As we begin a new year, many of us try to start the new year off, the best we can. Almost all of us want our lives to be better than it has been in the past. While you are busy making those needed plans and goals for the new year, please, please, please do not forget about your finances. Here are just a few financial items everyone should review at the start of every new year.
1. Re-evaluate your budget
Did you get a raise or pay off a debt? I went into 2018 without a car payment and let me tell you, it felt grrrrreattt (in my Tony the Tiger voice). Instead of rushing to buy another car immediately or wasting the money away on things that I didn't need, I used my previous monthly car payment money to pay off a couple of debts I had acquired.
If you don’t make a plan for the extra money, month after month, the money will be gone and you won’t even realize where it went.
2. Increase your 401K/IRA/Retirement Savings
Does your employer give a company match that you are not utilizing to the fullest? Many companies will match your contribution dollar for dollar up to a certain amount or percentage. Whatever your company matches, make sure you contribute at least that amount, so you don’t leave any free money on the table.
Also, make sure you are on track to have enough money needed for your expected retirement date. If you started saving later in life or haven’t been able to save enough in previous years, now is a great time to increase your savings for retirement.
I know money may be tight, but if you cannot afford to save for retirement now, you may not be able to afford to retire later.
3. Open and/or adjust contributions to your HSA
HSA’s (Health Savings Accounts) are available if you are enrolled in a High Deductible Health Insurance Plan (your employer will notify you if you are, but you can check IRS.gov to see if you qualify). If you are eligible for this account, make sure you take full advantage of it.
If you are currently young and/or healthy without a lot of healthcare expenses, it’s still a great idea to contribute to an HSA. You can earn interest on your HSA balances to grow them over the years. You also do not have to use all of the money saved in the account by the end of the year.
Some employers make contributions to your HSA as long as you have an open HSA account, even if you are not making contributions to it yourself. If your family size has increased, you may want to increase the amount of money you contribute to your account per pay.
My current employer gives us a sizeable deposit into our HSA every January. The last few years, I have been able to pay for my son and my medical expenses from my HSA without needing to pull from my personal checking or savings accounts. Oddly enough, my company reported that there are 20% of employees who do not complete the requirements to receive the company deposit. I think it's sad, because it is actually apart of their employee benefits package. Do not let that be you!
(Please Note: Always check government requirements to confirm if your expense is a qualified medical expense for eligible HSA funds).
4. Target at least one credit card or outstanding debt to payoff
Do you have a credit card balance that doesn’t seem to decrease no matter what you do? Make a decision to tackle just one card balance by establishing a certain amount in addition to the required minimum payment, to pay it down each month.
I strongly recommend cutting up the card so it’s not readily available for use. You also need to decide that you are not going to use another card in its place.
5. Start a Christmas or Vacation Savings Account
Have you ever found yourself scrambling at the end of the year trying to figure out how you are going to pay for Christmas gifts? Or do you juggle needed bill money to pay for your much more needed vacation when it rolls around?
Decide how much money you need, and divide that amount by the number of pay periods you have left until that date arrives. Saving smaller increments of money instead of coming up with a large lump sum will help in a major way.
Before I got married and had a child, I only saved $15 per pay, twice per month, into my Christmas Club Account. That gave me $360 by Christmas time. I was not buying super expensive gifts, so it was much more than enough to get some really nice gifts for the few people on my list.
6. Save for taxes
For those who end up owing taxes at the end of the year, it’s a good idea to save for it throughout the year, so you don’t go into panic mode at tax time. Entrepreneurs and commission only folks know what I’m talking about, since taxes are not usually taken out of their pay, but this also can affect regular employees.
I used to end up owing city taxes every year. Instead of paying estimated taxes to the city during the year, or trying to come up with the money I owed all at once, I saved the 2% of my income that they charged in a separate savings account each pay, so I would have the money at tax time. That way, I could keep the interest I accumulated from it.
7. Look for ways to increase or add additional streams of income
Did you know that it is recommended that we all have at least 7 different streams of income? As daily and monthly expenses continue to rise, we are constantly sending out money at a rate that sometimes is more than we are bringing in. If you have a hobby or something you do very well, chances are, you might be able to turn that into additional income for yourself.
8. Check your credit report to make sure there is nothing on there that should not be.
Experian, Transunion and Equifax allow you to check each of their reports once per year for free. I usually check each of my reports at different times throughout the year instead of checking all three at the same time. This allows me to catch a discrepancy sooner than later, since they usually have the same information on them.
Checking your credit report is extremely important, because one wrong reporting from a company could prevent you from being approved for a major purchase like a car or home, or it could greatly increase your interest rate for that purchase, which will also increase your monthly payment.
Click this link for your free credit reports: https://www.annualcreditreport.com/index.action
9. Make sure you and your family are completely covered with insurance
I know, I know, you probably think you are over insured, but ask yourself this…how would your family survive if something happened to you, your significant other or either of your incomes?
According to bestliferates.org, 41% of Americans do not have any life insurance coverage. Even if you have a policy through your current employer, it is always a good idea to have an additional policy on your own, because once you leave that job or retire, that policy stays with them.
Rates are set by age and health, so if you wait too long to start your own policy, you might not be approved due to existing health issues, or it may be too expensive for you to afford.
10. Plan for a big purchase/Rainy Day Fund
If you’re a homeowner, you know home repairs and appliance replacements are quite costly. Even if you don’t own a home, unexpected car repairs, or loss of a job can really set you back financially.
If you had to pay for a huge car repair or new major home appliance, would you have the money in the bank to pay for it? If you lost your job would you be able to maintain your lifestyle for a few months until you found another job? Since life is so unpredictable, having a little something set aside if needed is a must.
11. Make sure you get all of your qualified deductions when you file your taxes.
Let’s face it tax laws are complicated to say the least. Unless you are a certified public accountant or well versed in the ever-changing tax laws, make sure you find a reputable individual or business to complete your taxes. Check to make sure they have a current and active license (each state has a State Board of Accountancy).
If you don’t have any businesses or complicated tax situations, you may be able to use an online software like Turbo Tax, that will conveniently walk you through every step to ensure you don’t miss anything.
Now I’ll admit this is a lot of information. Trying to tackle every item on the list might not be feasible all at one time. Guess what? It’s ok—pick one or two that you know you can reasonably tackle this year, and go from there.
Even if you only implement one thing this year, you will feel a gratifying sense of accomplishment once you complete it. It will also empower you to continue your financial growth in the coming years.
For more detailed financial tips, check out Successfully Setting up Your Financial Future