Thursday, February 9, 2012, AM | 2 Comments
The bad economy keeps dragging its feet and pulling down the pants off of our personal finances. Needless to say these are uncertain times which makes it essential to update our financial plans this year, next year and every year that comes along while we are still living. It’s more crucial now than ever to have your annual financial review with the help of your financial adviser.
In order to have a relatively smooth sail, the first thing you ought to do is to get organized in the new year. Organizing is the most important and critical component to helping your finances stay on track.
Without getting your finances in order, you ain’t going nowhere. You would be going in circles. You will get into debt faster and might stay there for the rest of your life. Your life will become miserable with depression and anxiety attacks.
So wake up now financially and follow some of the steps you can take to sail relatively smoothly in your personal finances.
Create a Budget and Follow it
Creating a budget is foremost critical in your personal finances success. Equally important – maybe more so – is to stick with it for at least one full year. Then after that, review it for the following year. You will be surprised to find black holes in your spending habits.
If you are new to budgeting, do a simple routine for a month. You pretty much know where your money is coming from, right? For one full month, record all your expenses and add them up by the end of the month.
If your income is bigger than your expenses, then you are considered in the black, with no fear of getting into new debt whatsoever. Rest assured that you are on the road to financial success.
Review this information every month, make appropriate adjustments as you see fit. This will help you cut costs, pay down debt, or save more. Budgeting will prevent waste or excessive waste in your finances.
American people are known for their heavy spending. In many cases, I might add, pure and simple waste. The worst thing is they won’t control their spending habits but they would be the ones who complain the most about barely getting through the month. So please stop wasting your hard-earned money.
Always set your eyes on Retirement
Experts tell us to have 80% of what your income is now in retirement. Therefore, planning for income sources when you are no longer working may be the best idea.
If you are nowhere close to retirement, make sure you check your portfolio’s asset allocation. Needless to say saving for retirement should be a top priority. If possible, consider increasing your savings rate.
Organize your records for Taxes
Filing tax return are upon us. Gather all your tax information that you have received with the label “Important tax documents” or similar to it. Start preparing your last year tax forms. You can use any of the tax software to help you do your taxes. Don’t be afraid to do your own taxes.
Open IRA or Increase funding it
You can open a Roth or a traditional IRA. If you already have either or both of these accounts, you may increase contribution. You are able to do so up until the last day of filing. It will potentially reduce your previous year taxable income, dollar for dollar, subject to phaseouts based on income. The IRA contribution limit for last year is $5,000 ($6,000 for those 50 and older).
Revisit your savings plan for College
If you have children, it might be a good time either to get started on saving for college or to boost up your efforts. Consider a 529 college savings plan. As it is sponsored by a state or state agency, check with your state.
- The contribution limits are high
- There are no income restrictions
- Your savings grow tax deferred
- Better still, you can withdraw the money free from federal income tax as long as you spend it on qualified higher education expenses.
Update Beneficiaries if need be
Usually folks spend a lifetime building savings. It makes it extremely important to carefully consider who will inherit your assets. In fact, designating a beneficiary can often override your written will. You can review your beneficiaries for all your accounts including retirement.
Check your Portfolio twice a year
Visit your portfolio’s asset allocation twice a year. Make necessary adjustments as you see fit. If your investment is going strong, consider paying down high-interest debt.
Consolidate all your Accounts
Diversification is key in your investment. Almost all experts agree on it. However, there may be a time when you need to have just one reputable investment company that will oversee your portfolio instead of giving your bits and pieces to many companies.
The benefits may be more effective asset allocation and diversification, potentially lower fees, higher service levels, and better planning. One firm would know about your portfolio from inside out.
Year-end Tax Planning
You can make smart investing moves that may help reduce next year’s tax burden and save you money in the process. Make sure
- You are managing investment gains and losses
- Consider increasing contributions to your tax-advantaged accounts
- Take advantage of any stimulus programs available to you, for example, education credits, energy efficiency credits, etc.
Revisit your year-end Work Benefits
Always visit your work benefits before the end of the year and see if you can save more money doing so. It becomes more important when you change jobs, get married or a new baby joins the family. In any change, your primary objective is to make sure your work benefits are updated and they meet your financial needs.
Do the same for your auto and homeowners/renters policies and any others that affect your daily living even though some of the items might not be work-related.
Revisit your year-end Charity giving
Before you donate to a charity, see if it’s approved by IRS. You can Download Organizations Eligible to Receive Tax – Deductible Contributions. Also make sure you have saved all your receipts in a safe place. You are generally eligible to take a full charitable deduction in the year the asset was donated.
In a Nutshell
The above are some of the steps you can take to get organized and put your finances in order for this year. Revisit it frequently every year.
- Feb 9, 2012: Year-End Tax Planning Tips for Seniors - | Dallas Estate Attorney