January 2014

New Year's Resolutions: Financially Speaking

Author: Lew Wessel | Photographer: Photography by Anne

It’s that time of the year again. Time to shed all your bad habits and start down the road to the perfect “you” that you know you can be. But, seriously…Even if you are one of those people who crowd the gym during January and then recede into sedentary life for the next 11 months, you can turn around your financial life without breaking much of a sweat. Here are the financial resolutions I would encourage you to consider:

1. Do your taxes in February. Whether you prepare your own taxes or take them to a CPA, doing your taxes early gives you time to do a thorough job instead of just slapping some number onto your 1040 in a mad dash to beat the April 15 deadline. Sure, you can extend filing your 1040 until October 15, but you still have to calculate and pay your taxes by April 15; that means almost twice the work and/or a much heftier fee from your tax preparer. In addition, if you start doing your taxes early, you won’t miss any deductions, you’ll catch errors that might lead to an audit and you’ll be able to make sensible decisions regarding post year-end tax “planning” moves such as IRA, HSA, and 529 contributions.

2. Keep a current tax file. Speaking of taxes, make a commitment to set up a simple file now marked “2014 Taxes” and then, on an ongoing basis throughout 2014, throw every potential tax-related piece of paper into it. These include receipts from the Bargain Box or the Litter Box, medical bills, R/E tax bills, insurance bills (for SC Excess Premium Tax Credit), pay stubs, and so on. When in doubt, throw it in that file and pull it out in February, 2015!

3. Review your risks and related insurance. Review (okay, at least think about) the amount of life insurance you carry. If you’re close to retirement or actually retired and have a decent nest egg, insuring your life may not be your biggest risk. Perhaps you would be better off shifting the money you spend on insuring your life to a policy that covers the risk of your draining all your savings on long-term care. Conversely, if you are 21-65, deep into a career, married, especially with children, then take a hard look at your risk of an early death. Chances are you are way underinsured and need to look quickly at buying relatively cheap term life insurance. And, by the way, unlike health insurance under Obama Care(see below), life insurance premium rates remain subject to pre-existing conditions, so don’t procrastinate.

4. Get health insurance. If you haven’t done so already, resolve to get yourself covered with a minimum essential health insurance (MEHC) policy prior to the ObamaCare deadline of March 31, 2014. After that date, you’ll be subject to a “shared care” penalty and, more important, you’ll still be uninsured and at risk of substandard care and financial disaster in the event of an accident or serious illness. If you haven’t checked out www.healthcare.gov yet, do it now. (For a thorough explanation of the Affordable Care Act, aka “ObamaCare,” check out my articles in the August and September 2014 issues of CH2 magazine at celebratehiltonhead.com).

5. Save more money. Enough said.

6. Review Your Will and Other “Planning Documents.” This will never get done if you think too hard about it. A few easy rules: If you have never prepared a will and related documents (e.g. power of attorney, “living will”, etc.), shame on you. Denial is not just a river in Egypt! If you do have these documents but they are more than five year old or if you have had a change in life circumstances (e.g. divorce, new kid, etc.), then you should have them reviewed by a competent estate attorney.

7. Bring your non-financial spouse up to date. Speaking of wills, when I was working on a recent article on widows and widowers, the comment I heard most often was that it is critical to make sure that both spouses know what is going on financially. Sure, there will always be one spouse who handles most of the financial stuff, but both should have basic financial knowledge, both should know about the couple’s assets and liabilities (how much and where they are, and both should know the couple’s key financial advisors by their first names—that includes the couple’s stock broker, accountant, banker and lawyer.

8. Shop around. And I’m not talking about just retail. Make a New Year’s Resolution to “shop” your insurance policies, particularly your property and casualty insurance. The savings here can be astronomical. Shop your cable/Internet/TV bundle—it’s a thrill to watch competitors fight for your business. Shop your lawn care. Definitely shop your propane gas provider! You get the picture. Just take one or two regular monthly bills that you pay year in and year out and see if you can save a few hundred dollars. Why not?

9. Always ask your doctor or hospital the price. Unless, of course, you’re on an ambulance gurney flying through the front door of the emergency room. Price sensitivity in the medical arena is a particularly hot topic these days due to the hyperfocus on ObamaCare. However, for those of us who have had individual high deductible health insurance plans for 20-plus years, asking about health care related prices is not new, and it’s certainly not an unreasonable thing to do. It’s a new world in the health profession, and doctors are getting more comfortable knowing about and answering questions about the costs and related benefits of procedures such as stress tests and MRI’s. Resolve to climb aboard this new train.

10. Balance your check book every month. Please.

11. Clear out and give away stuff…and keep good records. This is a win-win deal, especially regarding clothing. If you haven’t worn something in a year, you are never going to wear it again. Pull that stuff out of your closet, take a picture of it with your iPhone (just in case of a tax audit), give it away to charity, collect a receipt and throw it in the “2014 Tax” file mentioned above. For larger chari table gifts, make the decision to start giving money away the smart way: Instead of giving cash, give shares of appreciated stock or a mutual fund. This will allow you to deduct the full value of the shares without having to pay tax on any of the gain. The best and easiest way to do this is by setting up a charitable giving account with your brokerage firm; I’m well aware of Fidelity and Schwab’s gift fund, and I’m certain other brokerage firms offer the same service. While we’re on this subject, if you are over 70 and a half, absolutely, positively take advantage of the tax law that allows you to make charitable contributions out of your IRA that will both count toward your MRD, but will not be taxed.

12. Review your company’s benefits options. Make sure you are maxing out FSA plans as well as 401K matches. Think for a few minutes about whether or not you should be in a high-deductible HSA plan as opposed to a more comprehensive and higher-premium health care plan.

13. Pay for a financial plan. You probably won’t do this, but boy, it sure would help you. I’m talking about a plan from a Certified Financial Planner who makes money from preparing the plan, not from selling you something that is part of the plan. Or, resolve to spend some more time in 2014 educating yourself about financial stuff.

So, recognizing that there is no way that you are going to do all that I’ve just suggested above, may I more humbly suggest that you pick two resolutions. Any two! We’ll work on the rest in 2015.

To comment or for more information, e-mail lewwessel@hargray.com.

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