With the new year approaching quickly, it’s better to have a game plan set up to help prepare for the new year. After all the celebration is over with, you want to make sure you’re on track to hit all of your financial goals. Here are my top 7 tips to prepare your personal finances for the upcoming year.
- Cancel Forgotten Micro-expenses.
- Check your over all outgoing expenses and see if you can get it cheaper.
- Do a simple budget and forecast for any potential life events.
- Go over your expected income for the year and get an investment strategy in motion.
- Make more money.
- Create an estate plan
- Check your insurance coverages
- Tax loss harvesting.
1. Make a list of reoccurring expenses and start canceling!
I always start with; Where is my money going? There are many tools that can track reoccurring expenses. Here’s an Example of what I found
Apple App #1 $2.99
Apple App #2 $3.99
Apple App #3 2.99
YouTube TV HBO monthly subscription 10.99 (I don’t remember the last time I watch HBO)- Here’s a tip on TV subscriptions; You can cancel after you watch the TV series or movie that you had to watch.
Gaming monthly subscription app that I had not used in 6 months 14.99
That’s $25.98 a month, or 311.76 a year of wasted money!
With everyone going to a subscription model services such as Apps, TV channels, Software, Games etc. They are making tons of money by keeping the monthly prices relatively low. By doing so, you don’t think much about it and can continually bill you all year long, even if you don’t use the service. How greedy!
You can definitely, go through your bank statements, but why make it difficult when there are so many great tools these days that make it extremely easy. I use Rocket Money, Rocket Money makes it super easy. First you set up your accounts to get Rocket Money to do all your dirty work to hunt down these reoccurring expenses. Once you have an idea on all those micro-charges coming out of your account that you may not be aware of. Start canceling through Rocket Money. Some accounts you may have to do the extra work and manually log into the account that’s billing you to cancel, but the majority of them can be canceled right through Rocket Money.
2. Can I Get it Cheaper? Look at your outgoing expenses.
Every year I take another look at my outgoing bills and ask a simple question; Can I get this same service for better or cheaper?
First thing that comes to mind is auto insurance. 100% you should shop around. In most cases you can cancel your insurance premium before the policy end-date. The insurance company will pro-rate whatever you haven’t used that you have already paid for and send you back a prorated refund. One word of advice is to never go for less coverage, aim for more coverage for less money or if you’re unable to find something comparable, keep the same coverage for a cheaper price. For example, I was paying 180.00 for my auto insurance policy. Shopped around a bit;Costco, Wawanesa, StateFarm ect, and I found I can get a similar policy from Wawanesa for 120/month. That’s a savings of $60.00 a month or 720 a year.
What about water? I read studies that you can roughly save 80.00 a year using a tap water filter vs bottles of water. And as a plus, you can have a less of an environmental impact.
Got a cell phone? Me too. Did you know every year there is more competition to earn your wireless business. A lot of these companies use the same satellites so you you won’t have any degradation of service. I saved roughly 100/month on my cell phone bill by doing this!
So how much did I roughly save?
$311.76/yr – Micro subscriptions
$720.00/yr – Insurance
$80.00/yr -Tap water filter
$100.00/mo – Cell phone
Just in those items, That’s a savings of 2311.76/year! What could you do with an extra grand a year! Invest it towards your retirement? 😉
2. Budget and Forecasting
Always plan for the expected and the unexpected. Go over all your bills and major expenses for the following year. Plan everything, even if things may not go as planned 100%. Couple questions to ask yourself while you do this:
How much income do you (and your partner) plan on making?
Expected monthly bills?
Paying off debt?
What are the must have big ticket items or improvements to your house, car, medical etc…
Do you have an emergency fund set aside?
How much do you plan on investing; Roth, 401k, HSA, FSA, Brokerage?
Having a broad picture of what your expected finances for the upcoming year can be a big stress reliever knowing that you have some sort of game plan. I know this may not be perfect, as there are so many variables that can happen during the year. But trust me; having a game plan or semi-decent game plan will always be better than having no plan.
3. Look at your expected income and investment strategy.
Do you have a retirement strategy, If no, start one. Don’t wait, you can’t get back those years that you did not take advantage of tax advantage retirement accounts. I repeat; You can’t get back those years that you did not take advantage of tax advantage retirement accounts.
This is what can change periodically; Always good to look ahead so you can start planning.
-Tax Brackets
-Roth contribution limits
-401k contributions
-HSA contribution limits
-FSA contribution limits
Always max out your 401k and Roth contributions. If you’re unable to, contribute the most you can. Yes you can play catch up later in life to an extent, but you miss out on all that market gains throughout the years!
4. Make More Money
Is there anything you can do to make extra income next year to help your personal finances for the upcoming year? Most people tend to just get comfortable and complacent. Is a raise at work in the horizon? I’m a firm believer that if you hustle hard enough the following year, you should be rewarded a raise. If not, maybe find somewhere else that will pay you for your time worth.
You should always have multiple streams of income. There are a lot of side hustles available these days. Food Delivery, Blogging, Social Media..(those cute dog and cat tiktoks) that gain a ridiculous amount of views.
As you grow older, your income should be elevating every year. Again the more you make.. the more you can save for an emergency fund and/or invest!
5. Create an Estate Plan
Biggest misconception is that you have to be rich to have an estate. This will protect your assets and health care decisions in the event where you are unable to do so. There are tons of free tools online. But with something as important as this, I would seek professional advice.
6. Check your insurance coverages!
No ifs, buts, maybes. You have to have insurance. I’ve seen so many people go through extremely tough financial times by not having insurance.
Automobile/Motorcyle – Must have, in most cases, Illegal to not have while operating a vehicle/motorcycle. If you get in an accident without the proper coverage, you could get sued for damages and injuries! That can potentially be over $50,000. That’s a lot of money! Also, I recommend full coverage so if your car/motorcycle gets wrecked, insurance will help you fix or give you money to help replace it.
Health/Disability Insurance – Everyone needs Health insurance. Yes, even if you feel like you’re Superman or Superwomen. Injuries and sickness can happen in a blink of an eye. Without health insurance and you find yourself in the hospital you can potentially have a bill from anywhere to ten dollars to over a million dollars for something very serious. I don’t know about you, but I don’t have that kind of money just laying around.
I’m also a strong believer in supplemental disability insurance. Disability insurance you pay into on your paycheck to the government is not enough to cover your paycheck in the event something happens. I personally use Aflac, that silly duck TV commercials that most everyone grew up on. If I get injured or sick that keeps me out of work for an extended period of time, my Aflac policy will cover my paycheck.
Life Insurance – Do you want to leave your family in a financial mess if something were to happen to you? Funeral costs can be an expensive burden on your family. Life insurance will give your family a cushion to pay for bills you left behind before it goes to the estate, help pay for funeral costs and give them some money to help them when your long gone.
Home/Rental – Bad things happen to good people. When the economy is bad, people do bad things. These insurances will help if there is a fire, theft, damage and personal liability. Home and rental insurance something that is generally good to have and hope you never have to use it!
7. Tax Loss Harvesting
Another important thing to do when preparing your personal finances for the upcoming year. Is to look through your taxable brokerage portfolio and find one of your assets that have been poorly performing. If you sell at a loss, usually the maximum to write off is about 3000.00/year
You can always carry over to following years; for example you write off 5000.00 in losses. You can use 3000.00 for the current year, and the remaining 2000.00 the next year.
Reasons for Tax loss harvesting
- Offset Capital Gains
- Lower ordinary taxable income potentially putting you in a lower tax bracket
- Replace the poor performing asset with a better performing asset.
- Spread your losses by carrying over losses to following years
These are just some of the things you can do to prepare your personal finances for the upcoming year. There’s always more you can do and I do believe the more prepared you are the more peace of mind you will have in the event something goes wrong!