Money Moves You Will Be Thankful For

Take these steps to improve your finances now.

There is no time like the present to start improving your finances. Being proactive about money management can benefit more than just your bank account. “Life is meant to be lived, not survived,” says Jason Gordo, managing director and head of strategic growth relationships at Goldman Sachs Personal Financial Management. Enjoying life to the fullest is hard, though, when you are worried about how to pay the bills. Fortunately, you can save money on debt, eliminate headaches for your heirs and free up cash for the things you want by making the following 15 expert-backed money moves.

Create a written plan.

Before you start making changes to your finances, you need a written plan that lays out your investment strategy and goals. This is especially important given the current tumultuous market. “The biggest mistake you can do is to act emotionally,” says Kelly LaVigne, vice president of consumer insights for Allianz Life Insurance Company. That can, for instance, result in people selling investments when the market is down and missing a subsequent rebound. “You don’t want to lock in losses,” LaVigne explains. Having a written plan can provide peace of mind and help investors avoid the impulse to make rash decisions when stocks tumble.

Budget for future expenses.

Every household needs a budget, which is a plan for managing expenses. “That’s really the foundation of financial success,” says Shelly-Ann Eweka, senior director of financial planning strategy for financial firm TIAA. In addition to extra debt payments, prepare for quarterly and annual expenses such as insurance premiums, vacations and holiday spending. Track your spending by using an app like Mint or PocketGuard. When you hit the budgeted limit for each category, stop buying.

When it comes to setting up your budget, be thoughtful about how you use your income. “Spend money on items that bring you joy and happiness,” Eweka suggests.

Max out your 401(k) match.

If your employer offers a 401(k) plan, you should contribute as much as possible. Traditional 401(k) plans offer an immediate tax deduction on contributions while Roth 401(k) plans will let you take out money tax-free in retirement. In 2022, the contribution limit to a 401(k) account is $20,500. Many employers will match a portion of worker contributions, up to a certain amount. If you aren’t sure how much to contribute to a 401(k), make sure you’re at least depositing enough to get the maximum employer match. Then, slowly increase your contributions as you are able. “Take half of a raise and allocate it to your 401(k),” advises John Pelletier, director of the Center for Financial Literacy at Champlain College in Burlington, Vermont. “There’s nothing painful about it.”

Roll over your old retirement plan.

Many workers left their jobs for new positions in late 2021 and early 2022 — a trend some have dubbed the Great Resignation. If you have changed jobs, don’t forget about the retirement plan you may have left behind. “It’s not like the money will follow you to a new job,” says Kerry Keihn, chief operating officer and financial advisor at Earth Equity Advisors, a sustainable investing firm. Instead, roll the money over to your new 401(k) plan or an IRA so it doesn’t get forgotten. Have the money sent directly from your old provider to your new plan to avoid paying any taxes on the funds.

Open a 529 plan.

For years, families have opened 529 plans to fund their kids’ college educations. Money deposited into 529 accounts grows tax-free and can be withdrawn without a tax penalty for qualified higher education expenses. Some states, such as Michigan and Illinois, also give a state tax deduction for qualified contributions. Recent changes to the tax code now allow money in these accounts to be used to pay tuition for students in kindergarten through 12th grade as well as college tuition. For parents who plan to send their children to a private elementary school or high school, this is one more reason to open a tax-advantaged 529 plan.

Rebalance your portfolio.

After a long period of sustained economic growth, the markets have swung widely in recent years. That means portfolios may now be unbalanced as aggressive and conservative funds have grown and contracted at different rates. Now is a good time to reevaluate fund balances, keeping an eye on how close you are to retirement. “You need to stop looking for the home runs the closer you get to retirement age,” LaVigne says. In other words, keeping money safe may be more important than trying to achieve the highest gains. For stock allocations, a rule of thumb is to subtract your age from 100; the result is the percentage of money you should consider keeping in equities. However, a financial planner may be able to provide a more nuanced recommendation based on your risk tolerance and personal goals.

Diversify your investments.

Owning multiple investments — known as diversification — is an essential way to minimize risk. However, people don’t always understand what it means to diversify a portfolio. “It can be interpreted in very unique ways,” Keihn says. For instance, she has come across individuals who have accounts with multiple brokerage firms and believe that means their money is diversified. Or they may buy several mutual funds that all contain the same mix of stocks. In either case, the individual hasn’t actually diversified their portfolio if their money is invested in the same companies. “You want to be sure that what you own is different,” Keihn explains. If you aren’t sure whether your current investments are properly diversified, talk to a financial advisor for assistance.

Harvest your investment losses.

Investments made outside 401(k) and IRA accounts are subject to capital gains tax, which maxes out at 20%. However, if investments are sold for a loss, that amount can be used to offset any capital gains or income tax. Savvy investors can dump losing stocks and use them to reduce their tax burden. However, be aware of the wash-sale rule, which prohibits investors, their spouses or their personal companies from buying a substantially identical stock within 30 days before or after a sale. Doing so will eliminate the possibility of a tax deduction for the loss. Of course, buying and holding securities such as mutual funds can be a better strategy than buying shares in individual companies. “A lot of people want to play the stock market,” Gordo says. “It’s not a game. It’s not a casino.” He advises against trying to time the market and instead suggests working with a trusted advisor to develop a long-term investment plan.

Shop for new insurance.

Insurance rates can vary between companies, and it’s worthwhile to shop for new rates every year or two. Compare quotes from several companies to see if cheaper insurance for auto, homeowner and life policies are available. A simple way to lower rates is to raise your deductibles. If you do switch policies, be sure to have a new plan before canceling your old coverage. Additionally, don’t forget you also have an annual open enrollment period to shop for a new health insurance policy. Regardless of whether you get your insurance through an employer, Medicare or the government marketplace, use this time to compare plans and find one with the best network and lowest out-of-pocket costs for your medical needs.

Open a health savings account.

“We all have additional financial goals beyond retirement,” Eweka says. “You really need to make moves that are going to help you now and in the future.” A health savings account is one option to pay for current medical expenses with tax-free money and to set aside cash for the future. Those with qualified, high-deductible health insurance plans are eligible to open health savings accounts, which come with triple tax benefits. Money deposited into the account is tax deductible, funds grow tax-free and withdrawals are tax-free when used for health care expenses. People with individual health insurance policies can contribute up to $3,650 to a health savings account in 2022. Family plans have a contribution limit of $7,300, and those age 55 and older can make an additional $1,000 catch-up contribution. Money in a health savings account rolls over each year and can be invested.

Reassess and negotiate monthly bills.

You’ll have more money in your pocket if you take time to trim monthly bills. Cable, streaming services, cellphone and internet service are all prime places to save, thanks to a competitive market. In some cases, you may not even have to change companies to get better rates. Contact current providers to ask if you can get a reduced price in exchange for your continued business. Once you have trimmed expenses, put the saved money to use in whatever way makes sense for your situation. “Everyone is on a different journey,” Gordo says. “If you’re just getting started, we always recommend that you establish a (financial) safety net.”

Be strategic with charitable donations.

For the 2022 tax year, the standard tax deduction for a married couple is $25,900, and most taxpayers can save more by taking the standard deduction rather than itemizing their deductions. Since charitable donations can only be written off by those who itemize, people may have to be strategic about when they give to get a deduction. One strategy is to move up donations that would typically be given in January to December to maximize the donation amount in a given year. Or taxpayers may find it best to make larger contributions every other year. Just be aware that you can generally only itemize contributions of up to 60% of your adjusted gross income. If you’re retired and need to take required minimum distributions — known as RMDs — from your retirement plan, you can avoid taxes by making a qualified charitable contribution. To do so, have the RMD sent directly from your retirement fund to a qualified charity.

Invest in yourself.

While saving money can improve your financial situation, so too can earning more income. As many workers reevaluate their jobs, now might be the time to consider furthering your education or learning new skills. Going back to school may make sense even if you aren’t planning to change jobs. “It makes you more valuable,” Eweka says. She notes her employer helped pay for her master’s degree and encourages people to see if tuition reimbursement or similar programs are available at their workplace. Starting a business on the side — whether that be joining a ride share app or freelancing in your area of expertise — can also be a smart way to invest in yourself. Not only will it bring in more income, but it will open the door for tax breaks that are only available to the self-employed.

Update beneficiary information.

Your loved ones will be grateful if you take time to review beneficiaries. These are the people designated to receive money from life insurance policies, retirement funds and bank accounts after your death. Experts suggest reviewing beneficiaries on at least an annual basis. A beneficiary designation overrides any other directive you’ve given about your finances. For instance, if you divorce and forget to remove your ex-spouse as your life insurance beneficiary, they will get the death benefit regardless of what it says in your will. If a beneficiary isn’t named, an estate may have to go through an expensive and long probate process before the funds can be released to heirs.

Conduct an annual review.

It’s easier to make smart money moves if you have a good understanding of your overall financial picture. That means sitting down at least once a year to review your assets, liabilities such as debt and expenses. As part of that process, review your credit reports and credit score. Consumers are entitled to one free credit report each year from each of the major credit bureaus: Experian, Equifax and TransUnion. These can be requested at Meanwhile, credit scores can be checked for free through credit card issuers such as Discover or services like CreditWise from Capital One. Monitoring your credit score and credit reports ensures errors don’t slip through and adversely affect your chances of approval for a loan or lower interest rate. What’s more, it can help you spot identity theft early.

Meet your financial goals with these tips.

— Create a written plan.

— Budget for future expenses.

— Max out your 401(k) match.

— Roll over your old retirement plan.

— Open a 529 plan.

— Rebalance your portfolio.

— Diversify your investments.

— Harvest your investment losses.

— Shop for new insurance.

— Open a health savings account.

— Reassess and negotiate monthly bills.

— Be strategic with charitable donations.

— Invest in yourself.

— Update beneficiary information.

— Conduct an annual review.

More from U.S. News

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How to Save Money

9 Secrets to Save Money on a Shoestring Budget

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