By Teresa Mears
A new year is approaching, and with it comes the desire to do better. We make New Year’s resolutions for all aspects of our life, and our money should be part of that.
If you’re spending too much and saving too little, or if you don’t even know where your money is going, this is a good time to give yourself a financial checkup. Even if you’re doing well financially, you should take a look at your savings, your spending and your processes to see what can be improved.
“That’s a good place to start the year, the ‘Where am I?’ question,” says Mari Adam, a financial planner in Boca Raton, Florida.
Do you have life insurance, disability insurance, health insurance and a college fund for your kids? Are you paying off your student loans? Is your portfolio allocated the way it should be for today’s market? Are you making enough money to cover your living expenses? All of those are questions you should ask as part of your year-end financial inventory.
Keeping your financial house in order is a continual process – much like keeping the home you live in clean. But some organization on the front end makes it more likely you’ll be able to accomplish your financial objectives.
“To me, it’s all about a long-term process,” says Todd Tresidder, a financial coach and author who publishes the Financial Mentor website. He suggests this resolution: “This year, I’m going to take my finances seriously and actually develop a process that’s going to take me to my goals.”
Here are nine things you can do to improve your financial picture in the new year:
Max out your 401(k) contributions. You obviously want to contribute what it takes to get the maximum employer match (where else can you get that kind of return on investment?), but that is unlikely to be all that you can contribute. In 2016, employees can contribute $ 18,000 (plus $ 6,000 more if they’re 50 or older). The self-employed should be contributing as much as they can toward retirement through avenues such as IRAs and SEPs. “If you’re not maxing out, add a percentage,” says Liz Weston, personal finance columnist and author. “Just set it up and get it going.”
Make a will and review your estate planning. No one wants to think about death, but you don’t want to leave your family in the lurch if something happens. Make sure you’ve designated who will take custody of your children, who will inherit your property and who will make decisions for you if you become incapacitated. And then make sure your family knows where to find this information as well as your other financial information, including passwords for online accounts. You also need to plan for your digital estate, from your Facebook account to your intellectual property. New online tools make it easier to gather your information all in one place.
Increase your savings. If you’re putting $ 50 of each paycheck into savings, move it up to $ 55 or $ 60. Change your IRA contribution from 10 percent to 11 percent. By making modest adjustments, you won’t miss the money, and you can build up your emergency fund, retirement savings or children’s college funds. Weston advocates setting up savings buckets for specific expenses, such as a new car, vacation, home renovations or emergency fund. Some banks will allow you to create subaccounts to make this easier. “It’s so nice to know that these expenses are covered,” she says.
Automate your savings. We all think we should save more money, but the truth is few of us do. One of the easiest and most effective ways to increase savings is to automate the process. That could be having money withheld from your paycheck and deposited in a savings account or scheduling regular transfers from checking to savings or retirement accounts.
Organize your finances. If you’re still doing tax planning by throwing receipts in a shoebox, maybe it’s time to improve your process. That could include using online or computer bookkeeping software, automating bill payments or creating a process that enables you to see your income and spending more clearly, such as using a program like Quicken or an online tool like Mint.com. If you can’t see where you’re money’s going, you don’t know if you’re using it well.
Ask for discounts. Call your cable company, cellphone service provider, car insurance provider and other services for which you pay a monthly fee and ask if they can give you a better deal. Cellphone and cable packages changes all the time, and the companies won’t offer you a better plan if you don’t ask. If you’re paying private mortgage insurance on your home and you think you now have more than 20 percent equity, ask to have it removed, suggests Carrie Rocha, founder of Pocket Your Dollars.
Pay off debt. If you’ve got debt with a variable interest rate, expect that rate to rise this year. “The tide has just turned right now,” Adam says, referring to the Federal Reserve’s decision to raise interest rates. “Things are moving in a way that’s not favorable to you.” That makes it even more prudent to pay off that debt as soon as possible. Also take a hard look at how you got into debt. “Credit card debt is expensive,” Weston says. “It’s a sign you’re living beyond your means.”
Make your charitable deductions automatic. This is helpful to the charities, which need money all year, and also helps you be more deliberate in your giving, Weston says. Plus, it makes it easier to remember your deductions at tax time.
Pay your bills on time. Any money that goes to late fees is money wasted, and late payments can also hurt your credit score. If you’re missing bills, set up a system that enables you to pay them when they’re due. That could include putting automated reminders in your calendar, signing up for alerts or setting up autopay options using bank accounts or credit cards.