It’s hard to believe we only have a few short weeks until the end of the year. It’s down to the wire on getting our financial houses in place before New Year’s Day. Hopefully everyone can take a few minutes away from eggnog and holiday festivities to make sure we’ve made the best choices with our money. Here are three things I believe are worth doing before the end of the year.
Flex Plan or a Health Savings Account for Health Care Spending
Flexible spending plans are a great way pay for health care expenses pre-tax for a great discount. They used to be use it or lose it, meaning if you didn’t use all of your allotted money by the end of the year, it went back to your employer. In 2013, Congress passed a law that says you can roll over $500 into the next year if you procrastinated or didn’t need to use all of your flex money during the year.
Health savings accounts are a totally different animal.You don’t have to use money by the end of the year. In fact, you can let it grow until retirement if you want. Some people, self included, think HSA’s are the best retirement plans around.
The triple tax advantages of a HSA are really a great use of money, and I highly recommend taking advantage if you are eligible for one. You have until April 15, 2015 to max out your HSA for 2014, so there is no rush if you need to put your money elsewhere for this year. However, if you haven’t set up your HSA account, do it before the end of the year, even if you can’t contribute much. This can be as simple as going to a local bank or setting up an account online with a company like HSA Administrators.
To confuse people even more about HSA’s and flex plans, this year Congress passed a new law that makes you ineligible for a health savings account in 2015 if you roll over any money from a flex savings health spending account. So, if you were planning on using a HSA at all next year, do not roll over your flex money! Make those appointments now to use it up by the end of the year.
Cancel Things You Aren’t Using
This is the perfect time to look at all the stuff you have a monthly bill for and decide if you are taking full advantage. I would bet that many of you are so busy right now that you aren’t watching much TV. I bet lots of you are skipping the gym this month. There are probably subscriptions that aren’t getting used right now either.
Why not cancel them, especially if you know you’ll have higher than normal spending this month due to the holidays? Even if it means buying a Roku or new TV so you can cancel paid TV, that’s probably a good move. Over the course of a year, you’ll make that money back in what you save on cable bills. There is almost nothing you can’t watch by using Netflix, Hulu, the library, online viewing, and an antenna. Even if there is a program or two you’ll miss, is it worth the extra $50 to $100 a month?
I’m all about fitness, but paying $50-$100 a month for a gym membership you rarely use is not a great way to grow your health or wealth. Why not cancel and try working out at home or at a YMCA or community rec center? It might not have a juice bar or fancy sauna, but the rec center is usually a great deal for what you get.
Make an Investing Plan
Hopefully you were able to hit your investing goals for this year, but if you didn’t, this is the time to change. Next year, maxing out a 401K for someone under age 55 would take $1500 a month. I know it sounds like a lot of money at first, but it’s very doable for most people.
If you look at taxes, a person in a 25% tax bracket would save $4,500 a year in taxes by maxing out a 401K. I don’t know about you, but I’d much rather keep my money than give it to the government. Considering tax savings, you really are only out $1124 a month, which again sounds like a chunk of change, but how many of you have monthly expenses that look like this?
- Car payment: $350
- Cable or Satellite TV: $100
- Groceries: $600
- Eating Out: $100
- Shopping: $100
- Starbucks, Happy Hour, Lottery Tickets, Lawn Service, Credit Card Interest, Insert Vice of Choice: ?????
I really don’t care how you spend your money. That’s your choice, but are you using excuses as to why you can’t afford to max out your retirement plan or HSA? If you only make $20,000 a year, you probably can’t afford it. If you make $60,000 a year, you probably can. Think about reducing expenses, and if you still don’t have enough, find a way to make more money.
I did not max out my retirement plan for many years because I spent money in foolish ways. I try not to regret because all those years taught me lots of valuable lessons. Hopefully you can use my mistakes so you won’t have to make your own.
I’m sure there are many, many more financial things to think about for year end and next year, but hopefully today, you’ll think about getting these three things done.
What is your priority before the end of the year? Are you increasing your retirement contributions next year?
Image: freedigitalphotos.net/krisna arts