With December upon us, now is the perfect time to give some thought towards cleaning up your personal finances in preparation for 2019. While it may be hard to even devote much thought to this during the holiday shopping season, doing so may help you spend more wisely in order to meet your financial goals.
Here are a few tips to help reduce your federal taxes, establish a strong financial footing as well as build upon your retirement savings.
- Evaluate your current financial situation.
Start by comparing the amount of cash you have on hand against any outstanding debts. This will help determine if your spending is helping you reach your financial goals. Check to see if any progress has been made towards reducing any outstanding debts as well as increasing your savings.
- Direct more funds towards retirement accounts.
If you are making contributions into a retirement plan (401K or something similar) try increasing your contribution as much as possible towards the maximum contribution for 2018. According to Fidelity, the maximum you can contribute to a 401K for 2018 is $18,500 for a single tax filer. If you’re in the 22% tax bracket, then this adds up to a potential $4,500 tax savings. If you are 50 or older, you may contribute an additional $6,000 for a maximum contribution of $24,500!
- Consider donating to a charitable organization.
Give some thought towards making a donation to a charity before the close of 2018. Not only will your generosity help an organization, it could provide tax benefits to you. For some ideas on charitable giving, check out How to Become a Savvy Giver.
- Open a 529 Plan.
If you have children or grandchildren, why not give some thought to opening up a 529 Plan to help fund their college education? With most high school graduates moving on to college, setting aside money now will lessen the burden of paying for tuition and other expenses later on.
- Open an HSA Account.
If you are enrolled in a high deductible health insurance plan, then you are eligible to open a health savings account (HSA) and can contribute the maximum amount allowed to fund it. Under IRS guidelines, the maximum contribution for 2018 is $3,450 for individuals with single coverage and $6,900 for family coverage. The catch-up contribution for age 55 and older is $1,000 for both single and family coverage.
- Set financial goals for 2019.
While you are evaluating your personal finances for 2018, it’s a good time to set some financial goals for 2019. Take a look at your expenses for the year to get a better understanding of your spending habits, so you can put together a savings plan.
- Pay attention to cash on hand.
Having enough cash available for unexpected expenses is important. Many financial advisors will tell you it’s a good practice to have at least six months of living expenses set aside in the event you need it.
As the final article in our 2018 Building Wealth series, we hope you found this article particularly helpful with getting your personal finances in order before the year winds down. We invite you to browse some of the topics we covered in this series. Over the past year, we shared tips on creating a plan to build wealth and savings, how to reduce expenses to find cash, discovering ways to fund college, as well as how to find new income streams to build savings.
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