2019 New Year’s Resolutions
MONEY TALKS - With 2019 already underway, many folks are making New Year’s resolutions to eat healthier, exercise more, lose weight, learn a new hobby, quit smoking, read more, find another job, etc. While these are all notable endeavors, the elephant in the room is personal finance. Taking steps to improve your finances early in the year may help to put you in a better position by year end, thereby alleviating unnecessary stress and anxiety. Check out these five resolutions to kick off your 2019 on the right foot.
Create a Budget - When making a budget, a great starting point is to look at your most recent pay statement. From here you should be able to forecast your gross annual income, tax withholdings, and other payroll deductions such as your medical expenses and 401(k) contributions. Once you determine your take home pay, be sure to review your after-tax expenses from 2018, as last year’s spending is generally the best place to start when looking forward. Don’t get too granular with the specific details. Instead take a high level approach and focus on the major items such as mortgage payments, property tax, car payments, insurance, cable & internet, cell phone, electricity, groceries, and child expenses such as daycare, college savings, and tuition bills. Be sure to make adjustments for any major life changes such as a change in employment, addition or subtraction of a dependent, relocation, etc.
Review your 401(k) contribution percentage - In order to adequately save for retirement, a minimum of 10% of your gross salary should be directed into your 401(k). Ideally, as your salary increases you should increase your contribution percentage annually until you reach 15%. The 2019 employee contribution limit is $19,000 for employees under 50 and $25,000 for those who are over 50. In order to maximize your employer match, be sure to spread out your 401(k) contributions throughout the calendar year, as most employers match on a per paycheck basis. Meaning if you frontload your 401(k) and reach the employee contribution limit in June, your employer will not make a matching contribution from July – December.
Make an IRA or Roth IRA contribution - It’s not too late to make a 2018 IRA or Roth IRA contribution. In fact the deadline to make a 2018 contribution isn’t until April 15, 2019. The 2018 contribution limit is $5,500 unless you are over 50, in which case a “catch-up” contribution of $1,000 is allowed, thereby increasing the total limit to $6,500. In 2019 the contribution limits were raised by $500. By combining your 2018 contribution ($5,500 limit) with your 2019 contribution ($6,000 limit) you could potentially contribute up to $11,500 ($13,500 if over 50) to your IRA or Roth IRA depending on your income level. Before making a contribution, be sure to review the contribution limits as your income, marital status, and employer retirement plan can all potentially affect your eligibility.
Rebalance your Investment Portfolio - In its most simplistic form; asset classes are broad categories of dissimilar investments such as stocks, bonds, real estate, and money market funds. Over the course of the year it’s natural for the various asset classes to perform differently from one another. As a result, your portfolio may look different at the end of the year than it did in the beginning. Everyone knows the old adage; buy low and sell high. Rebalancing is essentially the same thing; you are selling the asset classes that did well and buying other asset classes that under performed. Rebalancing your portfolio back to the original asset allocation can help improve performance and reduce risk by maintaining a dedicated investment strategy.
Adjust your Tax Withholdings - After your 2018 tax return is filed (typically in March or April of 2019), it’s a great time to review your tax withholdings to see if they need to be adjusted for the 2019 tax year. If you owed money with your tax return, chances are your employer did not withhold enough taxes from your paycheck. This can easily be corrected by filing out a new Form W-4 and submitting it to your HR department. Instead of adjusting the personal allowances you are claiming, a simpler and more effective strategy is to keep everything the same and list the additional amount of taxes you want withheld from your paycheck on Line 6. For example, if you owed $2,600 with your 2018 tax return, assuming all else remains the same, you may want to adjust your bi-weekly tax withholdings by $100 (or more if there are less than 26 pay periods remaining in the year). Conversely, if you received a large refund you can also submit a Form W-4 to your HR department notifying them that you would like less taxes withheld from your paycheck. In this scenario, you would probably need to increase the number of personal allowances declared to decrease the tax withholding. If your HR department can’t give you an estimate of the proposed changes, you may want to run the numbers using a payroll calculator beforehand to make sure you are still withholding enough taxes.
An old wise man once asked his villagers; “When is the best time to plant a tree?” A quick-witted woman responded, “Today.” The wise man smiled and responded, “You’re close, today is the second best time to plant a tree. The best time to plant a tree was 20 years ago.” While we can’t go back in time and save more or invest differently, there is no time like the present. Start the year off on a good note by reevaluating your finances and take control of your own destiny.