It’s summer. But don’t let your money take a vacation. During summer the last thing you want to think about are your finances. It’s more fun to think about beaches, BBQs, and hammocking. Yes, hammocking. But while you may be relaxing in summer-mode, make sure your money is still working hard. Although it’s summer, don’t let your money take a vacation.
And since we’re just over the mid-year mark, now is the perfect time to check-in on your overall financial picture. By taking 20-minutes now, you can help your improve your bottom line at the end of the year.
Here are 7 financial tips to consider:
1.) Max your 401(k)
Make dang sure that you’re putting enough into your 401(k) so that by the end of the year you’ll hit the limit. Now that we’re halfway through the year, you should have $9,000 saved. Or if you’re 50 or above, $12,000 ($24,000 is the 2017 limit for folks who are 50+). So check your pay stubs and make sure you’re at that mark, and if not now is the time to adjust. Also, if your employer matches you, make sure that’s maxed out as well. That’s no-brainer free money.
Not on track? OK. Happens to the best of us especially when life gets in the way. But at the very least, you need to start changing your mindset and “pay yourself first.” That means setting aside money right off the top before life gets in the way. Hard as it is, just put it on auto-pilot and aim for at least six (6) percent for your 401(k). Why? That’s usually the point where you at least max out on an employer match. Now aim for increasing your limit every six months by at least another 1%. And if you get a raise, sock that money away as well. Here or at least in a savings account. You can always redirect it later on in the year toward investments or a Roth IRA to supplement your retirement savings goal.
2.) Lower those fees, baby
While checking in on your 401(k), check the fees on your investments. Your 401(k) plan is required to send you an annual fee disclosure statement that lists every fund and how much it costs to own. See if there are other funds with lower fees. Sometimes there are new, lower cost options available.Why does this matter? Well, there are few things that you can control when it comes to investing but the Number One thing you do have control over is how much you pay. By lowering your fees, you’ll have less drag weighing you down and will have a better chance to make positive gains in your account balance.
You should also try services like Morningstar.com to get more detailed information on performance, risk metrics and expenses. This may be a frustrating exercise, though, since many plans don’t indicate the five-character symbol assigned to them by the exchanges. But you can search using the fund name which will help narrow the list. And in the end, it will be worth it. If you can identify investment options that show that they are lower cost and perform as well as their index, then you’ll be way ahead of the game in the long run.
3.) Self-employed? Check-in on your taxes
Get in touch with your tax person and give them a snapshot of your finances. Make sure you talk about any tax credits or deductions that you’ve become aware of. Knowing this info early can allow you time to make adjustments. It’s easier to make adjustments and prepare for taxes now than to wait until April 15 next year and get a surprise tax bill.
4.) Take a peek at your investments
Take a close look at your portfolio. Do you need to rebalance? Over time, some of your assets may rise or fall in value, causing the percentages of your investments to change. Rebalancing every now and then helps align your investments with your goals. It’s also a risk-minimizing strategy.
5.) Drop the losers
If you have investments in your taxable account that aren’t doing well, now may be the time to ditch them. Then you can use the losses to offset gains elsewhere in your portfolio. At the end of the year, if you have more losses than gains, you can deduct as much as $3,000 in ordinary income. If you’ve had a really bad year and ended up with a net loss of more than $3,000, you can carry forward the leftover portion to next year’s taxes.1
6.) Use it or lose it
If you participate in a company-sponsored plan for healthcare benefits or dependent care flexible spending accounts (FSAs), check the balance in your account and don’t leave an unused balance at year-end. FSAs operate with a “use it or lose it” policy, meaning that you must have incurred expenses in the same calendar year in order to get reimbursed from the account. While you are allowed to request reimbursements by the following March, you must have documented qualified expenses for the same calendar year to be eligible to use all of the money you deposited into the account. Otherwise you risk losing out on any remaining balance.2
7.) Give and thee could get
It feels good to give. In fact, studies show that donating money to help improve the lives of others is enough to boost not only your self-esteem, but your sense of purpose.3 It can also potentially lower your tax expenses. A win-win. So take a look at your numbers, and find some causes that you believe in.
Takeaway
Summer is the time to slow down. But now that we’re just past the year’s halfway mark, it’s also a great time to take the pulse of your finances and do a quick tune up. Now’s the time to reach out to speak with a qualified financial and tax planning professional who can help you through this and keep you on track. It can help you for the end of the year as well as your future plans for all your vacation dreams, and you can even do it from the hammock.
(1) https://www.forbes.com/2009/05/06/tax-loss-strategies-personal-finance-taxes-bonds.html
(2) http://www.investopedia.com/articles/pf/09/dependent-care-fsa.asp?lgl=myfinance-layout
(3) https://good2give.ngo/2017/02/28/giving-feels-good/
