It’s time for holiday parties and eggnog. But between all of the festivities, there are important personal finance tasks you’ll need to attack before the calendar flips to 2017. Which money tasks are most important? While there’s lots of room for debate, here is a list of five to get you started.
[See: 14 Important Personal Finance Dates to Mark on Your Calendar.]
1. Clean up your budget. While many people use January to set up New Year’s resolutions, getting your budget in order in December is a better idea for two reasons. First, you’re budget-conscience during a notorious month for budget-busting. Second, you’re starting fresh immediately in the new year instead of working to begin the budgeting process.
Budget tip: Use apps to help you get started with your budget. Check out your bank’s budgeting app or use a third-party tool, such as Mint.com.
[See: Prepare Your Finances for the Holidays.]
2. Give to charities. While charitable organizations can always use help, if you itemize your taxes there’s another reason to give: tax planning. Gifts of money are always appreciated by charitable organizations, but so are gently used items. If you give gifts in kind you’ll need to know how much the gift was worth before claiming it on your taxes. Sites like eBay can help you come up with similar items to benchmark. When giving money, try not to give cash because it’s difficult to track at tax time.
Charitable giving tip: Make sure that the organization is a 501(c)(3) organization before giving money if you hope to claim it on your taxes.
[See: Your Ultimate Holiday Tipping Guide.]
3. Decide how much life insurance is enough … and buy it. According to the Highway Loss Data Institute, collision claims on an average day in December are 12 percent higher than on an average day during the year. New Year’s Day is often listed among the five most dangerous driving days of the year, and Christmas Day isn’t far behind. Between the fact that there are lots of drivers on the roads and above-average amounts of alcohol consumption, it’s a great time to think about your life insurance needs.
Life insurance tip: Start with how much you’ll need and the length of time you’ll need it before choosing a type of insurance. You’re more likely to purchase the right policy if you start this way instead of talking to an agent first.
4. Sock away a few more dollars. Your workplace 401(k) contributions are one of the only ways to defer taxes until retirement, so if you have an emergency fund, why not sock away a few more dollars in your retirement plan? By sheltering money in a pre-tax plan you’ll lower this year’s income. And your emergency fund will make sure that if something goes wrong, you aren’t socking away money that should better be used for groceries or bills. Ask your human resources department or plan representative whether it’s too late to increase your contribution these last couple of weeks of 2016. Even if it’s too late, increasing your savings early in 2017 helps you start the new year on the right foot.
A 401(k) savings tip: Just starting to save? Pick a single fund or two, such as a good S&P 500 index fund. That’ll give you exposure to large companies and invest 100 percent of your money in stocks while your account is small. When your account grows larger, begin diversifying into more funds to spread your risk.
5. Spend flex savings money. This is your last chance to affect this year’s tax bill so look for creative ways to drive down the amount of tax you’ll pay. If you own a home, some municipalities allow you to pay winter property taxes either in December or January, so make your payment in the year in which you expect to have more taxable income. Sell losing investments to build up capital losses. If you own a business, make purchases for items you’ll need in the future year. Add up your medical costs if 2016 was a rough year. If you itemize, you may be able to deduct some of these bills.
While there are many ideas to help you round out 2016, if you just implement a few of the five on this list, you’ll end 2016 with a bang. Even better? You’ll roll into 2017 with a nice head start on achieving your financial goals with more money in your pocket.
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