Financial Tips for the New Year
The new year is almost here. Have you taken any steps to prepare for the financial realities of the coming year?
Remember the Boy Scout motto: Be prepared! A brand-new year, always ripe with resolutions, is the perfect time to assess your financial position and make improvements.
Here are some tips to get you started.
Tune your budget
It’s a great idea to begin the new year with a plan. A budget is just that — a plan — that starts with the income you expect, along with your fixed expenses, such as rent or mortgage costs, homeowners association fees, insurance, utilities and transportation costs. The plan also incorporates your savings goals. Then, the remaining money is designated for your other expenses.
A realistic budget will help you set your financial goals and remind you to stick to them. These last few days in December is the perfect time to assess last year’s budget or to create a new one if you don’t yet have one in place. Consider using these useful apps to build your 2020 budget.
Reviewing where you spent money over the last year will help you make better choices. If you did not save money for retirement, for example, this can be a new budget item.
While planning for the coming year, make sure to include a method for tracking your spending.
Even with a solid strategy in place, there will always be surprises along the way. Losing a job, a leaking roof or an illness can throw off your entire plan. Be sure to build an emergency fund into your budget.
Plan ahead to meet your goals
Next, consider how you will accomplish your goals. You’ll have short-term goals, such as purchasing a new car or home, as well as long-term goals, such as saving for retirement. Each set of goals requires a different kind of planning and saving.
Financial planners recommend setting up a separate savings account for each goal. This way, you can easily track your progress.
Experts also suggest working backwards to determine how much you need to save for a specific goal. For instance, if you dream of taking an expensive vacation two years from now, determine the total cost of the vacation and then establish a reasonable time-frame and the amount you’ll need to save each month to reach that goal. Make sure the amount you plan on setting aside each month is doable, or you may just have to move your goal over by six months or more.
You can also make your financial future more secure by identifying the difference between your needs and wants. Needs are necessary for your survival and include items like food and shelter. Wants are things that are not necessary, such as a luxury car or European vacation.
First, tend to your needs. Then, based on what’s left to work with, consider your wants. This might sound obvious, but for many of us, the line between wants and needs is often blurred. This can lead to awfully tight financial situations, even prompting us to “borrow from Peter to pay Paul.” Clearly differentiate what you want and what you need to avoid this outcome.
Maximize retirement contributions
Retirement plan contributions can be a valuable source of savings, especially if you have the option of employer-matched funds. If you do, be sure to take advantage of them!
Also, check with your HR contact and your accountant to make sure you are contributing the optimal amount to your 401(k) and IRA.
Check your flexible savings account (FSA). If you have unspent money in your FSA, now is the time to use it. These pre-tax dollars often have to be spent before the end of the year. Do you need a new pair of eyeglasses? Are your teeth in desperate need of a cleaning or repair? This might be a good time to spend that money on self-care and other needs you’ve been pushing off. You don’t want to lose this money, so be sure to use it if you can.