The end of the year is a time to reflect on only only the previous year but also the new year to come. Now that we have all survived the 2012 Apocalypse, the holiday season’s frenzy, and the new year is upon us, now is the perfect time to not only take stock of where you want to go in the next year but also where you should take your finances as well. There are money moves to make now. The new year is an excellent time to look at your total financial picture and consider making changes to your strategy. There are several key financial aspects of your life that you should consider taking stock of in the new year. Here are five key money moves to make now in the new year that you should look at making.
1. Change your tax withholdings. The new year is a time when many people start to think about their tax refund that you may get after you file. If you receive an income tax refund, that means that you paid too much in taxes to the federal and state governments throughout last year. You essentially gave the government an interest free loan with your tax dollars. While many people like my wife enjoy receiving a large income tax refund check every year like it was a bonus, it is not the most efficient use of your income. You can keep more money in your wallet every paycheck by changing your tax withholdings. Ultimately, your goal should be to not owe any money in taxes on April 15th and also not to receive a very large refund either. According to the Internal Revenue Service (IRS), the average income tax refund for 2010, the last year for available data, was $3,003. If you changed your withholdings to keep that money in your paycheck instead, you would receive over $200 extra a month in your take home pay.
2. Review your insurance policies. Things change in our lives. People get married, divorced, have more children, and a host of other big changes throughout a given year. But, far too many people do not change their life insurance policies or their personal property insurance policies. Do you have more assets now? Are you making more money from your job? Did your spouse go back to work? These are all things that may trigger changes to your insurance needs. It is always a great idea to relook at your insurance needs every year just like you consider changing your investments’ asset allocations. If you are not sure if you have the right amount of insurance protection, you should seek out the help of financial planner or life insurance agent who can help you understand you and your family’s needs. Who knows, you may have too much insurance coverage and can save money on your insurance premiums by having a checkup done.
3. Rethink your family’s budget. Now that it is a new year, it is the perfect time to reexamine your family’s monthly household budget. Were there categories that you overspent and did not allocate enough money in your budget for? Are gas prices increasing more than than you though or are you driving further than you thought when you designed your budget? Did you go out to eat or spend more on entertainment than you expected this past year? These are just a few examples of where you may have strayed from your original thinking when you laid out the budget. Now is the time to look at what you really spent throughout the year and change your budget allocations. Every category of your budget could be reexamined to make it more closely reflect how you truly spend your money. It is okay to change the document. It is not set in stone. It is a continual work in progress, and the new year is an excellent time to rethink where you allocate your money.
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4. Start saving for Christmas 2013 now! Believe it or not, but Christmas 2013 will be upon you before you realize it. Now is the perfect time to start saving for next year’s holiday season. How much money did you spend this year on gifts for your friends and family? How much of your gifts are you still paying for in January because you put them on your credit card? You’re not alone in that respect. According the National Retail Federation (NRF), almost 30% of all Americans will have bought their holiday gifts in 2012 with a credit card. And, a vast majority of those people will not pay off their debt for months to come. The average shopper spends about $750 each year on holiday gifts for friends and family members according to the NRF. So, a great thing to do is save about $50 per month or $25 per paycheck in a savings account throughout 2013 for next year’s Christmas gifts. It is like bringing back the old Christmas club savings accounts that our parents and grandparents grew up with. It is an easy concept that you can set up on your own with a new bank account, nicknamed for holiday gift giving, and using automatic deposits.
Extra Tip: Buy Gifts All Year Long. One of my best tips for buying Christmas gifts is to buy them all year long. I am always listening to what my wife finds interesting while shopping. Like most people, she will pick out several things that she likes and eventually will only buy one of them. I often try to take note of the other items. They make perfect gifts. Also, she typically does not remember things that she points out liking earlier in the year that miraculously find their way under the Christmas tree in December. It is a great way to surprise her and guarantee that she will like the gift. She did pick it out herself after all.
5. Rebalance your investment portfolio. There have been some ups and downs in the stock market this year. Some areas have seen a great run in 2012 like the S&P 500 which tracks some of the largest companies in the United States. Other areas of the stock market such as emerging markets, bonds, and many other sectors and asset classes have just been either simply plugging along or in a slight decline. So, there is a great chance that your investment portfolio is a little out of whack with your preferred asset allocation. Now is the time with the new year to rebalance your investment portfolio. You may want to look at selling some of your winners and buying more of those assets that have not been doing as well. Studies have shown that regular investment portfolio rebalancing increases your overall investment performance over the long-term as you prepare for retirement and other financial goals.
Now is the perfect time to relook at your finances and how you spend, save, and invest your money. The new year offers you a fresh start to fix mistakes that you have made in 2012 or to increase great ideas in 2013 that have worked for you in the past. Now is the time to spend a few minutes reexamining how your insurance policies protect you and how your asset allocations prepare you for retirement and your future financial goals with money moves to make now.
This post originally appeared on Betterment’s blog, Blogging for a Better New Year, where Betterment is hosting a some of the best personal finance bloggers around this month with articles about their thoughts on how to make 2013 the best it can be and start it off on the right foot.
Don’t forget to check out Betterment and the services they offer. I’ve invested with Betterment for over a year now and have earned an excellent rate of return on my investments with them. Be sure to check out my complete Betterment Review on Money Q&A. Betterment: The Easiest Way to Invest + Get a $25 Bonus!
Other Great Posts From Bloggers – Blogging For A New Year
Here are some other great posts that were published by some of the best personal finance bloggers around in support of Betterment’s “Blogging For A New Year”. Be sure to check out these great posts!
- Setting A Goal In The New Year To Finally Start Saving For Retirement @ Bible Money Mattters
- Investing Plan for the New Year: Put Resources Into Yourself @ Planting Money Seeds
- A 12 Month Plan To Revitalize Your Finances @ Dough Roller