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For many, the end of the year is a time of reflection, and while some look back on their experiences and achievements, financial experts say it’s just as important to take stock of your finances.
Controlling spending seems to be an uphill battle this year, as wages often don’t keep up with the cost of living. In the United States, bank interest rates Salary Inflation Index 2024 It was found that between January 2021 and June 2024, prices increased by 20%, but wages only increased by 17.4% during the same period.
As a result, nearly half of Americans say they live paycheck to paycheck, according to a recent survey Bank of America investigation.
“The end of the year can be a good time to reflect on your finances, but it’s important not to be too hard on yourself,” Tamara Harel-Cohen, co-founder of financial wellness app RiseUp, told CNBC Make It.
Harrell-Cohen recommends not scrutinizing every penny you spend because it’s not always possible to achieve your financial goals.
Meanwhile, Sarah Coles, head of personal finance at Hargreaves Lansdown, said there is always room for improvement when it comes to money management.
“There’s a sense that as long as your finances are roughly stable by the end of the year, you’re probably fine. However, this approach can make it easy to overlook key aspects of your finances,” Coles says.
CNBC Make It asked four financial experts for their top tips on reflection and money management as the end of the year approaches.
“Have self-compassion”
Vicky Reynal, a financial psychotherapist and author of “Money on Your Mind,” told CNBC Make It that feeling shame about the way they handle money is a “common phenomenon” in December.
“One thing I would say is have self-compassion,” Renard said. “Almost everyone feels like they should be better than they are.”
Renard said this could prevent us from thinking effectively about how to turn things around. The truth is, managing finances “is not an innate skill” and is not typically taught in schools or by parents.
“So we pick as we go and inevitably make mistakes. But what we can do is, we can take that and reframe it in terms of: What could I have done differently instead of wallowing in guilt and In shame. What do I want to do differently financially next year?
“5 cornerstones of sound finances”
Hargreaves Lansdown’s Coles recommended auditing five key areas of funding.
“We should take a concrete inventory of the five cornerstones of sound finances: Are your short-term debts under control? Do you have measures in place to protect your family—including life insurance and a will? Do you have enough emergency savings to cover three to six Monthly basic expenses? Are your retirement savings on track? Are you investing to make as much money as possible?
Coles adds that understanding your finances in these five key areas can help you lay the foundation for a budget and new financial goals.
Don’t make budgeting complicated
Renard says many New Year’s money resolutions fail because they are often too complicated.
“Sometimes, people will proudly say to me, ‘I’ve set up this spreadsheet and it has 30 tabs. I’m going to record all my expenses. But that’s not sustainable,'” Renard said. “I always encourage people to keep it simple and find the right tools.”
She recommends using budgeting apps and investing platforms to save you the work.
“It will simplify and enable a cycle that makes you feel empowered. You will have small victories that continue a virtual circle in which you start to build confidence: ‘Look, I made it this month, so Maybe next month I’ll make it,'” she added.
Harrell-Cohen agrees, saying that even “taking five minutes in the morning to check in” on how you’re going to spend your money during the day can help you make better decisions without feeling overwhelmed.
“Remember, improving your financial situation is a marathon, not a sprint,” Harrell-Cohen adds.
Small but lasting improvements
Renard says the second reason many money decisions fail is that they are too ambitious.
“Small wins have a lot to say about building confidence, building a sense of agency and increasing motivation,” she said, adding that setting “small, achievable goals” is the path to success.
Harrell-Cohen recommends automating monthly payments into your savings account for long-term goals like a vacation or retirement.
“Once you set it up, sit back and forget about it,” she said.
consider your feelings
Ylva Baeckström, senior lecturer in finance at King’s Business School, says it’s okay to treat yourself occasionally.
Spending money shouldn’t always cause anxiety, she said. “How much money are you spending on things you don’t really need? How does spending that money make you feel? Does it make you feel anxious or stressed, or does it make you feel good?” Backstrom said.
“If this makes you feel anxious, you need to change your habits. However, if it makes you feel good, then it may be worth continuing to allow yourself this special luxury. Give yourself treats that make you feel good and reduce the amount that makes you Feeling anxious about spending,” she added.
