Making New Year’s resolutions doesn’t always have to be about hitting the gym or losing weight. Consider taking the time to think about your finances instead. As the calendar changes, it offers an opportunity to take stock of your financial position and to make changes to accomplish your overall goals. Here are six ways to prepare your finances for a healthy year ahead.
1. Review your net position
The beginning of a new year is a good time to evaluate your overall financial standing. By comparing what you own against what you owe in debt, you’ll be able to tell if you need to prioritize saving your funds or whether you have the flexibility to spend and invest. Consider reviewing your credit report. Evaluate your cash flow each month and see if there are any changes that need to be made to ensure you’re on track with your budget.
2. Set goals
Maybe there’s a big vacation to save for, or a debt that you want to pay off. Set goals for your money this year and prioritize the rest of your spending accordingly. It may help to create a budget for spending on certain categories so you can stick to your long-term mission.
3. Plan for the unexpected
Supplemental insurance plans can be good considerations to make to help carry you through unexpected life events. The phrase “supplemental insurance” means any insurance policy that you carry in addition to primary health insurance. One of the biggest benefits to these types of plans is that they can be used to help you pay for costs that your primary health insurance won’t cover, like child care and transportation.
These policies may be available to you through the benefits package from an employer, or available through independent agents. Here are the major types of supplemental insurance to consider:
- Life insurance: this provides a payment to beneficiaries in the event of your death.
- Short-term disability: this pays a portion of your income if you can’t work due to injury, illness or life events like having a baby.
- Long-term disability: this pays a portion of your income if you can’t work due to injury or illness.
- Dental insurance: this covers dental expenses.
- Vision insurance: this covers eye exams, prescription glasses or contact lenses.
- Accident insurance: this provides coverage if you are in an accident or receive an accidental injury.
- Critical illness insurance: this pays you a lump sum if you have been diagnosed with an illness covered by the plan to help you pay for things like lost income, out-of-pocket costs and treatments that may not be covered by your health plan.
- Hospital recovery insurance: during a hospital stay, you would receive a daily benefit amount to help you cover any unexpected costs so you can focus on recovering.
4. Optimize all options
As you’re checking in with your accounts, make sure you’re optimizing all of the options available to you to make sure you’re not leaving money on the table. For example, your employer may offer you a Health Savings Account or Flexible Spending Account as a part of your benefit package. These accounts are tax free and can work in tandem with supplemental insurance plans.
5. Protect your future
If you’re not planning for your retirement, now is the time to start. First check to see if your employer has a matching program for a 401(k) retirement account, or if there is a pension available to you. Also make sure you are contributing the maximum amount to your 401(k) out of your paycheck each year. Additionally, you may want to consider establishing an Individual Retirement Account (IRA) or a Roth IRA and contributing the maximum amount allowed each year.
A simple will, including an advance health care directive, can also assure you that any unexpected event will be handled with your wishes in mind. Make sure any insurance policies or accounts have beneficiaries listed.
6. Save for college
If you have children, you may want to consider starting to save now for their postsecondary education. There are several ways to save money for a child’s future:
- 529 college savings plan: These plans offer a modest return and are offered both by states where you live as well as private lenders. The money is invested over the years, and any return earned in these plans is exempt from federal taxes. When the money is used for any education expense, the withdrawals are tax-free.
- Custodial account: these accounts are a savings account managed by an account manager who invests the money for you. When the child reaches legal age, the account ownership transfers from the adult to the child. Returns on these accounts are taxed, and withdrawals do not carry any penalties and are not limited to educational expenses.
- Savings account: a traditional savings account allows you to set aside money without worrying about future restrictions on the use for funds. However, as this money is not invested, it does not earn returns.
Use the new year as an opportunity to take stock of your finances. With the right planning, you’ll be assured you have the flexibility you need to handle the challenges of the year ahead.