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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 is just as important to take stock of your finances.
Staying on top of your expenses can seem like an uphill battle this year, as wages often fail to keep up with the rising cost of living. In the United States, Bankrate’s 2024 Wage index to inflation found that between January 2021 and June 2024, prices increased by 20%, but wages increased by only 17.4% in the same period.
As a result, nearly half of Americans say they live paycheck to paycheck, according to a recent Bank of America survey.
“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.
Harel-Cohen recommended that you review every penny spent because it is not always possible to meet your financial goals.
Meanwhile, Sarah Coles, head of personal finance at Hargreaves Lansdown, said there is still room for improvement when it comes to money management.
“You can feel that until the end of the year almost in one financial piece, you’re probably fine. However, this approach leaves you vulnerable to neglecting key aspects of your finances,” said Coles.
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”
It’s a “common phenomenon” in December for people to be ashamed of how they’re handling their money, Vicky Reynal, financial psychotherapist and author of “Money on Your Mind,” told CNBC Make It.
“One thing I would say is to have self-compassion,” Reynal said. “There’s almost a sense that everyone feels they should be better than they are.”
This can prevent you from thinking productively about how to turn things around, Reynal said. The truth is that managing finances “is not an innate skill”, and is often not taught by schools or parents.
“So we take it as we go, and inevitably we will make mistakes. But all we can do is, rather than simmer in guilt and shame, we can use that and reframe it in terms of: What can I do differently? What do I want do differently next year financially?” Reynal added.
“5 pillars of healthy finances”
Hargreaves Lansdown’s Coles suggested an audit of five key money areas.
“We will take a specific balance of the five basics of healthy 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? enough emergency savings to cover three to six months’ worth of retirement savings? and invest to make more of your money, she said.
Understanding where you stand financially in these five key areas can help you create the foundations of a budget and new money goals, Coles added.
Don’t make budgeting complicated
A lot of money resolutions in the new year fail because they tend to be complicated, according to Reynal.
“People, sometimes, will proudly come to me and say, ‘I set up this spreadsheet, it’s 30 tabs. I have to record all my expenses. But this is not sustainable,” said Reynal. “I always encourage people to keep it simple and find the right tools.”
She suggested using budgeting apps and investment platforms that cut the work for you.
“It will simplify and activate a cycle in which you feel capable. You get small victories, and this kind of perpetuates a virtual circle in which you start to build the confidence that: “Look, I was able to do this month, and so maybe I will be able to do next month.”, he added.
Harel-Cohen agreed, saying that even a “five-minute check-in” 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,” added Harel-Cohen.
Small lasting improvements
The second reason many money resolutions fail is because they are too ambitious, according to Reynal.
“There’s a lot to be said for small victories in terms of building confidence, building a sense of agency, and building momentum,” he said, adding that setting “small, actionable goals” is the path to success. .
Harel-Cohen recommended automating monthly payments into your savings account to achieve long-term goals like a vacation or retirement.
She said, “After you install this, just sit back and forget about it.”
Consider your feelings
It’s good to treat yourself occasionally, according to Ylva Baeckström, a senior lecturer in finance at King’s Business School.
Spending money doesn’t always have to be anxiety-inducing, he said. “What did you really spend on things you didn’t really need? And how did spending that money make you feel? Did it make you anxious or stressed or did it make you feel good?” Baeckström said.
“If it made you feel anxious, you need to change your habit. However, if it made you feel good, it may be worth continuing to allow this particular luxury. Allow yourself some treats that make you feel good and cut spending that makes you feel anxious,” he added.
