The end of the year is a time to reflect on only the previous year but also the new year to come. Now that we have all survived the year-end 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 and money moves. There are several key financial aspects of your life that you should consider taking stock of in the new year.
Five Money Moves To Make Now 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 the tax refund that you may get after you file and money moves to make. 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 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 and your money moves should too. 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 a 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 and your money moves. Were there categories that you overspent and did not allocate enough money in your budget for?
Are gas prices increasing more than you thought 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. You can 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.
4. Start saving for Christmas now!
Believe it or not, but Christmas 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 to 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. And, some areas have seen a great run last year 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 of the year to rebalance your investment portfolio.
And, 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.
Note – Portions of 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 the New Year the best it can be and start it off on the right foot. It is reprinted with permission.
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.
Additional Smart Financial Decisions for the New Year
Be Aware
If you haven’t already noticed, you probably spend more than you think you do. In day to do life, small costs add up and by the end of the month, you may wonder where that big chunk of your paycheck went. Maybe you get an expensive latte from Starbucks every morning or you insist on getting a manicure every week.
These costs may be fine, but it is important to note how often you do this and how much it affects your bank account. This way you can create a hierarchy of your needs and wants—things that are important to you more than other things. If you cut out the fat of the little things you don’t actually need, then you can save up for bigger things in your future.
Create Simple Habits
It is true that a simple habit can change your life. For instance, after budgeting for your monthly bills and necessary expenses, give yourself some spending money. Physical cash can make the money feel more real—it is a psychological reminder that you have a limited amount. On the contrary, using a debit or credit card at every purchase can make you forget that your funds are quickly draining from your account.
Hire A Financial Advisor
Financial advisors are not just for businesses; they can be for individuals as well. If you have a goal in mind, a financial advisor can steer you in the right direction to meet your goal. Their job is to organize your finances in such a way that you can stick to a budget.
Over time, you will accrue more and more of the money necessary to accomplish a goal—whether it be to own a home, go on a trip, or simply to pay off debt. A financial advisor will help you create realistic goals for yourself so that you can accomplish financial success at the close of the year.
Prepare For The Future
You never know what life will bring to you. Starting an emergency fund is one of the ways of protecting yourself if you run into hardship. There may come a time in your life when you go between jobs, spouses, illness, or have a hardship fall upon a loved one whom you need to take care of. In these instances, it is important to know that you are secure despite your circumstances.
File Your Taxes
If you are in the throes of debt and you are unsure whether you can handle it, again, hiring a professional is the best way to help. However, if you cannot afford to hire someone at this time, remember it is still vital that you file.
If you do not file, you will accrue fees and penalties that will hurt you and your credit down the line. Pay what you can and get on a serious budget so you can get that burden off your back sooner. Afterward, budget so that you can afford someone to help you through it.
Do Some Research
Learn all you can about finance so that it no longer is an enigma to you. By learning, you will give yourself the confidence to make wise financial decisions. One way you can do this is to use some of the resources that actual accountants and financial advisors use. Invest in books and CFA exam prep courses to deepen your understanding of what you can do on your own. The more you know, the better you can approach your finances.
The end of the year is a time to reflect on only the previous year but also the new year to come. Now is the time to make money moves to make now in the new year that you should look at making.
Great tips! We do many if not all of them every year. I hate getting a huge tax refund myself and like to get it to where we either owe or get back very little.
Awesome tips Hank. I just re-balanced my portfolio yesterday, and I also adjusted my withholdings. Next, I plan on tackling insurance. I think I may be getting screwed by our home owners policy and I want to see if I can bring it down.
I’d add “raise your savings” to the list. It’s funny…we’d always recommend clients raise their savings back when I was an advisor, and people would sometime freak out. I’d tell them that it was easy to change back if they couldn’t handle giving themselves a raise. Guess how often people had to change their raised savings back to the lower number? Hardly ever….
One of the things that alot of finance folks frown upon is a tax return. I use that for any debt that i accumulated over the year and use that to pay it down. Kind of like a free giveaway. We get used to living on the check amounts and this is a bonus to pay down any straggling bills we werent able to catch up with on during the year.
#3 and #4 are on my list – we really lived without a budget for the second half of 2012, so recreating one that we’ll actually stick to is critical for 2013!
I have always dreamed of saving a set amount each month to go towards Christmas. This may be the year I will actually do it! Great tips!