René Nourse, CFP®
It’s a new year! And with that invariably come resolutions, plans, and commitments to be a better you.
I'm willing to bet that one of those resolutions is to explore and develop ways to be better about handling your money. Is there something you can do, other than the basics of Budget, Save, and Invest?
Here are five ideas for ways you can up your money game for the coming year.
Do you have challenges staying on the “B”—for budget—track? Trust me, this is an issue a lot of people grapple with. I often hear, “I make good money, but I don't know where it goes,” or “I want to save money, but I never seem to get there.” Well, consider this strategy to help get you there: automate it! Set up automatic payments for your monthly “have to pay” bills such as mortgage/rent, utilities, insurances and the like. This will force you to know what your non-discretionary expenses are and make sure there's enough money to cover it. For your discretionary expenses, such as travel or other merchandise purchase, for example, set up a separate account or accounts and pull money either directly from your paycheck or main checking account to fund those accounts.
Of course you are. But some birthdays are a bit more special than others. Outside of hitting the half-century mark, you also get to put away more money into your 401(k) plan at age 50 and beyond. The “catch-up” provision allows individuals to put away up to an additional funds over and above the maximum employee contribution. The amount of the additional allowance, as well as the maximum contribution levels often increase each year. So check with your financial planner and consider adjusting your base contributions, too. With an extra few thousand every year, your retirement savings can increase substantially in the years before you retire. And guess what? Even if your birthday is on December 31st, you can start participating in the catch-up provisions on January 1st of the year you turn 50.
Speaking of 401(k) plans, check to see if your plan has a Roth option. Roth 401(k) contributions are made on an after-tax basis. So while there are no up-front tax benefits, when you separate service, all of the contributions and earnings can be rolled into your Roth IRA. And presto change-o! You have a bucket of money that will never be taxed as income to you or your beneficiaries.
Health Savings Accounts are one of the most underutilized employee benefits out there. Many people get Flexible Spending Accounts and Health Savings Accounts confused. While there are a ton of benefits associated with Health Savings Accounts, just remember these two facts: (1) contributions are tax free, helping to reduce your taxable income; and (2) there is no “lose it or use it” feature.
If you are expecting a bonus this year, what are your plans? Know what you're going to do before that bonus hits, so you can have a dedicated plan in place. Are you planning a big vacay, saving for a major purchase, paying off some credit card bills, or paying back taxes? Put that bonus to good use and pay those off. If you work for a publicly traded company, will you be receiving stock options and/or are your stock options vesting? Even more important, decide if you will keep or sell those issues and figure out what the tax impact will be for the year.