There’s no time like the present to start improving your finances. Being proactive about money management can benefit more than just your bank account: It can also bring you peace of mind.
Peace of mind may be something everyone can use more of nowadays, given the high inflation, surging interest rates and volatile stock market that have rocked many households over the last several years.
“It’s just a really weird time,” says Nicole Rosen, a tax professional in Wenatchee, Washington.
While you can’t control those things, 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.
1. Create a Written Plan
Before you start making changes to your finances, you need a written plan that lays out your investment strategy and broader financial goals. This is especially important given the tumultuous market in recent years.
“We’ve seen some big swings in the financial markets, and this volatility can make investors feel like they have little control over their investment success,” says Lena Haas, principal and head of wealth management advice and solutions for Edward Jones.
But she also says there have been many downturns since the Great Depression and the market has recovered every time. “It’s important to avoid overreacting to short-term downturns and making moves that could work against your long-term strategy,” she says.
Having a written plan should extend beyond investing and include spending and saving as well. “Figure out where your money is going,” Rosen says.
Once you know that, you can begin to make adjustments — like reallocating cash to different accounts — that will bring you closer to your goals.
2. Budget for Future Expenses
Every household needs a budget, and that starts with understanding how much you actually have available to spend.
“Everyone knows what they make gross, but what ends up in your paycheck could be very different,” says Howard Dvorkin, a CPA and chairman of Debt.com. Review your earnings statements to determine your net pay after taxes and deductions, then create your spending plan based on that figure.
When it comes to setting up your budget, be thoughtful about how you use your income. Focus on spending that aligns with your values. In addition to extra debt payments, prepare for quarterly and annual expenses like insurance premiums, vacations and holiday spending.
You can track your spending by using an app like Simplifi or PocketGuard. When you hit your budgeted limit for each category, stop spending.
[Simple and Free Budgeting Tools]
3. Max Out Your Individual Retirement Accounts
“Now is an awesome time to max out your IRA,” says Nick Holeman, director of financial planning at Betterment. “The earlier you contribute to an IRA, the better.”
Or if your employer offers a 401(k) plan, you may want to contribute as much as possible there. Traditional IRA and 401(k) plans offer an immediate tax deduction on contributions while Roth accounts let you withdraw money tax free in retirement.
In 2024, the contribution limit is $23,000 to 401(k)s and $7,000 to IRAs. Workers 50 and older are entitled to contribute even more.
[Read: How Much Should You Contribute to a 401(k) in 2024?]
Many employers will match a portion of workers’ contributions — up to a certain amount. If you aren’t sure how much to contribute to a 401(k), deposit at least enough to get the maximum employer match. Then, slowly increase your contributions when you can afford it.
4. Roll Over Your Old Retirement Plan
Many workers have switched jobs in recent years — either because of layoffs or simply to find employment that better suits their lifestyle and financial needs. Regardless of the reason, if you’ve changed jobs, don’t forget about the retirement plan you may have left behind.
Roll the money over to your new 401(k) plan or an IRA so you can continue investing it according to your risk tolerance and goals. To avoid paying any taxes on the rolled over funds, have your previous plan administrator send the money directly to your new plan.
5. Open a 529 Plan
For years, families have opened 529 plans to fund their kids’ college educations. Money in 529 accounts grows tax free and can be withdrawn tax free for qualified higher education expenses. Some states, such as Michigan and Illinois, also give a state tax deduction for contributions.
[Read: Qualified Expenses You Can Pay for With a 529 Plan]
Changes to the tax code now allow you to use money in these accounts to pay tuition for students in kindergarten through 12th grade as well as college tuition — and even some student loans. For parents who plan to send their children to private elementary schools or high schools, this is one more reason to open a 529 plan.
6. Rebalance Your Portfolio
The market swings of recent years could mean your investment portfolio no longer matches your financial goals since aggressive and conservative funds have grown and contracted at different rates. Now is a good time to reevaluate your funds’ balances, keeping an eye on how close you are to retirement.
“With market fluctuations, different investments and asset classes could be impacted differently,” Haas says. “Rebalancing ensures you stay on plan.”
For stock allocations, a rule of thumb is to subtract your age from 100; that number is the percentage of money you should consider keeping in equities. A financial planner may be able to provide a more nuanced recommendation, however, based on your risk tolerance and personal goals.
7. Diversify Your Investments
Owning multiple types of investments — known as diversification — is an essential way to minimize risk.
People don’t always understand, however, what it means to diversify a portfolio. For instance, investors may buy several mutual funds that contain the same mix of stocks, but as an individual, you haven’t actually diversified your portfolio if your money is invested in the same companies.
“You’re not going to become Warren Buffet overnight — and you don’t have to,” Holeman says. He says technology has made it easier for almost anyone to have a low-fee, globally diversified portfolio.
Firms like Betterment and Wealthfront — known as robo advisors — use technology to automate the diversification. Contacting a financial advisor for personal advice is another way to ensure you have the right mix of funds in your portfolio.
8. Harvest Your Investment Losses
Investments other than 401(k)s and IRAs are subject to capital gains tax, which maxes out at 20%. If you sell investments at a loss, however, you can use that amount to offset capital gains or income tax. Savvy investors dump losing stocks and use them to reduce their tax burdens.
“When markets are scary and volatile, those are the exact times when staying diligent about balancing and loss harvesting matters the most,” Holeman says.
Be aware of the wash sale rule, however, 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 eliminates the possibility of a tax deduction for the loss.
9. Shop for New Insurance
Insurance rates can vary among carriers so it’s worthwhile to shop for new plans every year or two. Compare quotes from several companies to see if you can find cheaper (but comparable) policies for auto, homeowners and life insurance.
“In addition, it’s important to think through disability insurance and, starting at around age 50, long-term care insurance,” Haas says.
A simple way to lower your premium is to raise your deductible. If you do switch policies, be sure to have a new plan before canceling your old coverage.
Additionally, you have an annual open enrollment period to shop for a new health insurance policy. Regardless of whether you get your insurance through an employer or the health insurance marketplace, use this time to compare plans and find one with the best network and lowest out-of-pocket costs for your needs.
10. Open a Health Savings Account
Money you deposit in HSAs is tax deductible, funds grow tax free and withdrawals are tax free when you use the money for health care expenses.
You can use HSAs to pay for current medical expenses as well as set aside cash for the future. Those with qualified, high-deductible health insurance plans are eligible to open HSAs.
People with qualified individual health insurance policies can contribute up to $4,150 to an HSA in 2024. Family plans have a contribution limit of $8,300, and those 55 and older can make an additional $1,000 catch-up contribution. Bonus: HSA money rolls over each year and you can invest it.
11. 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. Apps like Trim by OneMain and BillCutterz will also negotiate on your behalf (their fee is a cut of your savings). Once you’ve trimmed expenses, put that money toward whatever makes sense for your situation.
12. Be Strategic With Charitable Donations
Most taxpayers can save more on their tax bill by taking the standard deduction instead of itemizing their deductions. Since only those who itemize can write off charitable donations, you may have to be strategic about when you give to get a deduction.
One strategy is to move donations that you’d typically give next year to December to maximize the donation amount for the current year. Or, you may find it easiest 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, you can avoid taxes by making a qualified charitable distribution. Just make sure to have your RMD sent directly from your retirement fund to a qualified charity.
[A Guide to Tax Deductions for Charitable Donations]
13. Invest in Yourself
Saving money can improve your financial situation — and so 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 may make you more valuable to your current employer and perhaps lead to a raise. Some employers even offer tuition reimbursement or similar programs to encourage workers to expand their skill sets.
Starting a business on the side — whether you drive for a rideshare app or freelance in your area of expertise — can also be a smart way to invest in yourself. Not only will it bring in more income, it will open the door to tax breaks available only to the self-employed.
14. Update Beneficiary Information
Your loved ones will be grateful if you take time to review your beneficiaries — those you designate to receive money from life insurance policies, retirement funds and bank accounts after your death. Experts suggest reviewing beneficiaries at least annually.
A beneficiary designation overrides any other financial directive you’ve given. For instance, if you forget to remove your ex-spouse as your life insurance beneficiary, they’ll get the death benefit regardless of what your will says.
If you haven’t named beneficiaries, your estate may have to go through an expensive and long probate process before the funds can be released to heirs.
15. Conduct Financial Reviews
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 and liabilities as well as your credit reports and credit score.
Consumers are entitled to free weekly credit reports from the major credit bureaus: Experian, Equifax and TransUnion. You can request these by visiting AnnualCreditReport.com. Meanwhile, you can check your credit score for free through credit card issuers like 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 good loan or lower interest rate. What’s more, it can help you spot identity theft early.
Not everyone feels equipped to review and evaluate their financial picture, but there’s a way to remedy that. Personal finance websites are full of articles, calculators and videos to help people who want to manage money on their own. Otherwise, find a trusted financial professional to guide you.
“If you don’t have the tools or the knowledge, go seek help,” Dvorkin says.
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15 Money Moves You’ll Be Thankful For originally appeared on usnews.com
Update 08/15/24: This story was published at an earlier date and has been updated with new information.
