When it comes to oneâs finances, bad decisions can have a snowball-like effect. If you start off the year forgetting a payment here and there, being disorganized with your taxes or failing to contribute to your retirement accounts, youâre setting yourself up for a disorderly financial life in 2019.
There are a handful of common financial mistakes people make at the beginning of the year that can be prevented with just a little effort and foresight. Start the year off on the right foot by avoiding these common missteps.
Luis Rosa, a certified financial planner with Build a Better Financial Future in Henderson, Nev., said one of the biggest financial mistakes people make at the beginning of the year is not planning ahead.
âPeople just fail to plan overall sometimes,â Rosa said. â[If] you donât have a plan, then youâre just like a ship without a rudder âŚ at the beginning of the year, sit down and see what the goals are that you want to accomplish.â
Kristi Sullivan, a certified financial planner based in Denver, said she often gets phone calls at the beginning of the year from people who might have contacted her months ago, but never followed up for an appointment. âThey want to start the year off right,â Sullivan said.
Whether itâs by yourself or with the help of a financial planner, figure out what you want to accomplish in 2019. Do you want to save more money? Pay off a significant amount of student loan debt? Purchase your first home? Build up your emergency fund? Whatever your financial goals are, January is the perfect time to set them.
Sullivan said January is the perfect time to reassess any automatic savings youâre making, and increasing them, if possible. âIf you put another 2% in your 401(k) at the beginning of the year, thatâs done for you,â she said. âYou donât ever have to think about it again â you implemented a good savings habit.â
You could also increase the amount you move each month from your checking account to your savings account. âJust set up those automatic good behaviors so you donât really have to think about them, and watch those actions build over time,â Sullivan said.
Rosa said people will often fail to realize that certain retirement account contribution limits have changed. For example, the Roth IRA contribution limit is now $6,000 as opposed to $5,500, so somebody who has a Roth IRA could raise his or her monthly contributions at the beginning of the year to plan ahead, Rosa said. (For 401(k)s, the limit will change from $18,500 to $19,000 in 2019.)
Automate your retirement savings at the beginning of the year to ensure youâre putting away the maximum amount possible each month. Rosa notes that on the IRA side, you do have until the tax deadline to contribute to the prior year. âBut life gets in the way,â he said. Organizing your contributions in January will give you peace of mind for the year ahead.
The beginning of the year is also a great time to reassess your 401(k) allocations, Rosa said. For example, you might have initially allocated 60% for stocks and 40% for bonds in your portfolio.
âDuring the year, things change, so maybe stocks went up and bonds went down,â Rosa said. âAt the beginning of the year, itâd be a good idea to go back in there [and] see how your account performed for the year.â
If necessary, you can make any changes that will get your portfolio closer to what you want.
In addition, Rosa recommends taking advantage of your companyâs employer match if you havenât already.
âSometimes, itâs a good idea at the beginning of the year to be like, âOK, this will be one of my goals: to increase to at least the employer match,'â Rosa said. âAnd just get it done starting with the next pay period.â
Thereâs no harm in getting an early start on your taxes. Gary Schaider, a certified public accountant and manager at Weiss & Company LLP in Glenview, Ill., said one way you can be proactive is by getting organized.
Account for anything that might affect your tax situation that you didnât get in the mail from the government. This could include things like business expenses, charitable contributions and anything else that might be deductible.
Schaider said one of the immediate things you can do in 2019 is look at your tax withholdings. âOne of the things I think most people donât look at enough is what youâre doing as far as your income tax withholding at your job,â Schaider said.
This is imperative because of the new tax laws and the ways in which rates, exemptions and withholding amounts have changed, he said. âPeople need to revisit company exemptions theyâre claiming on their W-4 and what their withholding looks like,â Schaider said.
Make sure youâre not taking out too much or too little. âYou should probably do that early in the year rather than late in the year when itâs too late to do anything about it,â Schaider said.
In addition, sometimes people will have a major life event, like a marriage, divorce or the birth of a child, that can affect their tax bracket, Rosa said. If this applies to you, fill out a W-4 form in January to make any necessary adjustments.
Perhaps you got married in the previous year. Did you remember to change your life insurance beneficiary from your sibling to your spouse? Or maybe you had a child or got divorced. The beginning of the year is a great time to double-check that your beneficiary is correct.
âIâve met several people that have their brother or sister on their life insurance, and they get married and just completely forget to add their spouse,â Rosa said. âSo itâs a good time to reflect on what changed this year.â
Sullivan said the new year is a great time to finally get your accounts organized. Perhaps you have an old 401(k) and various other accounts scattered about. Take 2019 to get your money organized.
âStreamline it and consolidate accounts,â Sullivan said. âThat can be one [thing] that people really want to do â almost like cleaning out their closet, [but] organizing their finances.â
Right after the holidays is the perfect time to finally begin paying off debt. Perhaps you overspent during the holidays. Or maybe youâre just sick of mindless online shopping. Take January to get a debt repayment plan in place.
âYouâre sick of shopping, youâre sick of spending money,â Sullivan said. âSo it might be kind of a natural time to sort of hunker down and pay off some credit card debt.â
Take January to create a debt payoff plan for the year ahead. Youâll thank yourself come 2020.
January is a great time to look at your investments and make any necessary changes.
âI think at the beginning of the year, itâs good to look at what your money is invested in,â Schaider said. âIs it all in the market? Is it in cash? Is it in safer things or riskier things?â
You should definitely look at your investments if you had a major life change in the previous year. For example, perhaps you had a child and you donât want to be as risky with your investments in 2019. âYou might want to change your strategy,â Schaider said.
Although the new year can leave you feeling motivated, be sure you donât set lofty goals that will be difficult to achieve. After all, 80% of people fail to maintain their New Yearâs resolutions by the second week of February.
âDonât think that youâre going to take January and make sweeping, overarching changes to your financial life,â Sullivan said. âPick one or two things that you can really accomplish, pat yourself on the back and move on to the next.â
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