After the excitement of New Year’s Day, can I ask you to do something boring? Sit down with your significant other and map out your financial plan for the year. It may sound simple, but if you’ll take a few minutes to create a roadmap of the expenses and investments you’ll plan on for the next 12 months, you’ll be amazed at the results.
This annual planning session achieves two goals: It helps balance financial planning activities while providing a quick review of your current investments. On one hand, it’s fun to consider a trip to Disney or a Caribbean cruise for your family vacation, but you can also check on the progress of your cash and investment accounts – this year and 20 years from now.
If you want to get a jump on your 2019 finances, here are six tips on how to allocate your time and money to help ensure you are saving and investing in the right places:
Pay off all Holiday Bills
No matter how you paid for the Holidays, in January, you HAVE to pay those debts off. Why carry them, especially if the interest on your credit cards is going to be in excess of 20%? You goal must be to quickly pay off these credit cards and start 2019 free of any credit card or other consumer debt.
Plan the Family Vacation Schedule
This task accomplishes two things. First, it provides a timeline so you can set aside the money to pay for the vacations. For example, if you’re planning on a summer vacation once the school year is over, you’ll have roughly six months to budget for that. Second, you can block out time on the work calendar. This has been the No. 1 reason your vacation plans have fallen apart in the past, right? Get it planned, get it scheduled, and enjoy it!
Set Aside Money to Fund our Individual Retirement Accounts
In 2019, individuals can contribute $6,000 if they are under age 50 and $7,000 if over age 50. That’s a $500 increase from 2018. I like the discipline and challenge of saving the maximum each year, since you can’t go back and make up for missed years of IRA contributions. Remember you need to have earned income in order to contribute to an IRA.
Fund 529 College Education Savings Plans for Your Children
In addition to giving families a way to save, many states provide a tax deduction for these contributions. Education is a priority for any family, so knowing how much you’ll be saving each year allows you to understand your contributions each year to reach your goals.
Fund Your Health Savings Account
Perhaps you’ve chosen a high-deductible health insurance plan, which means you’ll have to contribute before-tax money to a health savings account to pay for doctor visits and other medical bills. The amount people can contribute to these accounts in 2019 is $3,500 for singles and $7,000 for families, with an extra $1,000 for those over age 55. A great goal is to not touch the money in your HSA each year, and let it build up for retirement or any unforeseen large family medical expense you might encounter down the road.
Increase Your 401(k) Retirement Fund contributions
I’m a big advocate of contributing the maximum amount to this account each year, which will be $19,000 in 2019 for those under age 50 and $25,000 for those ages 50 and over. Like IRAs, you can’t go back and make up for missed years of 401(k) savings, so make this a priority now.
Hopefully, you’ll want to set aside money for all of these accounts, so budget monthly savings for the 401(k) and 529 plans, and periodic lump sum deposits into your IRA and HSA during the year as you have extra cashflow. All the while making sure our vacations can be paid for without lingering credit card bills.
Don’t be intimidated by the planning process. It may take time to mix the fun part (planning the family vacation) with the hard part (saving all of that money now instead of spending it). But taking a few hours each January to knock out a plan will help pay dividends for many years to come.
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If you or your clients have any tax issues or problems with the IRS/State or other federal tax problems, please feel free to contact me directly at (909) 570-1103 or by email at Carlos@HealthcareTaxadvisor.com
Carlos Samaniego, EA
Enrolled Agent
Licensed by The Department of Treasury to represent taxpayers
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Redlands, CA 92374
Ph. (909)570-1103
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