These nine financial tips will help you save money, get additional tax benefits, and make the most of your insurance, credit cards, and retirement accounts for more success in the New Year.
These nine financial tips will help you save money, get additional tax benefits, and make the most of your insurance, credit cards, and retirement accounts for more success in the New Year.
Money Girl is hosted by Laura Adams. A transcript is available at Simplecast.
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While the last quarter of the year can be a hectic time at work and in your personal life planning for the holidays, celebrations, and upcoming travel, it’s also the ideal time to make strategic money moves for a more prosperous New Year. That’s because December 31 is the end of the tax year, a critical deadline for certain aspects of your finances.
In this show, you'll learn nine money moves to make now, or at least before the end of the year, to improve your finances. Following one or several tips can bring you more success and security in the New Year.
Hey, friends, and welcome back to the Money Girl podcast! I'm Laura Adams, an award-winning author, money expert, and financial spokesperson who's been bringing you tips and advice weekly since 2008, with over 41 million downloads. My most recent title, Money-Smart Solopreneur–A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers, was a No. 1 Amazon New Release.
If you have a money question or suggestion for a Money Girl podcast topic, call 302-364-0308 to leave a voice message or use my contact page at LauraDAdams.com.
Use these nine financial tips to save money, get additional tax benefits, and make the most of your insurance, credit cards, retirement accounts, and more.
Due to sticky inflation and high interest rates, the end of 2023 will be a financially tight time for many Americans. But the holidays will be here before you know it–so it's wise to create a spending plan now. If you don't already have a holiday budget, consider what you can realistically afford to spend without racking up expensive credit card debt that sets you back financially.
Make a list of every holiday-related expense you can think of that you'll need to fit into your budget, like throwing a party, traveling, buying gifts, wrapping paper, cards, decorations, and clothing. Jot down everyone you want to buy a gift for and pay an extra cash tip so no one gets forgotten. Then, assign an estimated dollar amount for each purchase or gift and total your list.
If you realize the total is unaffordable or would require you to go into the New Year with a nasty debt hangover, start saving money for the holidays every week, even if it's a small amount. Consider opening an FDIC-insured, high-interest savings account so your money can grow as safely and quickly as possible.
And if your estimated holiday expenses are way over budget, consider ways to make it more manageable, like asking party guests to bring a dish, agreeing to skip a gift exchange with adults in your family, or deciding to travel on days when flights are less expensive.
If you wait until the last minute to think about the holidays, you'll have fewer options, feel more stress, and spend more. Planning is the secret to having a more affordable and joyful holiday.
If you use credit cards, they probably offer rewards, like points for travel, purchases, and gift cards. Some may require you to activate specific spending categories, so pay attention to bonus offers and sign up to maximize your rewards.
Many card issuers offer additional rewards for purchases made through their online shopping portals, giving you more points for every purchase. However, some rewards may expire at the end of the year, so log into your account and take advantage of them pronto! They might help you purchase gifts or other holiday-related items.
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If you have a retirement plan at work, such as 401(k), 403(b), 457, or government Thrift Savings Plan (TSP), review how much you’ve already contributed for the year. For 2023, you can contribute up to $22,500 or $30,000 if you’re over 50. If you can max out your account or get as close as possible before December 31, I highly recommend it.
Every pre-tax dollar you contribute to a traditional retirement plan is money you skip paying income tax on until you make future withdrawals. For instance, if you make $100,000 and put $20,000 in a traditional 401(k) in 2023, you only pay income tax on $80,000 for the year. You get that fantastic tax benefit even if you don’t itemize deductions on your tax return.
Additionally, many employers match a percentage of contributions as an incentive to participate in their company-sponsored retirement plan. That’s free money to build a larger nest egg and simultaneously cut your taxes! Even if you can’t afford to max out a workplace retirement plan this year, always contribute enough to max out an employer match.
Note that some retirement accounts, such as an IRA and SEP-IRA, don't have a year-end deadline but give you until your tax filing deadline, including any extensions, to contribute for the prior year. But, as I mentioned, you must make traditional and Roth workplace retirement plan contributions before the year's end to count in that tax year.
So, review and increase your workplace retirement contributions before December 31 whenever possible.
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Your health, dental, and vision insurance benefits and deductibles get tied to an annual schedule. So, year-end is the perfect time to squeeze more value from your medical policies.
If you've already met your annual deductibles, you can save money by scheduling needed appointments and paying for healthcare before the end of the year. Otherwise, remember that your deductibles reset to zero starting on January 1.
In other words, after you reach an annual medical deductible, you have the opportunity for your insurer to pay as much of your healthcare expenses as possible. Delaying appointments into the following year means you may pay more than you have to.
But don't go overboard on appointments because plans typically have a maximum number of visits for doctor checkups, dental cleanings, physical therapy, and prescription eyeglasses. If you're unsure if you've maxed out your insurance benefits for the year, ask your doctor's office to find out what's covered.
And by the way, if you don't have health insurance, it's critical coverage because an illness or accident could leave you with a massive medical bill. Even a quick trip to the emergency room or a short hospital stay could cost thousands of dollars. Going without a health policy is a risk you should never take.
Note that the annual open enrollment for marketplace health coverage begins on November 1 for coverage to start as soon as January 1. During open enrollment, you can visit Heathcare.gov to sign up for a new health and dental plan or change your current policies.
If you miss the annual healthcare open enrollment, you won't be able to purchase a marketplace plan unless you have a qualifying life event, such as losing your job, getting married, having a child, or relocating to a new state.
Marketplace plans are covered by the Affordable Care Act (ACA) and have many benefits. They include no premium increases for pre-existing medical conditions, no lifetime maximum coverage limit, and subsidies that reduce monthly premiums based on your income and family size.
If you have an FSA through your employer, it’s linked to the calendar year. Many employers offer these medical spending plans to help workers save for qualified expenses, such as childcare and medical costs, on a pre-tax basis. You might even be able to get some surprising purchases with an FSA, like over-the-counter medications or contact lenses.
However, there’s an annual deadline to spend your FSA, or you forfeit most of the excess, known as the “use it or lose it” rule. The cutoff varies by company but is usually on December 31.
If your employer adopts a grace period permitted by the IRS, you may have additional time to spend FSA funds after the New Year or carry over a small amount, such as $500. If not, be sure you drain the funds before the end of the year. You might spend your FSA funds on preventive care or medical supplies, such as dental checkups, vision exams, prescription eyeglasses, or contact lens solution, so you don’t lose one penny in the account.
Note that if you have a health savings account (HSA), it has no spending deadline. Funds can stay in an HSA indefinitely with no penalty, even if you change insurers, become uninsured, or are unemployed. So, don’t confuse those two medical savings accounts.
Another smart year-end money move is to pay or prepay as many tax-deductible expenses as possible. Some require you to itemize your tax deductions but others don’t. Here are a few to consider:
There are many deductible healthcare expenses, including medical, dental, vision, hearing, and mental health services. Your medications, eyeglasses, contacts, medical equipment, and travel for medical care also count. Set up appointments and pay for prescriptions and other deductible healthcare expenses before the year ends.
The year-end is an excellent time to increase your retirement savings rate for the following year. Use your online retirement account to make contribution changes or ask your benefits administrator or an account custodian for help. In 2024, the contribution limits for workplace plans will increase by $500 to $23,000 or $30,500 if you’re over 50.
If you don’t have a workplace plan, everyone with earned income qualifies to contribute to a traditional IRA. For 2023, you can contribute up to $6,500 or $7,500 if you’re over 50. As I mentioned, you have until April 15, 2024, to make IRA contributions for the 2023 tax year.
For 2024, the IRA contribution limits will also increase by $500 to $7,000 or $8,000 if you’re over 50. Make a goal to boost your retirement account contribution rate by at least one percent each year until you hit the maximum limit or set aside a minimum of 10% to 15% of your gross income.
Some investing firms allow you to automatically increase your saving rate by 1% at the beginning of each year. If you have that feature in your retirement account, go ahead and set an automatic escalation so you won’t have to think about it next year.
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If you had significant life changes during the year, such as a marriage, divorce, or children, update your emergency documents. They might include a will, health care proxy, and power of attorney. And, if you don't have these critical documents yet, make an appointment with an attorney to set them up as soon as possible. Without them, your wishes about many end-of-life issues may not be apparent or carried out how you want.
Also, review the beneficiaries you named on financial accounts. Many people don't realize that the beneficiaries on retirement accounts, annuities, and life insurance policies supersede your will. In other words, if you have an ex-spouse that you wouldn't want to inherit your 401(k) after your death, you need to immediately remove them as a beneficiary.
While this tip to get your documents in order may not save money before the New Year, it can set your family and heirs up for success if you die or can no longer handle your personal affairs.
As you spend time with friends and family during the holidays, it might be an excellent opportunity to discuss your estate plans and any changes you should make. Talking about grim issues, like death, becoming incapacitated, or naming guardians for minor children, can be difficult. But addressing them can also give you incredible peace of mind.
You might want to set some financial New Year's resolutions as the year ends. If you already have a budget, review it and make adjustments based on any changes in your income and expenses.
Think carefully about what goals you want to achieve in the coming year, such as building savings, investing more for retirement, getting out of credit card debt, putting kids through college, buying a home, starting a business, or taking a memorable vacation. Then, you can create a plan to achieve them over time slowly.
If you don't have an emergency fund, prioritize starting or increasing one for the New Year. Having a cash cushion to fall back on can be the difference between surviving a financial emergency—such as losing your job or having an unexpected medical bill—or getting buried under it.
Having at least a couple of months' worth of living expenses, ideally a minimum of six, gives you tremendous peace. You'll know you've got money to deal with any financial hardship.
I'm a huge fan of automating every aspect of your financial life that makes sense, including automatic transfers from your checking to your savings and retirement accounts. Automation can really help if you're struggling to build a cash reserve.
You might ask your employer to split your paychecks so a portion gets deposited into a savings account. Or you might set up a weekly or monthly recurring transfer from your checking to savings. That can streamline your finances and help you stay on track for a more prosperous New Year.