There’s no better time than the present to kick your finances into high gear. But why limit yourself to just making a single financial New Year’s resolution in January when you can plan a series of smart financial moves for the entire year?
Use these financial planning tips and savvy money-management strategies for help with budgeting, handling credit and debt, saving money, retirement planning and more.
Action Item: Open an Individual Development Account or IDA
Explanation: Everyone wants to save more money. If you do, then you should supercharge your savings with an IDA, or Individual Development Account. An IDA lets low-to-moderate income earners save money for a specific goal – such as a down payment on a house or starting a business – and receive matching funds from non-profit groups, corporations, and government agencies. Many IDAs provide a $3 to $1 match, meaning for every dollar you save, you get $3 in contributions. What’s the catch? You must agree to save money for a set period of time, usually at least one year.
The Payoff: If you save $100 a month, or $1,200 in one year, and your IDA has a $3 to $1 match, at the end of a year, you’ll receive a $3,600 contribution.
Resource: Visit http://www.IDAnetwork.org to find an institution in your area that offers Individual Development Accounts.
Action Item: Make a Realistic Budget
Explanation: One reason people fail at budgeting and money-management is because they have unreasonable expectations. A better strategy is to establish a realistic budget – one you can live with because it isn’t overly strict and doesn’t make you feel deprived. Start by listing your necessities – housing, food, utilities and so on. If you have money left over, then budget a modest amount for the occasional luxury – like dinner out once a month, or trips to the hair salon or manicurist. Set reasonable limits on these latter categories, but don’t feel compelled to completely slash them from your budget. That way, you’ll be able to stick with your budget over the long haul.
The Payoff: Creating a realistic budget and staying with it will give you more cash flow and reduce the strains of living paycheck to paycheck.
Resource: Become a better saver and learn to budget properly using the online tools available at www.mint.com, www.budgettracker.com, or www.budgetpulse.com.
Action Item: Get Your Credit Reports and FICO Scores
Explanation: Thanks to the FACT Act, consumers nationwide are entitled to a free copy of their credit report every 12 months, from each of the “Big Three” credit reporting agencies – TransUnion, Equifax, and Experian. It’s a smart idea to monitor your credit file on a regular basis. But it’s especially important to know your credit history, as well as your three-digit FICO scores – which range between 300 and 850 points – whenever you are ready to apply for a mortgage, a college loan, auto financing, or even a new credit card.
The Payoff: With your credit reports in hand, you’ll be able to spot and fix any errors, as well as work on improving your credit rating. Stronger credit will save you money on loans, decrease the cost of life and auto insurance, and help you qualify for a job, rent an apartment or buy a home.
Resource: Obtain your free credit reports at www.annualcreditreport.com and find out your FICO credit scores from: www.myfico.com.
Action Item: Book an Appointment with Your Accountant (or Find One)
Explanation: A good accountant can give you tax tips and strategies for paying less money to Uncle Sam. He or she will also make sure you file your taxes by the April 15th deadline, and help you engage in tax-planning all year round. Use this month to book a future appointment (after tax season has ended) with a CPA, or Certified Public Accountant CPA and you’ll reap the rewards of doing so in the coming year.
The Payoff: By getting a jump on next year’s taxes you’ll save yourself time, money and be less-stressed about your finances.
Resource: Visit the website of the American Institute of Certified Public Accountants at www.aicpa.org to find an accountant in your area.
Action Item: Adjust Your W-4 Withholdings at Work
Explanation: Did you get a big tax refund check this year from the government? Before you start gloating over it, realize that you actually gave Uncle Sam an interest-free loan. That’s not smart financial planning. You let the feds take too much money from your paycheck. To fix this problem, get a W-4 form from your HR department and adjust your withholdings so that your employer takes out fewer taxes from your paycheck.
The Payoff: Since the average refund check is about $2,400, by adjusting your w-4 withholdings, you should pocket an extra $200 a month.
Resource: Go to the IRS website at: www.irs.gov and get Publication 919, which explains how to correctly fill out a W-4.
Action Item: Apply For Federal Financial Aid
Explanation: Are you in college or have a child going to school? Then don’t be late in filling out the FAFSA, or Free Application for Federal Student Aid. The deadline is the end of June. You can even submit a FAFSA over the Internet, as long as you get your application in on the web by midnight Central Daylight time, June 30, 2009.
The Payoff: Free federal grants and work-study aid will reduce or eliminate the need for student loans, which must be repaid. And the average college grad takes 15 years to repay student loans.
Resource: The FAFSA application in online at the Department of Education’s website at: www.fafsa.ed.gov.
Action Item:Lower Your Summer Electric Bill
Explanation: Save money by saving energy around the house every day. Turn off lights when you leave a room; regulate your air-conditioner use; unplug appliances you rarely use; switch to newer energy-saving light bulbs instead of using old style incandescent bulbs; and turn your water heater down a few degrees.
The Payoff: Collectively, these simple steps can reduce your electric bill by 25% or more.
Resource: Learn more tips on saving money through energy efficiency at home from the U.S. Department of Energy at: www.eere.energy.gov/consumer.
Action Item: Set Up a “Holiday Fund” Using an Online Savings Account
Explanation: Instead of running up credit card bills in December, give yourself several months to save money for holiday gifts. Have automatic deductions taken from your paycheck and deposited into an online savings account. Online accounts pay higher interest than brick-and-mortar banks, because the latter have more overhead expenses.
The Payoff: You’ll be able to buy presents with cash, avoiding holiday debt.
Resource: Check out the HSBC Direct online savings account at www.hsbcdirect.com. This account is FDIC insured and is currently paying 2.60%* APY, among the best in the country. (*As of 1/14/2009. APY is variable and subject to change.)
Action Item: Create a Last Will and Testament
Explanation: No one likes to think about dying. But do it for your family’s sake, at least long enough to create a last will and testament. Wills aren’t just for rich people. Even if your assets are modest, you may still need a will. Perhaps you own items with sentimental value – such as your wedding ring or family china that’s been handed down to you. A will lets you have a say-so over how your assets are distributed, no matter how large or small those assets are. Also, a will gives you the opportunity to tell the state your wishes concerning who should take custody of your kids in the event of your death.
The Payoff: A will cuts down family squabbles about money, since you lay out your wishes and say who should get what. You also make it easier on your relatives by handling custody decisions ahead of time – choices the family won’t have to make.
Resource: If hiring an attorney is too costly, create a will inexpensively online: just $19.95 at www.BuildAWill.com and $69 at www.LegalZoom.com. After you print your will, don’t forget to get it signed by at least two witnesses and notarized.
Action Item: Get Proper Life Insurance Coverage
Explanation: An estimated 25 million Americans – roughly one in five households – don’t have life insurance. Even those who do are often vastly under-insured. You need life insurance if you fit into any of the following categories: you have minor children; you’re married and your spouse relies on your income; you own a business; or the value of your estate exceeds $1 million. A rule of thumb: buy enough insurance to cover seven to 10 times your annual earnings. So if your yearly salary is $40,000, then your life insurance policy should fall within the range of $280,000 to $400,000. The exact amount you need depends on your specific situation.
The Payoff: With life insurance, you have the peace of mind of knowing that your family will be financially secure in your absence.
Resource: Shop around for competitive pricing at websites like www.insurance.com and www.insure.com.
Action Item: Review your Open Enrollment and 401(k) Retirement Plan at Work
Explanation: November marks open-enrollment season at many companies, the month you can review or change your healthcare coverage and other benefits. Evaluate your 401(k) plan too. Are you contributing? If not, start doing so now. Already participating? Then consider increasing your contributions.
The Payoff: Saving money for retirement now means a more comfortable lifestyle during your Golden Years.
Resource: Learn about the tax breaks and other benefits of 401(k) plans at the Employee Benefits Research Institute (www.ebri.org).
Action Item: Make a Tax Deductible Year-End Donation to Charity
Explanation: Donate clothing, electronics and other household goods you no longer want or need to an IRS-approved charity by December 31st. You’ll probably be surprised at the big tax deductions you can reap for your generosity.
The Payoff: If you get receipts for your donations, and itemize your taxes, you’ll be able to claim those donations on your federal income taxes. You’ll also feel good about helping someone less fortunate!
Resource: Visit www.ItsDeductible.com, a free online tool from Quicken that helps you keep track of your donations year-round.