Almost everyone wants to get better in the New Year. Now is the time to make resolutions, right?
But the jury is out on whether many Americans will set new financial goals for 2022. A Fidelity Investments survey of more than 3,000 adults found that most Americans are optimistic about their finances, with 68% resolving themselves. to make financial resolutions. Other studies suggest otherwise, such as a survey of 1,100 people by Allianz Life which found that only 12% of respondents plan to set financial goals for the next year.
Since many people are discouraged, some might reflect skepticism about their ability to be successful in changing their financial behaviors for the better.
Financial challenges can be daunting, but many can be overcome. The following five tasks, behavior changes and habit changes can be accomplished relatively easily.
Put savings on autopilot
Many Americans still need to build an emergency stash or spend more money on long-term goals, such as planning for retirement or buying a home. Saving money can be difficult, but it’s much easier to achieve if you don’t think about every deposit.
Instead, set up automatic savings so that money is diverted directly from paychecks on a regular basis.
âThe idea is to establish this routine of saving and investing regularly with no extra effort on your part,â Fidelity said in a list of. suggested money resolutions for the new year.
Workplace 401 (k) plans are designed around this principle, with a portion of each paycheck going to appropriate savings or investment vehicles. You can also do the same in other vehicles, including health savings accounts.
Practicing this with investment accounts can also achieve the laudable goal of averaging dollar costs, or gradually buying on the stock market in small increments over time, thus avoiding the risk of you putting in a large sum of money. money at work just before a market crash. .
Beware of unnecessary costs
It’s always a good idea to avoid unnecessary fees and expenses. For example, bank charges plague some consumers. Banks generated nearly $ 15.5 billion in income from overdraft fees and insufficient funds in 2019, the most recent year tracked by the Consumer Financial Protection Bureau in a new study.
Many consumers manage to avoid such charges, but a small proportion face hundreds of dollars or more in such charges. Previous CFPB research has shown that 9% of consumer accounts trigger 10 or more overdrafts per year, accounting for almost 80% of total overdraft income received by banks.
However, some banks have made their policies more consumer friendly.
For example, Chase has made several changes in recent months such as increasing his overdraft buffer from $ 5 to $ 50, meaning that fees only start with transactions that exceed an account over $ 50. at the end of a business day. Capital One Bank has said it will stop charging overdraft fees altogether.
But it’s not just bank charges. Mutual fund fees, 401 (k) account fees, off-network ATM fees, and fees for maintaining individual retirement accounts are other examples of costs that can increase rapidly. Beware of these and other costs like gym membership fees or other underused recurring fees.
Avoid lending to relatives, friends
Shakespeare was right about 500 years ago: try not to borrow or lend money, including to friends or relatives. Yet, amid the pressures of the past few years, many people have provided financial assistance to familiar faces. It hasn’t always worked well.
Results of a new Bankrate survey indicate that lending money to friends and family often backfires. Among survey respondents, 38% of those who provided help said they lost money as a result, 23% suffered a damaged relationship, and 14% damaged their own credit scores, likely because funds were not repaid as planned. Some respondents even had physical altercations.
Overall, 44% of those surveyed who said they provided help reported negative results. Extending help can also promote bad behavior in others, such as making it easier for them to go on budget. Financial aid is not just about lending money; it can also include allowing someone else to use your credit card, co-sign loans, or pay more than your share of a group bill or debt.
“If you really want to offer help, don’t lend more than you can afford to lose and consider treating the money as a gift to limit the potential for grudge,” said Ted Rossman, Bankrate analyst. .
Do small estate planning tasks
Updating beneficiary designations is another relatively easy task you can do in the New Year. Many types of accounts, including retirement plans, insurance policies, and bank accounts, allow you to appoint someone to receive your funds upon your death, without going through probate. In some cases, you would add âtransfer on deathâ or âpayable on deathâ instructions that work the same way as beneficiary designations.
It’s wise to see your beneficiaries once a year or as the situation changes (such as with death or divorce). You will need to correctly list your beneficiaries and may need to provide additional information such as Social Security numbers. Be sure to coordinate beneficiary designations with wills, trusts, and the like, assuming you have them.
âWhile it’s also important to regularly update your wills and trust documents, accounts that allow you to name beneficiaries replace what’s in your will or trust,â noted Dominick Parillo, transfer manager. assets at Savant Wealth Management in a recent blog. âAccounts with named beneficiaries are paid directly to named beneficiaries, regardless of what your will or trust says. “
Standard beneficiary forms are not as versatile as trusts. For example, “if you have concerns about a beneficiary’s ability to manage their inheritance, you may want to consider creating a trust,” Parillo said.
But until you create a trust, beneficiary designations can be very helpful.
If you want to get to where you are going, you have to know where you are.
This highlights the importance of organizing your financial affairs so that you know what you own, what you owe, where important documents are kept, etc. Ideally, you should be able to get your hands on key papers on short notice, if you need to evacuate, for example. Keeping an up-to-date list of usernames and passwords online fits into that.
With paper files, an important step is to establish a filing system and stick to it. During the process, you can decide to close the less used accounts or to consolidate them in some other way. Opt for electronic receipts if possible and keep only quarterly statements or year-end summaries to reduce clutter. Pay your bills automatically or online.
There is no need to keep large tax return files. The rule of thumb is to keep returns for the past three years, along with records of what you’ve paid for homes and other investments you haven’t sold yet. The Internal Revenue Service provides more detailed advice on irs.gov, under “How long do I have to keep the records?“
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