The end of the year—and the start of a new one—is a great time to look back and take stock of the progress you've made toward your short- and long-term financial goals. It's also an ideal time to think about where you want your financial situation to go in the future… Here are a few questions to consider as the new year kicks off:
1. What are your biggest money accomplishments for the year?
If you were able to lower your credit card debt or cut back on your spending this year, celebrate that achievement and brainstorm ways you can build on it in the year ahead. If you paid off one credit card, for example, direct the money once designated for that bill toward paying down the debt on another card faster or toward a savings account to reduce your reliance on credit cards in the future.
2. Is your emergency savings fund in a good place?
If you had to dip into your emergency savings account this year, make a plan to replenish that fund. Ideally, you should aim to have enough easily accessible money on hand to cover at least three to six months' worth of living expenses. If your emergency fund savings plan has fallen short, set up automatic deductions from your paycheck each month to make up the difference—this way, you won’t forget to set aside the cash or be tempted to spend it.
3. How are you progressing on your retirement goals?
If your company matches your retirement plan contributions up to a certain percent, consider contributing at least enough money to max out that benefit. Essentially, an employer match is "free money" for the future. And if you're getting a raise next year, you may want to think about increasing your retirement plan contribution. You’re not used to living on the higher income yet, so you won't miss the extra contribution even as you build a more secure future for yourself.
Once you've devoted enough funds to receive the maximum benefit from any matching contributions your employer makes, direct any additional cash to paying down high-interest debt and padding your emergency fund. If those areas are in good shape, consider socking away even more for retirement. One good rule of thumb to follow: Save at least 15% of pre-tax income annually over the course of your career. The 15% includes a total of employee and employer contributions.
4. Are your beneficiaries up to date?
Make sure your beneficiaries reflect any life changes that occurred during the last 12 months. Did you get married? Divorced? Have a baby? If so, you'll want to make sure that the beneficiaries on all your financial accounts—including your 401(k) or 403(b), savings account, and life insurance policies—are up-to-date. And be sure to let your beneficiaries know that you've named them as such. It's true that no one likes to think about worst-case scenarios, but taking these small steps will ensure that your wishes are honored.
Analyzing your finances at year-end may present questions, but finding the answers can grant you greater peace of mind as you embrace the possibilities of another new year.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917