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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 just as important to take stock of your finances.
Staying on top of your expenses may seem like an uphill battle this year, as rents often haven’t kept up with the increased cost of living. In the US, Bankrate’s 2024 Wage Inflation Index It found that prices rose by 20% between January 2021 and June 2024, but wages rose by only 17.4% over the same period.
As a result, nearly half of Americans say they live paycheck to paycheck, according to a recent study 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 Harel-Cohen, co-founder of financial wellness app RiseUp, told CNBC Make It.
Harel-Cohen recommends scrutinizing every penny you spend, because it’s not always possible to meet your financial goals.
Meanwhile, Sarah Coles, head of personal finance at Hargreaves Lansdown, says there is always room for improvement when it comes to money management.
“As long as you get to the end of the year in roughly one piece financially, it can feel like 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 year draws to a close.
‘Have self-compassion’
It’s a “common phenomenon” in December for people to feel ashamed of how they’ve been managing 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 feeling that everyone has to be better than they feel.”
This can prevent us from thinking productively about turning things around, Reynal said. The truth is, managing finances is “not an innate skill” and is often not taught by schools or parents.
“So we pick it up as we go, and inevitably we’re going to make mistakes. But all we can do is, instead of stewing in guilt and shame, we can use that and that’s: What can I do differently? What do I want to do differently next year financially?” Reynal added.
“The 5 Foundations of Strong Finances”
Coles at Hargreaves Lansdown proposed an audit of five key financial areas.
“In particular, we should take stock of the five pillars of strong 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 three to six months of essential expenses? Are you on track? to save your pension? And do you invest your money where you can to earn more?”
Understanding where you stand financially within these five keys can help you create the foundation for a budget and new money goals, Coles added.
Don’t make the budget complicated
Many New Year’s money resolutions fail because they tend to be too complicated, according to Reynal.
“People will sometimes proudly come up to me and say, ‘I set up this spreadsheet, it has 30 tabs. I will record all my expenses.’ But that is not sustainable,” said Reynal. “I would always encourage people to keep it simple and find the right tools.”
He suggested using budgeting apps and investment platforms that cut the work for you.
“It will simplify and enable the cycle where you feel empowered. You’re getting small victories, and it perpetuates this kind of virtual circle where you start to build up that confidence: “Look, I got it this month, so I’m going to get it next month. ”, he added.
Harel-Cohen agreed, saying that doing a “five-minute check-in” with yourself in the morning can help you make better decisions about how you’ll spend your money during the day without feeling overwhelmed.
“Remember, improving your financial well-being is a marathon, not a sprint,” added Harel-Cohen.
Small and permanent improvements
The second reason many money resolutions fail is because they’re too ambitious, according to Reynal.
“There’s a lot to be said for small wins in terms of building confidence, creating a sense of agency and building momentum,” she said, adding that setting “small, avoidable goals” is the way to success.
Harel-Cohen recommended automating monthly payments into your savings account for long-term goals like vacations or retirement.
He said, “Once you set this up, just sit back and forget about it.”
Consider your feelings
It’s also okay to treat yourself once in a while, according to Ylva Baeckström, senior lecturer in finance at King’s Business School.
Spending money shouldn’t always cause anxiety, she said. “What did you spend on things you don’t really need? And how did spending that money make you feel? Did it make you feel anxious or stressed or feel good?’ said Baeckström.
“If it makes you feel anxious, you have to change your habit. However, if it makes you feel good, it may be worth continuing to accept this special luxury. Allow yourself treats that make you feel good and cut back on anxiety-inducing spending,” she adds.
