It’s hard to believe that 2022 is just around the corner! The end of the year is a great time to reflect on how you’ve spent your money over the past year and decide what you want to do differently come January.
Of course, you should be checking in on your budget each month, but I recommend taking a few specific action steps at the end of the year. Doing this will help you prioritize and prepare your finances for the New Year.
1. Review Your Financial Goals
Setting short-term, medium-term, and long-term financial goals is a crucial part of reaching financial fulfillment. Strong financial goals will help you avoid overspending and keep you motivated as you’re working to pay down debt and build up your savings.
It’s a good idea to take some time to review your financial goals every year. Just like you visit your doctor once a year for an annual check-up, you should be doing the same thing with your finances.
Look at what kind of progress you made in 2021 and what you’d like to do differently in 2022. For instance, were there any budgeting categories you chronically overspent in?
Did you pay down some of your debt but not as much as you would’ve liked? Consider all of this during your financial review.

2. Check-in With Your Expenses
Expenses can change from month to month. With a new year, there's no better time to sit down and go through each expense and ask yourself, “Can I want to cut, keep, or lower this?”
Do this for not only your fixed expenses but also to re-evaluate your variable expenses. Ensure that your variable spending budget limits are realistic for you, and be sure that the fixed bills you have are needed. Do you need to create new budget categories? Maybe you'll find you need to consolidate categories.
While doing this, also ask yourself if you will be an all-cash spender, or if you find more success with being cashless. Whichever you choose, just ensure all your ducks are in a row before the new year comes along.
3. Create a Starter Emergency Fund
If there’s one thing the pandemic taught us, it’s that none of us know what the future holds. Things may be going okay financially right now, and you may be just making it by every month on your current salary. But what would you do if a financial emergency arose?
That’s why we all need to have an emergency fund in place. Most experts recommend saving up three to six months' worth of expenses, but this can take time. So I recommend focusing on a starter emergency fund in the beginning.
This amount can be whatever gives you peace of mind, but I recommend starting with at least $1,000. That’s enough money to cover most small emergencies. You should save up this money before you begin paying off debt.
4. Come Up With a Realistic Budget
You need to ensure your budget is aligned with your priorities and that your income can cover all of your expenses. And more than anything else, your budget must be realistic.
It’s easy just to write out a budget that sounds good, and hope you stick to it every month. But if you can’t stick to your budget, it’s not really helping you all that much.
Take some time to evaluate if your budget is serving you in the way you want it to. Not only that but the way you need it to achieve your financial goals. We all want to spend less, yes, BUT, that might not be realistic for some of us. Setting an unrealistic budget is just setting ourselves up for failure, so it's critical that your budget is realistic for YOU. Remember, your budget should not and will not look like anybody else's.

5. Decide on a Debt Payoff Strategy
If you’re still working on paying down debt, take some time to ensure that your debt list is up-to-date. I know this can be hard to do, especially if you added on more credit card debt in 2021.
But you can’t pay off your debt if you don’t have an accurate picture of what you’re dealing with. So get really honest about your numbers before the start of the New Year.
From there, you can come up with a debt payoff strategy. The two most common strategies are the debt snowball and the debt avalanche.
With the debt snowball method, you’ll list out all of your debt from the smallest to the largest. Then you’ll start by paying off the smallest balance first and making minimum payments on everything else. You’ll continue this method until the largest debt is finally paid off.
In comparison, the debt avalanche method focuses on paying off the debt with the highest interest rate first, regardless of the size of the loan. This will help you spend less money on interest payments, but many people find it easier to stay motivated with the debt snowball method.
6. Continue Building Your Emergency Fund
While you’re paying off your debt, you should try to continue saving more money in your emergency fund. You want to get this emergency fund to at least three months worth of expenses.
An emergency fund is crucial because it’s not just about getting out of debt — it’s also about staying out of debt in the future. An emergency fund ensures that you don’t have to take on more debt if you get hit with an unexpected bill. It helps you get out of that cycle of relying on high-interest credit cards.
In addition to your emergency fund, you should start thinking about what sinking funds you need to start in 2022. A sinking fund is a way to save for significant, planned expenses.
For instance, Christmas and all of the expenses that come with it are a planned expense. It comes every single year, and you know it’s going to happen. But many people don’t plan for it and treat it like an emergency.
Figure out what items you need to save for in the upcoming year. Be sure to work these expenses into your budget.

The Bottom Line
If you didn’t make as much progress financially as you hoped you would this year, that’s okay. December is an excellent time to reassess your goals, figure out what went wrong, and come up with a new plan for the coming year. Make sure to prioritize saving up your emergency fund and paying down debt first.