to grant workers permission to roll over up to $500, but that’s not a requirement, so check with your employer if you’ve got FSA funds you need to spend.
Donate to charity
You can donate to charity any time you like. If you want to deduct a charitable donation from your next income tax return, however, you’ll need to make that donation before the end of the year.
Open a 401k or IRA
If you’re self-employed and don’t already contribute to a 401k or an IRA it’s a good idea to open one before the end of the year. If you open an account before December 31 all of your contributions through April 15 of next year will be applied to your tax return for this year. (It’s always prudent to consult with an accountant if you need tax advice or assistance with tax planning.)
Make sure you’re ready for the year ahead by successfully closing out the year that was. It only takes a few moments and can really make a huge difference.