Financial Tips For The New Year With Omicron raging, most of us are hunkering down again during the holidays. What can be a better use of time than to do an analysis of your financial well-being and take steps to ensure that your financial future is secure with health, wealth, and happiness? So, to start the New Year off with strategic financial planning, here are our top suggestions to help you start the new year on the right note.
Even though the new financial year starts on Jan 1st, you still have time to manage your finances for the 2021 financial year and take steps that will have a meaningful impact on your 2021 tax filing. One way to help save money while decreasing your tax liability is by making an IRA contribution in 2022 but earmarking it for the year 2021. When you make this contribution to your IRA for the financial year 2021, make sure you reach out to your IRA Service provider and ask them to assign it to the 2021 financial year. Just like IRA, most Flexible Spending Account (FSA) accounts allow you to still use the funds in these accounts till March 15 and count it as an expense of the previous financial year. If you made contributions to your FSA account in 2021, make sure you reach out to your FSA service provider and ask them for the deadline to use the funds remaining in the account.
Health Savings Account (HSA) account is a tax-advantaged account that you can use for qualified medical expenses. You are allowed to put aside $7,300 a year for your family’s HSA, assuming your family is covered by a high deductible Health Insurance plan, so leverage these pre-tax savings by maxing out this savings account. The biggest benefit of having an HSA is that it is controlled solely by you and allows for contributions to roll over whereas FSA (Flexible Spending Account) is less flexible and is controlled by your employer.
The number one tip for securing your financial future is to max out your 401(k). If you are going through some financial hardship due to which you aren’t not putting any money aside for 401(k), then start with the minimum your employer will match. This will automatically double your retirement savings with an employer match. If you are already investing the minimum to take benefit of employer match, then at least increase your contribution by 1%. This 1% increase in contribution will not make much of a difference in your day-to-day living. Once you start getting comfortable with this 1% increase then again increase your contribution by 1% and keep following these baby steps till you reach the point where you can no more cuts in your take-home pay. These small incremental financial changes will significantly benefit your long-term retirement planning and will take you one step closer to your retirement goals. While you are adjusting your retirement contributions, keep in mind that the IRS has increased the limit for 2022. So, in 2022, you may contribute up to $20,500 to your 401(k), which is $1,000 more than what was allowed in 2021 if you are under 50. If you are about to hit the magical number of 50 in the year 2022 or are older than 50, you can add an extra $6,500 per year in “catch-up” contributions, bringing your total 401(k) contributions for 2022 to $27,000.
As we pass through different phases of life, our savings needs and risk appetite change. It is always advisable to review our portfolio at least twice a year, once at the beginning of the year and once in the middle of the year to ensure that the portfolio allocation is still in line with how much risk you want to take. If you experienced unexpected financial expenditures, adjust your investment distributions to align with your needs and future goals.
Planning is the best way to proceed when it comes to smart financial planning. Take a look ahead to determine what major expenses are coming up in 2022 and create a plan on how you will finance them. Examples of major expenses are house repairs or upgrades, life events such as marriage, pregnancy, or planned surgery, children’s activities, vacations, and donations to charity. Once you have your major expenses identified, start allocating funds to them in advance, so you know how to invest any remaining funds of your possible savings. Also, remember to take a look at your emergency funds account to make sure you have ample funds saved to cover your day-to-day expenses. Most financial experts recommend that you have somewhere between three months and six months of basic living expenses in your emergency fund. The three-month guideline is generally recommended for those who are in salaried positions and have more secure employment. With Covid-19 and an uncertain job market, it is always advisable to have your emergency fund well-funded.
Now that you have completed financial planning for the current year, start reviewing your 3 years, 5 years, 10 years long-term personal, financial, and professional goals. Start this exercise by jotting down your 10-year goals as the benchmark. Think about what you seek to accomplish and where you want to be in your life in ten years. Now start working back from 10-year goals and what progress you need to make in three years and five years to be on target for your ten-year objectives. Think about factors at work and home.
No one wants to think about death in the new year or for that matter ever but you cannot evade death forever, right? Have you taken steps to secure the future of your loved ones if something unfortunate happens to you? In this new year take care of the unpleasant tasks upfront. Many people put off the things they don’t like or don’t want to think about. Check your life insurance plans and other areas of insurance to make sure you are covered to mitigate risks. By tackling these unpleasant items early in the year, you free up the remainder of your time to focus on what makes you happy. While you are working on covering your risks, make sure you have a living will. Once you are done with these seven steps, you should be off to a stellar start in 2022 and your financial future.
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