Making key financial moves now can help you maintain your budget, stay out of debt and lower your chances of owing more tax.
From your work to your savings and investments to spending and giving back, here are five moves you should consider making before Dec. 31 that can help to prepare you for financial success in 2023. We’ll be referencing this article from CNBC.
1. Make sure you didn’t pay too little tax on 2022 income
You don’t want to wind up paying interest and penalties or a big tax bill next year because you didn’t have enough tax taken out of your pay this year. Even if you were laid off recently, it’s important to double-check so you don’t get an unexpected tax hit.
The IRS says one way to see if you’re on track to pay the right amount of income tax is to pay the same amount as you did in 2021 or, for higher-income taxpayers, maybe a little more.
2. Increase your 401(k) plan contributions
A 401(k) retirement savings plan is one of the most highly sought-after workplace benefits. If you can’t afford to contribute the maximum amount to your 401(k), many financial advisors say to put in at least enough money to get your employer’s matching contribution, if it’s offered. That’s free money!
3. Boost your emergency savings
Having easy access to cash to cover unexpected expenses is also critical. Yet a new survey from Betterment at Work finds only 59% of employees currently have an emergency fund — a 7% drop from last year, leaving 41% without any sort of safety net.
With recent layoffs and worries about a looming recession, getting a temporary job may help a lot. A part-time job in retail or a restaurant or doing some holiday decorating for a fee may help you come up with more money to save.
4. Plan how you’ll spend before you buy
If you just can’t afford to save more right now, just make sure you don’t overspend. Figure out how you plan to pay for a holiday purchase before you buy it. Using cash instead of credit can help you stick to your budget and stay out of debt.
Also, be careful if using buy now, pay later products, a popular option for online shopping at many retailers. While you can spread out payments for purchases with no interest, buy now, pay later loans aren’t subject to the same regulations that apply to credit or debit cards.
5. Consider how you’ll contribute to charity this year and next
It may be more difficult to claim a charitable deduction this year than in the past two years. You can no longer automatically tax an above-the-line deduction for cash donations; you must itemize deductions on your 2022 tax return.
Yet most people likely will choose not to itemize because doing so may not offer as great a tax break as taking the standard deduction.
Still, getting a tax break shouldn’t be your only motivation to give. Many charities depend on year-end donations for the coming year. One way to ensure you are giving back more regularly is to factor charitable donations into your overall budget.
