Remember that New Year’s Resolution way back at the beginning of the year? Well it’s a great time to get back in action. Here are a few ideas you can easily do from the comfort of your home online with your tablet/computer and a phone.
First, I encourage you to review all of your expenses to identify areas you may be able to decrease. This can be easily done but pulling your most recent credit card and/or bank statement(s). Or simply write expenses down on a notepad as you incur them.
Highlight the areas you feel could be easily reduced or cut completely. Paying for a gym membership or subscription you are no longer using but it has been on auto-pay? Several expenses can be negotiable such as cable television, internet service, and cell phones. I regularly call our cable company and cell phone company to make sure we are getting the best rate.
Whenever possible, consider paying in cash. Many providers will offer a discount with a cash payment. Most providers are open to negotiation.
If you have a pending credit card debt, aim to pay this off as quick as possible. This is one of the worst types of debt due to the high interest rates and the interest not being tax deductible.
If possible, set up all credit cards to pay off automatically in full each month. If you have several pending credit card balances, consider aggressively paying off the one with the highest interest-rate first, (meanwhile, continue the minimum payments on the others), then once the first one is paid off, use those funds to aggressively pay off the next one. This is called the snowball effect. Many cards allow you to make extra payments quickly and easily online.
You may also wish to shop around for a credit card that offers the best rewards for you, at the lowest interest rates. There are websites, such as www.nerdwallet.com, that allow you to easily compare cards.
If you find that you are always maintaining a credit card balance and it leads to overspending, consider not using a credit card at all. Pay in cash or use a debit card.
If you are in a position to invest your extra cash, procrastination may reduce your chance reaching your long-term goals. I often see new clients come in with a lot cash (earning little or nothing) that they have been meaning to invest. Or cash within their existing accounts that they either weren’t aware was there, or haven’t known what to do with so they haven’t done anything. Although subject to change based on your individual needs, a rule of thumb is to keep at least 6 to 12 months of living expenses in cash as your emergency fund, and consider investing the rest.
Assess if an automatic investment plan is right for you. If you are finding that you run cash flow positive each month, you can link your bank account to a brokerage account to automatically transfer and invest the funds. This option may also take advantage of dollar cost averaging which is an investment strategy where you buy a fixed amount of a security on a regular schedule, regardless of price. This can allow an investor to take advantage of fluctuations in the market by buying at both highs and lows. Please consult a professional and/or assess your investment objectives, risk temperament and individual needs prior to investing.
If you have a retirement plan available through your employer, aim to maximize contributions, depending on your cash flow. Most retirement plans allow you to change your contribution limits online. The 401(k)/403(b)/457 plan limit for 2019 is $19,000. If you are over the age of 50, you can also contribute an additional $6,000 catch-up amount. Note that you can start this at the beginning of the year you turn 50.
If your cash flow doesn’t allow you to maximize contributions, aim to at least to contribute enough to get the employer match, if there is one, to avoid leaving free money on the table.
Make sure your retirement plan is appropriately invested for your risk tolerance and time horizon. If you are uncertain, talk to your provider for help. Many plans also offer target date or diversified fund options which take the guesswork out for you.
If you do not have a retirement plan available to you at work, consider other options such as setting up an IRA. Contributions may be deductible and can be made for the previous year up until April 15th. The IRA contribution limit for 2019 is $6,000, plus an additional $1,000 for those age 50 and over.
If you work for an employer, keep in mind that salary is just part of the package. Most larger employers offer retirement plans, health, dental, and vision insurance, life and disability insurance, and other benefits such as a flexible spending account (FSA), dependent care flexible spending account (DCFSA), commuter benefits, etc. During your open enrollment, make sure to review these in detail to select what is best for you and your family.
If you or your families medical needs allow, utilizing a high deductible health plan (HCHP), for example, can not only save money on insurance premiums, but may allow you to save pretax money into a health savings account (HSA). The maximum family HSA contribution limit for 2019 is $7,000 ($3,500 for single). This option should only be considered for individuals and families with little to no health issues or concerns. Always consult your employers Human Resources Department and/or Benefits Administrator to determine what plan is most beneficial for your individual needs.
If you have a dependent that you are paying for care in order for you to be able to work, consider setting up a DCFSA. This allows you to set aside up to $5,000 a pretax money (2019) to pay for these expenses.
If you pay a lot of out-of-pocket medical expenses each year, an FSA may be a good choice for you. Note that if you have HDHP plan, the FSA becomes “limited purpose.” A limited purpose FSA can be used for qualified dental and vision expenses, and health expenses, after your deductible has been met. The FSA limit for 2019 is $2,700. Note that an FSA must be used by year-end or you lose the benefit. Some plans do offer a grace period. See your specific plan for details.
By taking a bit of time to consider these simple financial ideas, you will be thanking yourself. Plus, once in place, you may only need to make minor adjustments going forward. As always if you need any help, please feel free to contact us!
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