By: Charlestien Harris
Where has the year gone? The holiday season kicks into high gear this month, and before we know it we will be celebrating a new year!
This season, a lot of people are focused on shopping, traveling, and getting together with friends and family. But even during this busy time of year, it’s important to continue to be mindful of you and your family’s financial health, and not let the holidays get you off track – like getting into a bunch of new debt by breaking out the credit cards to start buying all sorts of items that can totally destroy your budget. You don’t have to end the year with less money than you started with.
Here are some suggestions that should be on your financial to-do list this November:
Make sure to take your required minimum distribution.
If you have money in a tax-deferred retirement account such as a traditional 401(k) or IRA, and you’re over age 70½, taking a required minimum distribution before the end of the year should be on your financial to-do list. The amount you must withdraw is based on how much money is in the account and your life expectancy, according to the IRS. Note that you will also have to pay taxes on this income when you file in April. Failing to take your required minimum distribution can be costly; you’ll owe the IRS a penalty that comes to half of the amount that should have been withdrawn. It’s a smart idea to get in touch with your financial adviser now to figure out how much money you need to withdraw. One exception to this rule is if your money is in a Roth IRA, you won’t need to add this to your financial to-do list. Roth IRAs are not subject to minimum distributions. You are also not required to take a distribution from a 401(k) with an employer for which you currently work.
Plan your charitable contributions.
Giving money to important causes is in keeping with the spirit of the holidays, and doing so before year-end can give you an extra write-off at tax time. Before sending in money, run a check of the organization you plan to contribute through sites like Charity Navigator and GuideStar. These watchdogs, as they are known, offer reviews from donors as well as data on how much of the contributions people make go directly to the cause. You can also check with your local or state Better Business Bureau. When you do give, be sure to save the receipt so that you have it at tax time.
Review your current insurance policies.
Is it possible you’re paying too much for insurance? Make sure you have the coverage you need, but also check for coverage you don’t. From health insurance to life insurance and homeowners’ insurance to car insurance, you should always take a closer look. When my son turned 26, that meant that he was no longer eligible to be carried as a dependent on my insurance. When I checked, the insurance company had already dropped him. That put money back in my pocket and lowered my monthly premium! Also, be sure to review your beneficiaries to ensure they are all accurate. Call your insurance agent, financial adviser, and, of course, your dependents to make sure you have the coverage that makes the most sense for you and your family.
Work on paying down your debt.
You want to end this year with momentum so that you can start off the next one on the right foot. Debt can be an unbearably heavy weight to carry, and it may sometimes feel like you will never be able to get out from under that burden. There are plenty of methods people use to pay down debt. Two of the more well-known ways are the avalanche method and the snowball method.
The avalanche method allows you to make minimum payments on all of your credit obligations and use the remaining funds to put more money toward your bills with the highest interest rates. This method will save you the most money in interest and reduces the amount of time it takes to get out of debt. But it can be more mentally challenging because it can be harder to see the impact you’re making on your debts and stay motivated.
The second method is the snowball method, which also involves making the minimum payments on all of your credit obligations and then using the remaining funds to put more money toward your bills with the lowest balance.This method allows you to feel like you are making progress by paying off the smaller account balances and it motivates you to keep working your way through your debts to get them all paid off. Unfortunately, it involves paying more in interest and can take longer to become debt free.
Make a tax-saving move. Don’t wait until tax time to get a surprise!
If you encountered a big tax bill this year because you didn’t have enough money withheld from your paycheck, you may be able to take steps between now and year-end to avoid another April surprise. As soon as you can, use the IRS’ Tax Withholding Estimator to determine whether you should file a new Form W-4 with your employer and increase the amount of taxes withheld from your paycheck before the end of the year. You’ll need your most recent pay stub and a copy of your current tax return to help estimate your future income. If it looks like you’re going to owe money when you file your next tax return, the IRS tool will tell you how much “extra withholding” you should put down on Line 4(c) of your W-4 to catch you up on withholding for the year. Then, early next year, complete another W-4 for withholding in 2023.
There are numerous ways to save money and get a better handle on your finances during this time of year. But, as we all know, there are also many things that can put us further behind financially this season. End-of-year financial moves are all about making adjustments, large and small, and making the right adjustments now can help you transition into 2023 with the confidence of knowing that you’re headed in the right direction.
For more information on this and other financial topics, call me at 662-624-5776 or email me at Charlestien.Harris@southernpartners.org.
Until next week – stay financially fit.