January and February are the perfect time to take a closer look at your finances and make important financial decisions. Whether you’re looking to get out of debt, save for a big purchase, or simply improve your overall financial health, there are certain decisions you should consider making during these months. Here are some important financial decisions to think about in January and February:
Create a Budget
One of the most important financial decisions you can make is to create a budget. A budget is a plan for how you will spend your money each month. By creating a budget, you can ensure that you’re spending your money on the things that are most important to you, and that you’re saving enough for your future goals.
Creating a budget may sound daunting, but there are many resources available to help you get started. Websites like Mint.com and You Need a Budget (YNAB) offer free budgeting tools that can make the process easy and straightforward. It’s also worth considering talking to a financial advisor to help you create a budget that works for you.
Pay off high-interest debt
High-interest debt, such as credit card debt, can be a major drain on your finances. The interest charges on this type of debt can add up quickly, making it difficult to get out of debt. One important financial decision to consider in January is to focus on paying off high-interest debt as quickly as possible.
There are several strategies you can use to pay off high-interest debt. One popular strategy is the “debt snowball” method, where you focus on paying off the smallest debt first and then move on to larger debts. Another strategy is the “debt avalanche” method, where you focus on paying off the debt with the highest interest rate first.
Increase your emergency fund
An emergency fund is a savings account that you can use in case of an unexpected expense, such as a car repair or medical emergency. Having a solid emergency fund in place can help you avoid going into debt when an emergency strikes.
Experts recommend having at least three to six months’ worth of living expenses saved in an emergency fund. If you don’t have an emergency fund, or if your current emergency fund isn’t as big as it should be, consider making it a priority to increase your emergency fund in January. Start by setting a savings goal and creating a plan to reach it. Automating your savings, by setting up automatic transfers from your checking account to your savings account, can help make it easier to reach your goal.
Review your retirement savings
January is a great time to review your retirement savings and make sure you’re on track to reach your retirement goals. Take a look at your 401(k), IRA, or other retirement accounts and make sure you’re contributing enough to take full advantage of any employer match. Also, consider diversifying your investments to minimize risk and maximize returns.
If you haven’t started saving for retirement yet, now is the perfect time to start. Consider setting up a 401(k) or IRA and start contributing to it regularly. It’s also important to consider your overall retirement plan, including when you plan to retire, how you’ll generate income in retirement, and how you’ll cover healthcare expenses. A financial advisor can help you create a retirement plan that works for you.
Review and update your insurance
January is a good time to review your insurance coverage, including your health, auto, home and life insurance. Make sure your coverage is up-to-date and that you have enough coverage to protect yourself and your family in case of an emergency. It’s also a good time to shop around for better rates, as insurance companies often change their rates in the new year.
By taking the time to consider these important financial decisions in January, you can start the new year off on the right foot and set yourself up for financial success in the months to come. Remember, it’s never too late to start taking control of your finances, and small changes can make a big difference in the long run.
Review your estate plan
January is also a great time to review your estate plan and make sure it is up-to-date. An estate plan includes documents such as a will, trust, power of attorney and advance medical directive. These documents ensure that your assets will be distributed according to your wishes and that someone you trust will be able to make decisions on your behalf if you become incapacitated.
If you haven’t created an estate plan yet, now is the time to do so. It’s important to work with an attorney who specializes in estate planning to ensure that your plan is tailored to your specific needs and goals. It’s also important to review your estate plan regularly, especially if there are changes in your life such as marriage, divorce, birth of a child, or a change in assets.
Set financial goals for the year
Finally, January is the perfect time to set financial goals for the year ahead. Whether your goal is to pay off debt, save for a down payment on a house, or save for a child’s education, setting specific and measurable goals can help you stay on track and motivated.
When setting your goals, it’s important to be realistic and to take into account your current financial situation. Break your goals down into smaller, manageable steps, and create a plan to reach them. You can also consider enlisting the help of a financial advisor, who can help you create a plan that is tailored to your specific needs and goals.
Create a savings plan
Creating a savings plan is an important financial decision to make in January and February. A savings plan includes setting specific and measurable goals, such as saving for a down payment on a house, a vacation, or an emergency fund. It also includes creating a plan to reach those goals, such as setting up automatic transfers from your checking account to your savings account and regularly reviewing your progress.
It’s important to make saving a priority, even if it means making sacrifices in other areas of your budget. A savings plan can help ensure that you have the money you need for unexpected expenses and can also help you achieve your long-term financial goals.
Negotiate bills and expenses
January and February are also a good time to review your bills and expenses and look for opportunities to negotiate and save money. This can include calling your cable or internet provider to negotiate a better rate, switching to a cheaper cell phone plan, or shopping around for a better deal on car insurance.
You can also look for ways to cut costs on regular expenses, such as switching to a cheaper grocery store, cutting back on dining out, or canceling subscriptions you no longer use. Every little bit helps and by regularly reviewing your bills and expenses, you can ensure that you’re not overspending on things that are not important to you.
Leverage gig economy opportunities
January and February can be an ideal time for high-skilled workers to explore gig economy opportunities. In the gig economy, highly skilled professionals such as engineers, designers, consultants, and software developers can leverage their expertise to earn additional income.
Opportunities for high-skilled workers include joining online marketplaces for freelance work, offering consulting services, or participating in short-term project-based engagements. Platforms such as Upwork, Toptal and Freelancer.com can connect you with clients who need your specific skillsets and experiences.
It’s also worth considering starting your own business or pursuing a side hustle that aligns with your skills and interests. By taking advantage of gig economy opportunities, you can increase your earning potential and diversify your income streams. This can also be a great way to gain more autonomy, flexibility and control over your professional life.
Review your credit report
January is also a good time to review your credit report. Your credit report is a detailed record of your credit history and it’s used by lenders, landlords, and other organizations to determine your creditworthiness. By reviewing your credit report, you can ensure that the information is accurate and that there are no errors that could negatively impact your credit score.
You are entitled to one free credit report from each of the three major credit reporting agencies (Equifax, Experian, and TransUnion) per year. You can request your free credit report at annualcreditreport.com or by calling 1-877-322-8228. Once you receive your credit report, review it carefully and check for errors, such as incorrect account information or fraudulent activity. If you find any errors, you can file a dispute with the credit reporting agency and they will investigate.
Review your subscriptions
January and February can also be a good time to review your subscriptions and memberships. From streaming services to gym memberships, it’s easy to accumulate a large number of monthly subscriptions without even realizing it.
Take some time to review your bank and credit card statements to see which subscriptions you’re currently paying for. Consider canceling any subscriptions you no longer use, or that you can’t afford. There are also subscription management services that can help you keep track of your subscriptions and cancel them if you want.
By regularly reviewing your subscriptions, you can ensure that you’re not overspending on things that you don’t need or use.
Rebalance your investments
January is also a good time to review your investment portfolio and make sure it is properly diversified and aligned with your risk tolerance and goals. Over time, the value of different investments can change, causing your portfolio to become imbalanced. This can increase your risk and negatively impact your returns.
Rebalancing your portfolio involves selling some of the investments that have increased in value and buying more of the investments that have decreased in value. This helps to maintain your desired asset allocation and ensure that your portfolio is aligned with your risk tolerance and goals.
You may want to consider working with a financial advisor to develop a personalized investment strategy and to assist you with rebalancing your portfolio. An advisor can also help you determine the appropriate asset allocation for your individual needs and goals, and ensure that your portfolio is diversified to minimize risk and maximize returns.
Maximize your tax deductions
January is also a good time to review your tax situation and look for ways to maximize your deductions. Tax deductions reduce the amount of income on which you are taxed, which can lower your tax bill.
There are many deductions available, such as deductions for charitable donations, mortgage interest, and state and local taxes. You should also review your expenses and see if you qualify for any business-related deductions if you are self-employed.
It’s important to keep accurate records of all your deductions throughout the year, and to consult with a tax professional to ensure that you are taking advantage of all the deductions for which you qualify. By maximizing your deductions, you can lower your tax bill and keep more of your money.
In conclusion, January and February are great time to review your finances, identify opportunities to improve your financial health and make important financial decisions. These include creating a budget, paying off high-interest debt, increasing your emergency fund, reviewing your retirement savings, insurance, estate plan, beneficiaries, setting financial goals, reviewing your credit report, rebalancing your investments and maximizing your tax deductions. By taking the time to reflect on your financial status and make the necessary changes, you can improve your overall financial well-being and set yourself up for a successful year ahead.