10 Steps for a Financially Healthy New Year

Smart financial advice for 2013

Is 2013 the year you’ve promised to get your finances in order? Where do you even begin?

The Massachusetts Society of Certified Public Accountants has a ten-step plan to help change the way you look at your money; take a look!

Ten Tips for a Financially Healthy New Year

1. Move the goalposts: How have your goals changed over the last 12 months? How should any changes be addressed through your financial situation? If you haven’t set any financial goals yet, now is the perfect time to get started. Divide your goals into two categories: long term and short term, and don’t be afraid to get specific. Then create a plan to meet each set of goals.

2. Build a better budget: Yes, this is one of those back-to-basics suggestions, but it also serves as the foundation for every financial decision you’ll make. Make a list of your expenses, deduct it from your income, and you’ll see where you stand in black and white. You may need to trim some expenses to be sure you have enough to live within your means while still contributing toward your future financial goals.

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3. Create an emergency fund: Like saving more and spending less, being prepared for an emergency is an important part of your financial security. Unplanned expenses inevitably occur, so make sure you’re prepared for the unexpected. Experts suggest setting aside three to six months of living expenses for when you need it most.

4. Save for a down payment: Lending is tight, but many Americans still hold onto the dream of owning their own home. If homeownership is one of your long-term goals, start saving. Depending on real estate prices in your area, you need to be prepared to make a down payment of 10 to 20 percent. If you can make a 20 percent down payment, you’ll avoid having to pay private mortgage insurance, so there’s an incentive to reach that level. It may take you a little longer to reach your goal, but going back to the basics of saving more and spending less will help you on your way.

5. Prioritize your debts: Most people generically say they want to pay down their debt, but not all debt is created equal. For example, credit cards with high interest rates should top the list of debt to get rid of first.

6. Don’t forget about retirement: It can be difficult to think about retirement, especially if it’s still be a long way off. Don’t be fooled into a false sense of security just because you think you’ve got oodles of time. If you don’t have one already, open an individual retirement account (IRA) – your CPA can help you decide whether a traditional IRA or a Roth IRA is best for you. And be sure to keep contributing to your 401(k) if your employer offers to match your contributions. It’s not every day free money is thrown your way, and that’s precisely what your employer match offers you so maximize those contributions.

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7. Review your income tax situation and estate plans: Are you getting a large tax refund? Have there been changes in your tax situation? Are you part of a two-income family that is now down to one income due to a job loss or pregnancy? Have you transformed from being an employee to becoming self-employed or vice versa? Have you or your spouse retired and started receiving pension income or reached age 70 ½ and now must begin receiving mandatory IRA distributions? You may need to change your withholdings in order to avoid unpleasant surprises. And you don’t have to live in a mansion on an estate to need an estate plan. Anyone with assets can, and should, have an estate plan. Your CPA can guide you and help you make good decisions on all these questions.

8. Be aware: Be involved in your financial good health. Keep your credit history clean, pay attention to your credit reports, and know when something changes. Make it a resolution to check your credit reports at the beginning of each year. Keep a close eye on your bank account statements and credit card statements so you know when something is amiss.

9. Get help when you need it: An occasional check up from a CPA can help you make sure you’re on the right path to achieving your goals. Know when you can do it alone and when you need a few tips from the experts.

10. Get smart: Just because you turn to an expert for advice doesn’t mean you should leave all of the important decisions to someone else. Educate yourself on your financial situation and different investment options. Take a class, read books or magazines, and talk to others. Know enough to take an active role in your finances.

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