While it seems arbitrary to some, January 1 is a traditional reset point, a corner to turn away from bad habits and toward new aspirations. The top three resolutions worldwide come down to healthy eating, more exercise and saving more money. Since this is a tax and finance blog, I won’t advise you on weight loss issues, but there are plenty of common-sense money tips that we can all benefit from reviewing. And in fact, New Year’s Day is well-placed to make a start, tagged onto the end of a six-week period of indulgence and celebration. It’s not uncommon to overindulge through the holiday season, on both consumables and financially. So, to prevent further suffering down the road, take a look at these early in the year strategies.
Clean Up After Christmas
You don’t want a tree up in February. It’s not a welcome reminder of the season. Holiday debt is another unwelcome reminder. To set the stage for the new year, plow through those Christmas bills now. It’s best (but often hard) to go through the holidays on a cash basis. If you must use credit, keep it at levels that you can pay off in January, before interest on purchases begins. Consumer debt of any sort is a big money drain. Resolve to avoid it.
Plan Big Ticket Spending
New car, holidays or upgraded devices, there are some things that take big chunks of cash. Avoid the “buy now, save later” concept. Even if you buy this way on sale, your purchase may cost more when credit charges add up. If an annual vacation is ritual, then plan to save now, ahead of the summer travel season. You can reduce financing on very large purchases like vehicles by maxing your down payment. There are simply too many advantages to saving ahead of spending to ignore this simple and basic approach to virtually any purchase.
Fill Up Retirement Savings
If you’ve ever scrambled to top up retirement savings at the last minute to earn tax breaks, you’ll know it’s rarely easy. For the 2019 tax season, you can contribute up to $6,000. If you’re over 50, there’s an extra grand, $7,000. That’s either $500 or $583 per month, so it’s not an easy amount for most people to tuck away without careful planning. Think about tax refunds, bonuses or other windfalls you may see, and you can drop your monthly contribution. This only works, though, if you have the discipline to tuck away these extra amounts.
Use Your Health Savings Account
Depending on your situation, a wise approach to financing health care may be to choose a high-deductible health insurance plan, and channel the premium savings to a health savings account. If you’re in good health, it’s a great way to build funds. At the same time, you have the additional cash necessary if the worst happens. Ideally, the money in your health savings grows as an investment, isn’t needed for medical reasons, and converts to your retirement pool later in life. At the least, you have an additional source of funds if a health crisis occurs.
Keep 529 College Savings Plans Active
With college bound kids, this is a must. Depending on your location, your contributions could be deductible from state taxes. Once again, it’s cash there when needed for its intended purpose. You can reallocate later, if your children pursue other directions. Post-secondary education at any level won’t get cheaper in the coming years. Cost of living also rears its ugly head. But every savings fund that features tax deductibility means that more of your earnings stay in your pocket.
Funding all these goals may make day-to-day living seem more austere. However, just as spending increases to fit growing income, it can also shrink to fund long-term plans. The first step is commitment to these savings goals. After that, ease of maintenance may surprise you. And you can always adjust next New Year’s.