This is the time of year when all kinds of things are happening. It is crazy busy, the holidays come and go in the blink of an eye, and get-togethers and gift-giving are big deals. In addition to the holidays and gift-giving, we are coming up on the end of the year and for many that means that year-end reviews, raises, and bonuses may be approaching. This is an exciting time of year that, for many, can be stressful both personally and professionally. Consider a little end-of-the-year financial check-up.
There are some things related to financial capability and independence to keep in mind with the year concluding and the new year beginning. For those that receive cash gifts, increases in compensation and bonuses, it can be really cool. It is definitely fun to do a little selfish spending after being recognized for a job well done with some increased compensation. The windfall may allow you to do some stuff you had not expected you could do this year. Before you go crazy and spend a bunch of this new-found money, there are a few things that you should consider FIRST.
In the new year, the annual amounts that you can contribute to your various retirement accounts reset. It is a great time to reassess your 401k (or 403b) and Individual Retirement Account (IRA) contributions. If you received an increase in compensation with your annual review, consider adjusting or increasing the percentage that you contribute to your retirement plan. Have you taken a look recently to see how much you are contributing, what the company matches, and are you on track to reach the goals you have set out for yourself for retirement?
If you have an IRA, are you maxing out the amount that you can set aside each year? If you are under the age of 50, you can contribute up to $6,000 to your IRA in 2022. Learn more about contribution limits. Depending on your situation, you may want to make a change to the amount you regularly transfer to your IRA or if you can, make a one-time contribution to max out your contribution for the year. That way you will not have to think about it again until 2023.
What do your savings and emergency savings look like? Is this a good time to set aside a chunk of the windfall to increase your financial cushion for the coming year? More than likely, it would be good to move some of the windfall to savings for a rainy day or surprise expense. I’m not sure about you but car and health expenses seem to creep up when you least expect them. They also tend to be on the pricey side.
The last thing to consider is whether there is an investment that you could pursue or have been interested in but didn’t feel like you could take the risk at the time. It could be something as simple as buying your first home, investing in a company that you have been interested in or perhaps looking into some sort of passive investment. This is a great time to think about investing because you do have some extra cash outside of your normal earnings. Could you put it to work on something or help you get towards a larger financial goal?
This is an exciting time of year. Enjoy it! But, don’t let the excitement get the better of you. Before you buy that first-class ticket to some resort for spring break, take one positive action to set yourself up for success not only for the new year, but for the years to come. Then reward yourself with that cool experience or item that you have always wanted!
Becoming an MFF Fellow
Our Standards of Financial Literacy program is engaging, full of interesting information, and easy to navigate. Adapted from the National Standards for Financial Literacy developed by the Council for Economic Education (CEE), this robust curriculum features six short lessons on such important topics as earning income, understanding the value of saving and using credit. When completed, this program lays the foundation for becoming an MFF Fellow.
Becoming an MFF Fellow is the ticket to access additional MFF programs and opportunities for mentoring, networking, internships and real-world opportunities. These are the opportunities which allow MFF Fellows to continue their journey towards personal financial independence.
Learn more at morganfranklinfoundation.org.
