Top 5 tips to reflect on your finances at the end of the year: the experts

The end of the year is a time of reflection for many, and although some will look back on their experiences and achievements, financial experts say it is very important to look at your finances.

Staying on top of your spending may seem like an uphill battle this year as wages fail to keep up with the high cost of living. In the US, Bankrate’s 2024 Wage to Inflation Index found that between January 2021 and June 2024, wages rose 20%, but wages rose 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 by Bank of America.

“The end of the year can be a great time to think about your finances, but it’s important not to be too hard on yourself,” Tamara Harel-Cohen, founder of financial wellness program RiseUp, told CNBC Make It.

Harel-Cohen advises against scrutinizing every penny spent because it’s impossible to always meet 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 can be a feeling that as long as you get to the end of the year in about one quarter of the finances, you’re probably fine. However, this approach leaves you vulnerable to neglecting important aspects of your finances,” says Coles.

CNBC Make It asked four financial experts for their top tips on thinking about and managing money as the end of the year approaches.

It’s “normal” in December for people to feel embarrassed about how they’re managing their money, Vicky Reynal, a financial doctor and author of “Money on Your Mind,” told CNBC Make It.

“The only thing I can say is that I feel sorry for myself,” said Reynal. “There’s almost a feeling that everyone feels like they have to be better than they are.”

This can prevent us from thinking effectively about how to change things, says Reynal. The truth is that managing money is not an “innate skill,” and it is often not taught by schools or parents.

“So we’re taking it as we go, and we’re definitely going to make mistakes. But what we can do is, rather than get bogged down in action 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?” added Reynal.

Hargreaves Lansdown’s Coles suggested five key areas of capital to be explored.

“We have to look specifically at the five pillars of financial soundness: 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 worth of expenses? Are you on your way to saving for retirement? And do you invest to make your extra money where you can?” he said.

Understanding where you stand financially within these five key areas can help you create new budgeting bases and money goals, Coles added.

Many New Year’s money resolutions fail because they tend to be too difficult, according to Reynal.

“People, sometimes, will come up to me proudly and say: ‘I set up this spreadsheet, it’s 30 tabs. I will be recording all my expenses.’ But that is not sustainable,” said Reynal. “I always encourage people to keep it simple and get the right tools.”

He suggested using budgeting apps and investment platforms that cover the job.

“It will facilitate and empower the cycle that you feel powerful in. You get a little win, and that kind of drives a virtual circle where you start to build the confidence of: ‘Look, I was able to do it this month, and maybe I’ll be able to do it next month,’” he added.

Harel-Cohen agreed, saying that even your “five-minute check-in” in the morning about how you’re going to spend your money during the day will help you make better decisions without feeling stressed.

“Remember, improving your financial health is a race, not a sprint,” adds Harel-Cohen.

The second reason why many money resolutions fail is because they are too ambitious, according to Reynal.

“There’s a lot to be said for small wins in terms of building confidence, building a sense of independence, and building momentum,” he said, adding that setting “small, actionable goals,” is the path to success.

Harel-Cohen automatically advises monthly payments into your savings account for long-term goals such as vacations or retirement.

He said: “After stopping this, just sit down and forget about it.

It’s okay to treat yourself occasionally, according to Ylva Baeckström, senior lecturer in finance at King’s Business School.

Spending money shouldn’t always be a cause for concern, she said. “What do you really spend on things you don’t really need?” And how did spending that money make you feel? Did it make you worry or did it make you feel happy?” Baeckström said.

“If it makes you worry, you should change your habit. However, if it makes you feel good, you may have to continue allowing yourself this particular luxury. Allow yourself other things that make you feel happy and cut back on the things that make you feel anxious,” he added.