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The end of the year is a time of reflection for many, and while some will look back on their experiences and achievements, money experts say it's also important to take stock of your finances.
Keeping up with your spending may seem like an uphill struggle this year, as wages have often failed to keep up with the rising costs of living. In the United States, Bankrate 2024 Wage to Inflation Index It found that between January 2021 and June 2024, prices rose 20%, but wages rose only 17.4% over the same period.
As a result, nearly half of Americans say they are living paycheck to paycheck, according to the latest reports Bank of America Survey.
“The end of the year can be a great time to reflect on your finances, but it's important not to be too hard on yourself,” Tamara Harrell Cohen, co-founder of financial wellness app RiseUp, told CNBC Make It.
Harel-Cohen advises against 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 Lansdowne, said there was always room for improvement when it came to money management.
“It can feel like as long as you're almost at the end of the year financially, you're probably okay. However, this approach leaves you vulnerable to neglecting key aspects of your finances.
CNBC Make It asked four financial experts for their top tips for thinking about and managing money as the end of the year approaches.
“Be compassionate with yourself”
It's a “common phenomenon” in December for people to feel self-conscious about how they handle their money, Vicki Raynal, a financial psychotherapist and author of “Money on Your Mind,” told CNBC Make It.
“The only thing I would say is to have self-compassion,” Raynal said. “There is a sense that everyone feels they should be better than they are.”
This can prevent us from thinking productively about how to change things, Raynal said. The truth is that managing finances is “not an innate skill,” and is often not taught by schools or parents.
“So we go through it as we go along, and inevitably we'll make mistakes. But all we can do is, instead of wallowing in guilt and shame, we can use that and reframe it in terms of: What can I do differently? What do I want to do differently Next year financially? Raynal added.
“5 basic pillars of sound financing”
Hargreaves Lansdowne's Coles suggested reviewing five key financial areas.
“Specifically, we should evaluate the five cornerstones of sound finances: Are your short-term debts under control? Do you have the right things in place to protect your family — including life insurance and a will? Do you have enough emergency savings to cover the equivalent of three to six months Of essential spending? Are you on track with your pension saving and are you investing to earn more of your money where you can?
Coles added that understanding where you stand financially within these five key areas can help you create the foundations of a new budget and financial goals.
Don't make the budget complicated
A lot of New Year's financial resolutions fail because they tend to be too complicated, according to Raynal.
“Sometimes people come up to me proudly and say, 'I made this spreadsheet, and it has 30 tabs. I'm going to record all my expenses.' But that's not sustainable,” Raynal said. “I will always encourage people to keep it simple and find tools.” “The occasion.”
She suggested using budgeting apps and investment platforms that save you work.
“That will simplify and enable a cycle where you feel empowered. You get small victories, and that kind of perpetuates a virtual cycle where you start to build confidence that: ‘Look, I was able to do this this month, so maybe I'll be able to do this next month. “She added.
Harel Cohen agreed, saying that just “checking in for five minutes” with yourself in the morning about how you're spending money during the day will help you make better decisions without feeling overwhelmed.
“Remember, improving your financial well-being is a marathon, not a sprint,” Harel Cohen added.
Small, lasting improvements
The second reason many financial resolutions fail is that they are too ambitious, according to Raynal.
“There's a lot to be said for small wins in terms of building confidence, building a sense of power, and building momentum,” she said, adding that setting “small, actionable goals” is the path to success.
Automate monthly payments into your savings account for long-term goals like vacations or retirement, Harel Cohen advised.
“After you set this up, just sit back and forget about it,” she said.
Consider your feelings
It's okay to pamper yourself sometimes too, according to Elva Beckström, senior lecturer in finance at King's Business School.
Spending money doesn't always have to be a cause of anxiety, she said. “What did you really spend on things you don't really need? How did spending that money make you feel? Did it make you anxious or stressed or did it make you feel good?” Beckstrom said.
“If it makes you feel anxious, you need to change your habit. However, if it makes you feel good, it may be worth continuing to allow yourself that special luxury.” She added: “Allow yourself a few things that make you feel good and cut back on spending that “It makes you feel anxious.”
