Making changes to your financial life doesn’t have to be tied to a calendar. Whether you’re doing them in June, December or January shouldn’t matter. The point is you’re making money moves that are aimed at helping your finances.
Some financial moves, however, are done late in the year because that’s when you’re likely to think of how they may affect your taxes. Specifically, how to lower your income taxes. Here are some to consider.
Check Withholdings
Tax laws can change from year to year, so it’s worthwhile to check your paycheck withholdings so that you’re not surprised when you owe the IRS money.
The IRS has an online tax withholding estimator that you can use at any time to determine how to complete Form W-4 so you don’t have too much or too little federal income tax withheld.
Prepay Tuition
Parents and grandparents of college students can sometimes lower their tax bill by prepaying the tuition bill due for the next term by the end of the current year. The American Opportunity Tax Credit is worth up to $2,500 for each qualifying student.
Set a Budget
If you don’t already have one, set up a household budget for the new year to help get your finances in order. A budget will show you how much money you spend each month, allowing you to quickly see areas where you’re spending more than you’re comfortable with.
Start an Emergency Fund
Ideally, an emergency fund should have six to 12 months worth of living expenses. If you don’t have one, set one up with your bank and have money automatically deposited to it each month. It can help if you lose your job or face other financial emergencies, such as a visit to the hospital or if your car breaks down.
Rebalance Your Portfolio
If the stock market slides tomorrow, how will it affect your finances? Are you invested for the long-term and prepared for a long correction if necessary, rr do you need the money sooner rather than later for retirement?Talk to a financial planner about how to best rebalance your portfolio to meet your risk capacity in the short- and long-term. This is something you should do annually.
Check Credit Reports
Checking your credit reports is free and should be done annually. The Annual Credit Report site offers a free report from each of the three major credit bureaus every 12 months, so get a report from each bureau every four months for the latest updates.
This can help point you to ways to improve your credit score, but just as importantly, it can help you find signs of ID theft. For instance, if you don’t recognize a credit card account or mailing address on the report(s), they could be a sign of identity theft. Fix all errors on your reports by contacting the credit agencies.
