Find out how to create financial goals you can stick with and achieve. Money Girl Laura Adams offers essential tips plus her 7 personal finance resolutions in 2019.
Resolution #1: Update my Personal Financial Statement (PFS)
If you’re a regular Money Girl podcast listener or read my books, you know that I recommend using a PFS as the cornerstone of your financial plan. This is the most important tool for getting organized and gauging your financial health.
Every time you update your PFS, you calculate your net worth. The definition of net worth is summed up in a very simple formula: Net worth = Assets — Liabilities
Your assets are items of value that you own. Your liabilities, on the other hand, are the debts that you owe. When you subtract your total liabilities from your total assets, you’ve figured your net worth. The goal is to slowly raise your net worth by increasing your assets and reducing your debts.
Resolution #2: Max Out Retirement Accounts
My husband has a 401(k) and I have a SEP-IRA and we’re committed to contributing the maximum amount every year. We review the limits (which went up slightly for 2019) and adjust our automatic contributions so they go into effect in early January.
The New Year is the perfect time to increase your retirement contribution rate from the prior year. For instance, if you contributed 3% last year, make sure to bump it up to at least 4% this year.
Many people get cost-of-living salary increases or year-end bonuses that take effect in January. So, it’s probably the best time of year to increase your savings. You probably won’t even miss the money.
But if you do have a financial hardship, you can always reduce your contributions or stop making them altogether. Push yourself to save until it hurts. If you’re not feeling a little pinch, you’re probably not saving enough.
While the deadline for workplace plans coincides with year-end, for IRAs and most plans for the self-employed, you have until April 15 to make contributions for the prior year.
Resolution #3: Max Out My Health Savings Account (HSA)
If you have a high-deductible health plan, you’re probably eligible for an HSA. These terrific accounts allow you to save funds that can be spent tax-free on qualified medical expenses.
If you still have money in your HSA when you’re 65 years old, it can be used for non-medical expenses without penalty (but income tax would still be due), similar to a traditional retirement account. Just like with many retirement accounts, you have until April 15 to make HSA contributions for the prior year.
Resolution #4: Prepare for Taxes
Every year I make a goal to begin working on my business and personal tax documentation as early as possible. Business tax returns are due in mid-March. So, I work on those first by making sure that all tax-related expenses are categorized correctly and running reports for my accountant.
For as long as I can remember, I’ve had to file a tax extension on my personal return because I didn’t receive all my tax forms in time. This year I’m aiming to have it filed by the mid-April deadline.
Resolution #5: Pay Off Credit Cards in Full Each Month
I use credit cards for every expense possible because I love getting the rewards. But the downside is making a large expense that you don’t pay off in full and having to pay a finance charge.
One trick that’s worked for me is using a charge card that must be paid off in full each month, such as the American Express Platinum card. It comes loaded with rewards, but you typically can’t carry a balance from month to month.