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The beginning of the year is often a time for reflection and resolutions, and with the coronavirus pandemic and ensuing economic crisis and threats of higher inflation, the recent years have been a lot to handle. Being proactive about your financial situation can be tough or even impossible if you're dealing with a job loss, furlough or reduced hours. And for many, that's on top of dealing with the loss of a loved one to COVID-19.
Depending on your situation, though, there may be some opportunities to evaluate your financial plan and take steps to improve your circumstances now and throughout the next year. Use this end-of-year financial checklist to look for opportunities to improve based on your goals and current needs.
1. Review Your Current Money Habits
It can be challenging to set meaningful goals without first understanding where your financial situation stands. Start with reviewing where your money has gone over the last few months. This will be easy if you keep a budget, but if not, look at your financial accounts and list off your income and expenses.
Then, categorize each expense to get a better idea of how you spend your money. This will help you determine if there are areas where you can cut, so you can focus your efforts more on your financial goals. Also, if you're not budgeting already, consider taking up the habit going forward.
Included in this process, look at how you've been saving over the last year for retirement, your emergency fund and other goals. Tally up your debts and determine how well you've done paying them off over the last year.
2. Check Your Credit Score and Reports
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Your credit history is an important element of your financial plan and can be the key to obtaining inexpensive financing in a time of need. You can check your FICO credit score for free through Experian or Discover Credit Scorecard. You'll be able to assess the health of your credit history and also get some tips on how to improve it.
If your credit needs some work, you'll want to get a copy of your credit reports to identify areas that you can address. You can get a free copy of your report from each of the three credit bureaus through AnnualCreditReport.com. You can get a free copy of each report, then once every 12 months after that.
As you evaluate your credit score and history, you'll get a better understanding of the steps you can take, then make plans to build your credit in the upcoming year.
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3. Set Savings Goals
Since you already know how you've been doing with your savings in the past year and you have an idea of your budget, take some time to set some goals for setting money aside. If you have a 401(k) plan, for instance, make sure you're getting the full matching contribution if your employer offers one.
You'll also want to prioritize your emergency fund, if possible. With the pandemic continuing for the foreseeable future, it's essential to have a financial safety net. It might not solve all of your problems, but it can help alleviate some of the stress.
Finally, consider other savings goals that are important to you, such as a home down payment, home improvements, a post-pandemic family trip or others.
4. Tackle Your High-Interest Debt
It's rarely ideal to be in debt, but in uncertain economic times, it's important to prioritize paying off high-interest debts. If you have credit card balances, create a plan to pay them off as quickly as possible. You may also consider using a consolidation loan or balance transfer credit card to help you save time and money in the process.
In addition to this, take a look at your student loans. The CARES Act federal student loan pause has been extended again through the end of August 31, 2022, but it's unclear yet whether that will be extended again and for how long. If you have covered loans, it's important to have a plan for when you need to start making payments again. Income-driven repayment plans can help by reducing your payment to a low percentage of your discretionary income.
If your student loans aren't covered under the CARES Act, reach out to your lender or servicer for options.
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5. Review Your Insurance Policies
Insurance is often considered to be a necessary evil, but it can really come through when something goes wrong. Some of the more important types of insurance to have include health, life, disability, auto and homeowner's or renter's insurance. If you've lost your job due to COVID-19, visit the Healthcare Marketplace to find a plan. Depending on your income, you may qualify for a federal subsidy to make your coverage more affordable.
Also, look into the other types of insurance. If you can't afford to get all the coverage you need, even a little bit is better than nothing. Also, look for situations where you may have more coverage than you need. Consider speaking with a financial advisor or an insurance expert to get some personalized advice.
6. Check on Your Tax Withholding
If you're an employee, you may want to look into how much tax is being withheld from your paychecks. The average tax refund for the 2019 tax year was $2,476, according to the IRS, which is roughly $206 per month that you could've had in the moment rather than waiting to file your tax return.
If you regularly receive tax refunds, consider reducing how the amount that's withheld from your paycheck for federal and state taxes, so you have more cash flow now.
7. Plan to Maximize Your Tax Refund
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Roughly three-quarters of taxpayers receive a refund, according to filing data from the IRS. If you're one of those people, it's important to decide before you receive the money how you want to use it. For example, you may want to put at least some of it toward one of your financial goals, such as paying down credit card debt, building your emergency fund or contributing to an individual retirement account.
Of course, there's also nothing wrong with using some of the money for discretionary spending. Whatever you do, planning in advance will help ensure that you avoid making a snap decision that you might regret later on.
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8. Maximize Your Health Savings
If you have a high-deductible health plan, you can save money in a Health Savings Account on a pre-tax basis. Depending on your situation, you may not be able to save much. But if you expect to spend money on medical expenses, consider opening an HSA and contributing the amount of the bill before paying it, so you can enjoy the tax savings.
Alternatively, if your employer offers a Flexible Spending Account, now is the time to determine how much you want to contribute next year — again, on a pre-tax basis. FSAs are use-it-or-lose-it, though, which means you have to use all the money you contribute during a plan year in that year. So make sure you plan well enough so you don't end up leaving money on the table.
9. Review Your Will
If you don't have a will in place, consider starting that process now. Even if you don't have a lot of assets to pass on, a will allows you to designate someone to take care of children or someone else for whom you provide care. It also sets in place to whom the assets you do have will go. In other words, a will helps protect the interest of your loved ones.
If your situation is relatively simple, you may be able to get away with just a holographic will, which is handwritten and signed by you. However, consider consulting with an estate attorney about drawing up a will for you.
The Bottom Line
Creating and maintaining a financial plan can be challenging, especially if you're struggling to get by. Throughout this process, it's important to be patient and compassionate with yourself. It can be incredibly frustrating after a year like this to feel like you've made little to no progress with your money or even lost ground. But there were very likely a lot of factors outside of your control that won't always be there.
As you set goals and develop plans for the future, make sure they're achievable. If you shoot for the moon and fall far short, it can be discouraging and make it difficult to stick to your plans. But taking the time to evaluate where you are and make plans for the future can help you get to a better place financially.
Even if you make just a little progress in 2022, it can set you up for more success down the road. Improving financial health can take several years, but the work it takes to get there is well worth the effort.
Ben Luthi
Ben Luthi is a personal finance and travel writer and credit card expert. He has a degree in finance from Brigham Young University and worked in financial planning, banking and auto finance before writing full-time for NerdWallet and Student Loan Hero. Ben is now a full-time freelance writer and enjoys traveling and spending time with his two kids. His work has appeared in several publications, including U.S. News & World Report, USA Today, Money, Success and Slickdeals.
