The dawning of a new year is the perfect time to take a moment, review the year that just past, and put things in place for a successful year to come.
In no area of life is this more true than in your financial life. For many of us, the expensive holiday season has just passed, tax season is coming up and many other little financial shifts are happening all over. Some people receive small raises, either for performance or the cost of living.
All of these changes and shifts add up to a great opportunity at the start of the year to set the year off on the right foot. Here are seven valuable things you can do to ensure that 2020 gets going in the right way.
Do a thorough spending review of 2019.
The turning of a calendar year is a great time to sit down and do a thorough review of your spending for the entire year. Pull out your bank and credit card statements for the past year – whether you have them in paper form or need to go online and retrieve them — and start evaluating them item by item.
Why would you want to do this? There are many reasons.
For starters, this practice can be very helpful for identifying bad spending habits. You might not really think that much about something you do once or twice a week for fun, but when you look at your spending over the course of a year and you see that same expense popping up again and again and again and again, you begin to see that it’s having a major impact on your financial life.
Spending $5 once or twice a week might fly right by you, but when you see that expense repeated 75 times in your annual financial review and you realize that it adds up to $375, it can really put some of your worst financial habits in a new light and give you a strong incentive to start making some changes.
You might also be able to identify recurring expenses you’ve forgotten about. Sometimes, we set up an automatic payment for some bill and then completely forget about it. You keep getting dinged every month or every quarter or every year for that expense, but you’re not using the service at all (or using it minimally). You’ve just forgotten about that recurring expense.
A thorough review of your bank statements and credit card statements can pretty quickly identify those recurring expenses, which you can then easily cancel with a phone call or a website visit. This alone can save you a lot of money going forward.
You may also notice expenses that you didn’t authorize. Sometimes, someone will steal your credit card number and then use it in subtle ways. They might just make small Amazon charges throughout the year, or they might occasionally buy gas using your number. The expenses are irregular enough and similar enough to normal expenses that you don’t notice them in your daily life, but they do show up when you look closer.
This can be a sign that you need to cancel your credit card or get a new credit card number or talk to your bank about similar security steps.
A thorough review of bank and credit card statements can also remind you of how much you’re really spending on non-essentials. Sometimes, all we really need to give ourselves a kick in the rear is to see the full amount we’re spending on unimportant things, and an annual statement review can easily reveal that kind of overspending.
If there’s no specific recurring expense that’s bothering you but you feel almost overwhelmed by the sheer number of line items and most of them are non-essential, that’s a sign that you should sit down and carefully think about how you’re spending money. How many of those expenses are really important and really bringing value into your life? How many of them are basically forgotten within a few days? Which ones could be cut out of your life without any real reduction in life quality?
A careful review of all of your bank and credit card statements can reveal all of these things and more. It’s well worth spending an hour or two going through statements because of the value you’ll get out of making any of these changes.
Boost your retirement contribution to match any cost of living or other raises you might receive.
Many people receive small annual raises or cost of living raises at the start of January. Often, that small bump is seen as a sign of financial relief, that you now have a bit more leeway with your spending throughout the year, but that may be the wrong take.
Rather, consider boosting your retirement contribution to match that raise.
By doing this, you’re obviously increasing the amount of money you’re setting aside for retirement. Bumping your retirement contribution from 6% to 7% or from 10% to 11% can have a profound positive impact on the long term value of your retirement account. Trust me, your future self will thank you.
The nice thing about doing this kind of small bump at the time of receiving a raise is that it will leave your take-home pay mostly unchanged. You might go up or down a dollar or two on your check, but the change will be so small as to be unnoticeable. Basically, your life continues on as before.
This is a really easy thing to do. If you contribute to a workplace retirement plan, like a 401(k) or 403(b), contact your human resources office to ask about making an adjustment to your retirement contributions. If you’re not sure where to go, just ask around.
What if you never signed up for a 401(k) or 403(b) (or TSP or other similar) plan? Now’s a great time to sign up. Join that plan and start contributing 2% or 3% of your paycheck when the raise kicks in and you won’t even notice a difference in your paycheck.
What if your workplace doesn’t offer one at all? You can sign up for a Roth IRA outside of your company. It’s easy to sign up for one, as many investment houses offer them. I personally have a Roth IRA through Vanguard, and I think the offerings at Fidelity are quite good, too. Once you sign up, you can instruct the Roth IRA to automatically withdraw a small amount from your checking account in sync with your pay periods. So, for example, if your raise makes your paycheck go up $20 every two weeks, you can have the Roth withdraw $10 a week or $40 a month from your checking account. In the end, you won’t notice a difference in your day to day finances.
The nice thing about all of these moves is that it leaves your daily life alone, but at the same time you’ll see your retirement savings start to accelerate. Rather than just spending a bit of extra money that you probably won’t notice too much anyway, you’re simply setting it aside for a better future.
Go through all of your insurance policies and make sure everything is covered.
The start of the year is a great time to check in on all of your insurance policies, just to make sure that all of the policies are correct and up to date. You’ll want to make sure that you understand each policy, know what is covered and what the deductibles and premiums are, and also to make sure that everything important to you is covered.
Do you have homeowners or renters insurance? What kind of disasters are covered by that insurance? Are there disasters you are worried about that aren’t covered? Is the policy up to date? If you do a bit of poking around for insurance rates, are the rates you are paying in line?
Do you have automobile insurance? Are all vehicles covered? Are you comfortable with the type of coverage you have on all of those vehicles? Is the policy paid and up to date? Again, if you do some cursory examination of insurance prices online, are the premiums you’re paying sensible?
Do you have life insurance? If you have anyone who depends on you, you should probably have a term policy on yourself with that person as a dependent so that their life doesn’t fall into disarray if something should happen to you. Is the policy paid and up to date?
What about your health insurance? Are you familiar with what it covers? Does it cover wellness visits? Are you happy with the doctor selection and the premiums and deductibles you owe?
You may have need for other policies, too, and those should be reviewed. Do you need motorcycle insurance? Boat insurance? Do you need umbrella insurance (a good idea for those with a high net worth)?
Over all of your policies, can you easily access policy information while not at home? What if your home burns down? Make sure you have digital copies of any information you might need on your smartphone or in another place you can easily retrieve.
A good thorough review of all of your insurance should answer all of these questions and more. Take the time to read a summary of each policy and ask yourself if you’re happy with what it covers and what the expenses are. If you’re not, look for other options.
Start a financial organization system if you don’t already have one.
What do you do with your financial papers, things like receipts and bank statements and titles? Do you just tear them up and throw them away? Do you have a filing system for them? Do you keep the most important ones in a safe place?
If you don’t have an organized system for your papers, now’s a great time to start one so that you can begin your record-keeping with a full run of this year’s papers.
Basically, if you have a piece of paper or an electronic document that has something to do with money entering or leaving your life, it’s probably worth holding onto for at least a few years. This includes things like tax returns, receipts, any and all bills, paycheck stubs, credit card and bank statements, check registers, investment statements, and so on. My philosophy is to hold onto all such papers for seven years.
One easy filing system is to simply have a manila envelope for each month, in which you stick all of the financial papers that arrived in your life during that month. While you might have to dig through several envelopes when looking for something, you’ll at least have all of the documentation in a sensible order.
From there, you can go as complex as you’d like. For years, I used a system where I had a folder for each type of document for each year. I had a “Credit Card Statements: 20XX” folder and a “Utility Bills: 20XX” folder and so on. It wasn’t too hard to maintain this system, either, though over time I gradually moved to a digital filing system because I had most of my statements in digital form.
If you do use a digital system for storing your documents, make sure you have a secure offsite backup of some kind. I use a large encrypted file that I save in a couple of different cloud storage services; with the right software and a very long passcode, I can decrypt that large file and it has everything I need in it.
Get ready to file your taxes.
The turning of the calendar year means the end of the income tax year, too, and that means you’re soon going to be seeing tax forms arriving in the mail and/or at your workplace. Right now is a great time to get things set for filing your taxes.
Are you going to file your taxes yourself? If so, are you using software? Make sure that software is set up and ready to go for when you start receiving documents.
Do you have a system for collecting tax documents as they arrive? I usually keep a manila envelope full of tax documents, stuffing them in there as they come.
This can also be a great time to go through your receipts and statements for the year, looking for things that may be tax-deductible. This is particularly useful if you have a mortgage and also child care expenses because those usually add up to enough to itemize your deductions on your taxes, and that means further deductible expenses will add up to a nice tax savings.
You might not be ready to file your taxes quite yet, but you can get started by simply getting your software ready to go, setting up a place to store your tax documents, and starting the process of digging through your receipts, and you can get started on all of that today.
Check a credit report.
Another great task to start your financial year off right is to check your credit report.
So, let’s back up for a second. Your credit report is simply a listing of most of the businesses and entities who have extended credit to you in the past and whether or not you have met your obligations to keep that credit paid down. Have you paid your bills? That’s the big question.
There are three businesses that focus entirely on collecting that information — they’re called the credit bureaus, Experian, Equifax, and Trans Union. When you go to borrow money or get a lease or even to get a job, businesses will contact one or more of those credit bureaus and pull a copy of your credit report to see if you’re trustworthy. (That information is sometimes summarized into a single number, your credit score.)
One problem with this system is that if your credit report is inaccurate for some reason, particularly if that inaccuracy is bad, it can cause people to think you’re disreputable when you’re not, and that can result in denied loans, higher interest rates, and other problems.
The solution, then, is to check your credit report regularly, and there’s no better time to start than now.
The US government’s official portal for checking your credit report is through AnnualCreditReport.com. That’s where you should go to see your report. You are allowed to see your report once per year from each of the three credit bureaus. I recommend spacing those checks out throughout the year. Perhaps you can check your Equifax report in January, your Experian report in May, and your Trans Union report in September, for example.
So, just check one of your reports now and put it down on your calendar to do the other two spaced out during the year.
When you check your report, look at it carefully for any and all inaccuracies, and if you find anything wrong, start hunting it down. Start by contacting whoever it is that has put something inaccurate on your report and try to get it corrected. If you find no solution there, you can contact the credit bureau directly.
Start a savings plan for this year’s holiday season.
The holiday season’s over and, if you’re like many Americans, you’re probably dreading the bills that are coming as a result of all of those expenses. Holiday thrills bring January bills, as they say.
A better approach that doesn’t leave you paying money to lenders throughout the following year is to simply save small amounts steadily throughout the year so that you have plenty of money for the holidays.
If you can manage to save $20 a month starting now, for example, you’ll have $1,000 in hand in mid-December, and that can be a real game-changer.
So, what can you do right now? You can set up an automatic transfer that moves $20 each week from your checking to a savings account automatically. One efficient way to do this is to set up an online savings account with a bank like Ally so that the transfer pulls the money out of your local bank and keeps it out of mind until next December when you need it, at which point you can just transfer it back to your checking account.
Set it up now and you’ll be so glad you did this December.
Make 2020 your best year yet!
Even if you don’t have any big goals for the year, simply starting things off with these financial tasks can set you up for a great year to come! Good luck!