The end of the year can bring a lot of financial stress. There are school supplies to buy, fundraisers popping up for every organization imaginable, and the financial cost of holiday celebrations are just around the corner. Of course, it’s also a great time of year to travel or get out into the community and have some fun – and all of that costs money! While you are working hard to stretch your dollars this season, take some time to get a head start on your financial health for the year to come. Here are some pointers on where to begin.
1. Review your budget for the past year and see where you might do better next year.
Whether you meticulously collect receipts, or just keep a log of bills and expenses take a look at the past year to see where all your money has gone, which accounts may need some modification, and where your budget could use some tweaking moving into the new year.
2. Organize your financial records and receipts and get a head start on taxes.
While you’re going to have to wait until January to see your W2 you can start collecting expenses, receipts and other documentation that will affect your taxes now. Being prepared means less stress come April and with everything ready you can even get your taxes done early enough to avoid the rush. Predicting your tax refund or payment a few months early will allow you to plan that money into your budget as well.
3. Maximize your retirement account contributions.
For 2019 annual contribution limits for 401K employer sponsored plans top out at $19000 while Roth IRA maximum contributions have gone up to $6000 per year. Individuals over 50 can also make an additional $6,000 catch-up contribution. By contributing to an approved retirement account you can reduce your overall tax liability for the year. It’s a great consideration if you have received a large cash sum during the year. IRA contributions have some income limits attached to tax benefits, so you will need to review that with your tax consultant.
4. Make sure your emergency fund is in place and adequate for your needs.
Nothing is more important than having a cash emergency fund available for easy access. Most financial advisors recommend you start with $1000 and then increase that amount to equal 3 months of your income. If your emergency fund is lacking one way you can add to it is by reducing your holiday spending.
5. Review your medical and dental coverage, rental or mortgage insurance, and any other coverage you may have such as long-term care and life insurance.
Open-enrollment for many insurance companies happens this time of year, so take advantage of opportunities you may have to speak to someone about your coverage and how you might improve it. You should understand all of the benefits that you are paying for and make modifications where it can benefit you the most.
6. Watch your Health Savings Account (HSA).
If you have been paying into a tax deferred health savings account to cover your medical deductibles and other out of pocket expenses make sure you understand the terms. Many accounts reset at the end of the year and any money you have left in the account is lost. If you find you still have quite a bit left consider taking care of any minor medical issues you’ve been putting off, or you can also look into purchasing medical equipment covered by the account and donating it to a local shelter or organization who can use it. The money in the account is yours to use, make sure it goes to your needs.
7. Review any revolving credit card and loan accounts you have and ask for lower interest rates.
If the lender is willing you can reduce your interest rate or pay more than the minimum due you will reduce the amount subject to interest and pay the debt faster. If you have high interest rates it’s a great time to shop around for a better loan offer.
8. Review your estate planning documents including your will.
Make sure that your end-of-life wishes reflect your current situation and covers any life changes that may have occurred in the past year. Be sure to review the beneficiary information on your retirement accounts and life insurance as well.
9. Review your investment accounts.
We all hope our investments make money, but if you find any losses you can take advantage of a government subsidy by selling off the badly performing parts of your portfolio so that you can reduce any capital gains for the year with the losses. Losses after subtracting any gains can also be used to reduce your taxable income by up to $3,000. There are some restrictions, so make sure you talk to your financial advisor for the best advice.
10. Take a minute and calculate your net worth.
If you do this yearly you will begin to see how healthy your financial life is and if your wealth has been increasing. Net worth is essentially the value of your assets minus the total of your debts.
Start with your assets. Add up the value of the following:
- Cash on hand
- Cash in the bank
- Market value of your home
- Market value of any real estate or land you own
- Blue book value of your vehicles
- Market value of any easily saleable items such as ATVs, boats, trailers, fine art or jewelry, etc.
- Current value of your retirement accounts
- Cash value of your life insurance
- Investment balances
- Amounts owed to you by others
- Other assets
Now add up your liabilities (what you owe) and subtract that total from your total assets:
- Credit cards
- Home loans
- Student loans
- Car loans
- Other loan debt
- Unpaid tax amounts
It can be a bit of work to pull together all of this financial information into one place, however not only is net worth a good indicator of personal wealth and can put your debt level in the proper perspective, but it can help in your financial goal setting including preparing to buy a home or planning for retirement…or even in how you spend over the coming year.
11. Make some early goals for next year.
Will you be traveling? Are there planned medical expenses coming up? Can you foresee a job loss or the need to move in the next 12 months? Any big life events like a wedding or college that need to be prepared for? All of these things will affect your finances and how your budget needs to be managed. Make a list of all coming expenses you can plan for and then a list of things you’d like to try to work into the budget like taking a class, travel, or knocking something off of your bucket list if you can. Set some goals for spending in the new year now so that you can be prepared.
Take some time to evaluate your financial health as we come to the end of 2019 and educate yourself on what you can do better going into the new year.
Family Financial Education Foundation is dedicated to helping individuals and families find financial success, reduce stress, and understand the process to real wealth. For more information and topics visit our website or call one of our knowledgeable financial counselors for a free consultation.