It’s a new year, and that means it’s time for people to set new financial goals. Go ahead, call them New Year’s resolutions for your money and assets. Being financially secure generally takes a lot of planning to get there and to then stay there. The American Institute of CPAs (AICPA) has some advice for those seeking plans, and it’s not just about how to invest your money and manage your taxes.
The AICPA released 10 financial planning tips to start 2019 off right. It is effectively a punch-list of items for people to follow so they can get their financial house in good order to help achieve their financial and monetary goals.
The AICPA dates back to 1887 and is the world’s largest member association representing the CPA profession. It claims to have over 431,000 members spread out in 137 countries and territories. The AICPA also develops and grades the Uniform CPA examination. In short, the group knows more than just a thing or two about getting your taxes and finances in order.
24/7 Wall St. wanted to know just how many, or how few, Americans actually have a financial plan in place. Research released by Charles Schwab in 2018 reported that roughly three out of five Americans live paycheck to paycheck. And to make matters worse, only one in four Americans actually have a written financial plan. The research also suggests that those who do have plans exhibit positive investing and saving behavior. Again, having a financial plan is imperative.
1. New Year, New Plan
The items listed here may be basic, but they are crucial. The AICPA suggests that people update their own balance sheet to see where they are starting out and then to set financial goals like reducing debt or increase investments. It also suggests to set a dollar amount as the goal.
2. Review 2018 Spending Against 2019 Budgeting
Budgeting sounds simple enough, but most people refuse to do it. This is where you review in detail your expenses in 2018 and set a reasonable budget for 2019. The AICPA also reminds you to strip out one-time and nonrecurring expenses. This will allow for a buffer if and when unforeseen expenses arise.
3. Review Automatic Payment Subscriptions and Renewals
One thing that can make expenses get higher than normal is the combined cost of all those automatic payments and subscriptions that have been set up in prior years. The AICPA listed entertainment streaming services, gym memberships and even old magazine subscriptions that might not fit into a budget or might no longer even fit your lifestyle.
4. Update Your Form W-4 for Withholding
2019 is going to be a monumental year when it comes to tax tables and tax rate changes affecting the year 2018 and beyond. The IRS has substantially revised its withholding tables last year and it is imperative to know if there should be more or less withheld against paychecks and income in 2019. The AICPA suggests to use Form W-4 and the related instructions to estimate how much withholding is appropriate, and you can even use the IRS’s withholding calculator (or contact your CPA or financial advisor) for guidance.
5. Make an Early Calculation of Your 2018 Taxes
Hopefully, some thought was given to this over the course of 2018, but since most people don’t have any plans and are living paycheck to paycheck, it’s important to get a handle on this now. The AICPA is urging people to not wait until April to understand what opportunities and items need to be considered. Adjusting withholdings, changing charitable giving strategies and taking advantage of new tax brackets or depreciation rules may greatly change the taxes that will have to be paid — or maybe even boosting a tax refund.
6. Revisiting Retirement Plan Contributions
Employees of companies should strive to increase their retirement plan contribution percentage from 2018. If a pay raise was given, the contributions into a retirement account should increase by the same amount. Sounds simple enough, but many people who get raises never make changes to how much they set into retirement plans. And as a reminder, the IRS recently made higher limits for each year’s contributions.
7. Make a 2018 IRA and HSA Contribution
This is easy to forget. Everyone has until April 15, 2019, to make eligible individual retirement account (IRA) and health savings account (HSA) contributions that are back-dated for the tax year 2018. Multiple issues can complicate how much can be contributed into IRA and HSA, but in general a Roth IRA contribution limit is $5,500 or your taxable compensation (whichever is lower). For an HSA, the contribution limit is $6,900 for a family high-deductible health plan or $3,450 for individual high deductible health plans.
8. Don’t Wait — Contribute to Your IRA Now
Find out what your limits are based on your income and combined family income if applicable. There are income limitations and rollover limits on some retirement plan contributions around ROTH IRAs. Find out how each situation applies to you and increase that contribution if you can.
9. Take a Look at Your Current Allocation
With any financial plan, it’s important to know how your investments are allocated in stocks, bonds, cash, gold and so on. Market volatility that was seen in late 2018 has helped to push allocations out of balance. This is the time to review allocations to make sure that your investment contributions are in the right class. The AICPA also reminds us that diversification is important for managing portfolio risk, and that means that rebalancing may be necessary.
10. Make Annual Exclusion Gifts to Your Heirs Now
In estate planning and financial planning, you can make certain financial gifts to your beneficiaries at the start of each year. This can help reduce estate tax exposure. Individuals can currently gift up to $15,000 to an unlimited number of beneficiaries each year without utilizing their lifetime estate tax exclusion amount and without paying a gift tax. The AICPA also says that gifting at the start of each year will allow your beneficiaries to receive a few additional months of potential appreciation.