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We are officially in the home stretch of 2022. How are your finances looking?
The end of the year is the perfect time to take a general look at your overall financial situation. This can help you identify areas for improvement, such as cutting unnecessary costs or adding a little to your savings cushion.
While diving into your finances can be a long and daunting task for many, it doesn’t have to be. We’ve compiled just three financial tasks for the end of the year that will set you up for success in 2023.
3 financial tasks for the end of the year
1. Evaluate your credit cards
Credit cards are a widely used aspect of the U.S. financial system, so much so that the total credit card balance reached $930 billion in the third quarter of 2022, according to the Federal Reserve Bank of New York. These balances are reaching pre-pandemic levels, signaling that the country is returning to pre-pandemic spending levels.
As credit card debt increases, interest rates also increase, which means it is more and more expensive to maintain a balance on credit cards. Now is the time to rethink your credit card strategy.
Check your interest rates. Looking at your card’s current interest rates will give you a better idea of which ones will be more expensive to use, if you don’t pay them off in full each month.
In some cases, consumers with good credit and a strong payment history can call their issuer and ask for a lower interest rate.
Use balance transfer offers. If you notice that a card’s interest rate has skyrocketed and you have a large balance on the card, consider taking advantage of a balance transfer offer. Consumers with good credit ratings often qualify for balance transfer cards with an introductory interest rate of 0% for a set period of time, which can help you save hundreds of dollars in interest while by repaying the balance.
Keep in mind that balance transfer cards come with risks. If you do not pay the balance in full before the promotional APR period expires, you will pay interest on the remaining balance. You may also be tempted to continue spending on the card you transferred your balance from and dig deeper into your debt. Most also charge fees, so do the math to make sure your interest savings outweigh the fees you pay.
Give up the cards you don’t use. If you have a handful of credit cards that you barely use, you could be wasting hundreds of dollars each year in annual fees. Some premium cards charge up to $695 per year.
The end of the year is a great time to reevaluate which credit cards you want to keep in your wallet and which ones are worth giving up. Review each card’s rewards offerings to determine if paying the annual fee is worth it. For example, if you’re not an avid traveler, having a travel rewards credit card that gives you access to airport lounges and free checked baggage probably isn’t worth the price of the annual this card.
Keep in mind that canceling a credit card can negatively impact your credit score. If you plan to apply for a new line of credit in the near future, such as a mortgage or car loan, you may want to hold off on closing the account until you get the new loan.
2. Dive deep into your budget
Even if you don’t have a formal monthly budget, you should take a close look at your finances to determine where there might be room for improvement. This may include cutting unnecessary expenses to provide more of a financial cushion next year.
Reduce your monthly subscriptions. If you haven’t been combing through your bank and credit card statements with a fine-tooth comb lately, or ever, you may not realize how many monthly subscriptions you pay for and rarely use. .
“Like pruning your shrubs, pruning your expenses should be an annual practice, with the goal of improving financial health and well-being,” says Craig Kirkland, director of retail banking at Nevada State Bank. .
If there are subscriptions you can’t live without, Kirkland says it’s worth calling the companies and negotiating a lower price or getting more services for your current payment. This tactic can be used on a variety of services, including gym memberships, car insurance, home alarm companies and more, according to Kirkland.
“Like pruning your shrubs, pruning your expenses should be an annual practice, with the goal of improving your financial health and well-being,” says Kirkland.
Check on your emergency fund. Outdated advice says consumers should aim to have six months of funds set aside for a financial emergency. For Americans who live paycheck to paycheck, that may be out of reach.
If you’re overwhelmed with the thought of saving a large amount of money or can’t because of your financial situation, start small. According to a study by the Urban Institute, families with only $250 to $750 in cash savings are less likely to face serious financial hardship, such as evictions or utility cuts, than those with less than $250 in savings.
If you’re not saving for emergencies, focus on developing a saving habit by making it a budget item, no matter how small. You can also simplify the process by setting up automatic transfers to your savings account each payday.
3. Review your investments
This year was the worst year for the S&P 500 in more than a decade. While investors should stay focused on their long-term investments for retirement, there are a few other ways to check in on their portfolios before the end of the year.
Check your retirement contribution limits. For 2022, the individual 401(k) contribution limit is $20,500 (or $27,000 if you’re 50 or older). If you haven’t reached this limit yet, you might consider making an additional contribution before the end of the year. In 2023, the limit increases to $22,500 for individuals ($30,000 for people age 50 and over).
Consider alternative investments. If you are looking for greater diversification, alternative investments could be a viable option. These investments, which include natural resources and real estate, can withstand volatility due to inflation or a recession better than dividend-paying stocks alone.
Reassess your stance on crypto. It was a bad year for cryptocurrency. The fall from grace of crypto exchange FTX continues to reverberate across the industry, with trading platform BlockFi now filing for Chapter 11 bankruptcy. Take some time at the end of this year to reflect your stance on investing in cryptocurrency and whether or not you are comfortable with all the risks that come with it.
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