The new year makes people reflect on the past year and commit to making improvements in their lives. Personal finance management should be included in the end-of-the-year retrospection. Give yourself a financial head start for the new year with this year-end financial checklist
Don’t go on autopilot at open enrollment time and just select the same health insurance plan as last year. Open enrollment through your employer will typically occur in October or November. It’s an opportunity to analyze how satisfied you were with your health plan over the last year and make changes if needed. You also need to take note of any increase in costs for your premiums or copays for the upcoming year. After evaluating these costs, you may want to switch to a less expensive option.
Flexible Spending Accounts
Every year thousands pass up big savings on their income taxes because they aren’t familiar with the flexible spending accounts (FSA) offered by their employer. FSA plans allow you to put money from each paycheck into two seperate accounts, a health care account and a dependent care account. The money put into these accounts is not taxed. Throughout the year, you can then use the health care FSA on qualifying medical expenses, such as copays and prescription medications. If you have children in daycare so that you can work or go to school, then money in the dependent care account can be used to pay your daycare provider. Using an FSA account gives you a savings account for unavoidable expenses and it’s like giving yourself a raise because you avoid income taxes on that money. It’s also like putting your personal finance management on autopilot, as there will be money saved for you for medical expenses when you need it.
Whether you are just starting an FSA or already have FSAs, you do want to calculate your expected medical and dependent care expenses for the following year. If you do not use all of the money in the account, you will lose it at the end of the year. However, even if you do lose some of that money, you will still probably come out ahead, as you will likely loose less than what you would have paid in taxes.
Budget for the New Year
You can make a New Year’s resolution to stop using credit cards, but without a plan in place, this resolution will likely be one you can’t keep. Make a personal finance and budgeting plan by creating a monthly budget and sticking to it. Then you will help set yourself up for success with this New Year’s resolution. If you haven't budgeted before, then buy a simple workbook, such as The Budget Kit, to help you get started.
Evaluate Monthly Bills
If when creating your monthly budget you discover you are spending more than you earn each month, then you need to find ways to cut back. Write down every monthly bill you have from utilities to monthly subscriptions. Don’t forget to include any payments automatically withdrawn from your account or charged to a credit card. Now find where you can cut back. For example, monthly gaming subscriptions are not necessities. Also, shop around to find cheaper phone or cable TV plans.
Set Up Automatic Savings
Any financial expert will tell you to pay yourself first. This simple advice may be the best advice to improve anyone’s finances, and the most ignored. However, ignoring this advice will lead to higher credit card balances and future financial strain. Set up or increase your 401k contributions. Also, set up automatic deposits to a savings account or mutual fund account. Even $25 a month is a good amount to start with.
Pay off a Bill by Year’s End
Choose a bill, such as a credit card, car loan, or student loan, and commit to paying it off by the end of the year. The easiest way to do this is to make a payment with every paycheck. So if you get a paycheck every two weeks, then you need to make 26 payments to that bill next year. Divide the balance of the bill by 26 and set up automatic bill pay for that amount to send each payday.
To make positive changes in your personal finances for the upcoming year, set aside some time to go through your year-end financial checklist. This way you won’t be rushed and will be more likely to spot excessive spending habits and have time to set up FSAs and savings accounts. The few hours you take to prepare for next year will prove beneficial to your personal financial management for years to come.