The end of the year -- as if you don't have enough to do with holiday preparations -- is a great time to review your finances. There may be changes to make during insurance open enrollment or before the start of the new year.
Explore Flexible Spending Accounts
Flexible spending accounts allow you to use pre-tax dollars to pay for things like medical expenses, therapy, day care, preventive care, prescription and certain over-the-counter drugs, and physical therapy.
The potential downside is that currently only up to $550 can be carried over into next year. Review your expenses for the current year to determine your contribution for the upcoming year. Perhaps you have surgery coming up or need substantial dental work. Also, there may be items you can still purchase with your current year FSA funds. Many FSA-eligible items are non-prescription and needed throughout the year.
Review Insurance Policies
Be proactive and review your insurance policies each year. Perhaps your income or life circumstances have changed, and your life insurance needs are greater now. Did you get married? Buy a home? Have children? Pay off your mortgage? All of these can affect you need for life insurance and other coverage, and a professional agent or advisor can help you determine your specific needs.
It's also good to review your insurance costs to see if you may be able to reduce them. Often bundling your homeowner's and car insurance can add up to lots of money saved. Be sure you are claiming any available discounts, such as having a security system in your home or an affiliation with a professional group or university. You might consider purchasing an umbrella policy to cover gaps in liability.
The Necessity of an Emergency Savings Fund
Many people don't have an emergency savings fund. Even $1,000 in savings can prevent the need to put a new appliance on your credit card or may cover a missed paycheck. Even making small, automatic paycheck deductions into a savings account is a great start. Ideally, make it your goal to save three to six months of living expenses.
Max Out Retirement Plan Contributions
It is to your benefit to contribute all you can to your 401(k) or IRA. Not only are your contributions a pre-tax deduction and reduce your taxable income, but they leverage the power of compound interest. Your money will grow over time, especially if you start when you are young. If you are age 50 or over, take advantage of allowable catch-up contributions.
Many employers also provide a match on their 401(k), so that is free money and a great employee benefit.
Take time to educate yourself on your finances and how the stock market works. Read the fine print. People often don't know all the benefits provided by their various insurance companies. For more tips, subscribe to the FinancialSecurity.org blog.
