With the holiday season sneaking up on us fast and the end of the year being almost here, we made a list of money concerns to keep an eye on. As money mistakes intensify during this time, we wanted to display the most common ones with the corresponding remedies and mindset. It’s the holidays, be excited, but don’t forget all you’ve worked so hard during the year. Here are the main mistakes and what to do about them…
Not planning for the season
Most of the money concerns during the season comes from not planning for it during the year. If we have extra expenses during this time, and most of us do, then planning for it and making small monthly deposits to an account just for the holidays should alleviate most of those concerns. If for example, we spend $300-$500 extra during the holidays, you could save $30-$50 each month starting at the beginning of the year, while not feeling the drain as much as in a one-time large expense over the holidays. Planning and thinking about the holidays just like you do for other monthly bills and planning for them monthly even though they typically are one-time expenses is one of the best solutions.
Spending on dining out & excessive gifts
The holiday season is one where many have a spending problem. There’s many events, work or not, that crave your attention and especially your money. In addition, gifting and buying ‘incredible deals’ also increases the pressure on your money. These all lead to increased stress and potential money mistakes. For a solution, just step back and think that all these are discretionary spending, you don’t need to have it all, it’s a want, not a need. I’m not advocating for turning all these off completely, but thinking that it’s the gesture that counts, the thinking about each other, the love, and that what is not always paid in dollars. Also, many of these unplanned purchases are typically put on credit, which means they’ll follow us into the future and we’ll pay much more than we got, due to high interest.
Not investing their bonus (or pay off debt)
Some people receive money during the holidays either from work as a bonus or from relatives. Before spending that on something that may not really mean much to you in a month or two, think about either investing it or if you have high-interest debt, paying those off. Psychologically, bonuses, especially during good times feel like ‘found money’ and the initial response is to spend it on something you want. But you’d get a much higher long-term value if you invest or pay off debts instead.
Not rebalancing your portfolios
While there’s no specific timing to rebalance your investment portfolios, end of the year could serve as that time, especially if you’re also doing some tax-loss harvesting (described below). During the year your portfolios may have shifted as some assets may have gone up more than others, or some may have experienced losses. Rebalancing is the act of bringing the weights of your assets to the original weights based on your financial plan. So, simplistically, if you had a portfolio made up of 60% stocks and 40% bonds and there was a good stock market year, like this one, then the portfolio may probably look more like 65% stocks / 35% bonds. Rebalancing is the act of selling some of the stocks and buying some of the bonds, bringing the weights back to 60/40, while selling high and buying low, what you’re supposed to do. Also, you bring the risk level down to where it was supposed to be. Rebalancing is known to enhance performance and can also be done automatically by some of the new investing platforms.
Tax-Loss Harvesting
Tax-loss harvesting is another strategy that can add more performance to your portfolio. This happens when you sell some losing assets from your portfolio that can offset some of your realized gains in the portfolio. You can purchase back a similar security, but not the exact security, at any time. If you want to purchase back the same security you have to wait 30 days in order for the loss to be allowed, if purchased earlier the loss is disallowed. If you have no gains to offset with your losses you can offset up to $3,000 of your regular income, which reduces your taxes. Tax-loss harvesting is done automatically with many new investing platforms and you don’t have to wait till the end of the year to do so.
Not Maxing your retirement accounts
The end of the year is the time to add or max your retirement accounts. But many people don’t or cannot reach the maximums that are allowed by law. You could contribute up to $18,000/year in your 401K and if 50 years old or over you could put an additional $6,000. Those contributions, which are tax-deductible will lower your current taxes as well as be invested to grow over time for your retirement.
Not taking RMDs
For all people over 70.5 years old with retirement accounts, the IRS has certain minimums that you need to take out (and pay taxes) from your IRAs, 401Ks and other pre-tax retirement accounts. Required Minimum Distributions, known as RMDs, are calculated based on your retirement account balance and your age. If not withdrawn by December 31 there are heavy penalties, thus check with your custodian/broker where the account is held and make sure that you withdraw at least that amount.
Healthcare sign-ups
As if the holidays didn’t have enough action, one important topic for many that are not covered by their employer’s healthcare is signing up for healthcare for the following year. The deadline is December 15, 2017, to sign up and have an ACA (Affordable Care Act) approved healthcare plan. Many states have their own exchanges where you can apply to get coverage and maybe financial assistance based on your family and income. That is an important financial decision as healthcare is continuing to be one of the largest expenses for a family and careful evaluation of the choices, coverages, premiums, copays and deductibles is an important decision that will matter for the whole year that you have coverage. Also, there are tax penalties if not covered by a healthcare plan, so definitely an important financial decision.
Giving back (if a charity- it’s tax deductible)
Lastly, but very important, is giving back. The holidays should be about being thankful, giving gratitude, having reflection and hope for a better next year. Giving to someone, either money, gifts, or just your love or your time is known to have much larger effects than spending on ourselves. This also has financial implications if you’d like to give to a charity of your choice, as many of those gifts can be tax deductible. And that’s giving with a purpose while also looking out for your money.