January is a great time to get your finances in order and make smart financial decisions to better position yourself for the year ahead. Unfortunately, a new year doesn’t guarantee a clean slate. But it’s time to forget about the financial mistakes of the past year and make these moves to achieve financial success in 2014:
1. Set your financial goals
Don’t just talk about making money moves in the new year, but write them down. Maybe you want to pay off one of your credit cards this year or increase the amount you have set aside in your emergency fund.
Whatever goal you want to achieve, write it down and then make a realistic plan to reach the goal by the end of the year. If you don’t set your goals and you don’t create a plan, then nothing will hold you accountable for the money moves you make the rest of the year.
2. Make a budget
In order for you to change your money habits, you have to know what they are. So track your spending with an online tool, your smartphone, or spreadsheet — whichever method you choose, make sure you consistently fill it out.
Keeping track of your finances and creating a budget will help you see where there are leaks in your spending. Plugging those leaks up will help save money that you can spend elsewhere for the rest of the year.
3. Prepare for tax season
There are no major changes to the tax code in 2014. But it’s never too early to start preparing for tax season. So start gathering documents to place in your tax file for the year, note important dates, and be sure you’re taking advantage of tax benefits.
Maximize contributions to your traditional 401(k) and IRA for tax deferral purposes. If you’re younger than 50, contribute up to $17,500 in your 401(k) plan. If you’re older than 50, contribute $23,000. Save $5,500 in your IRA plan. If you’re older than 50, you can save an extra $1,000 to your IRA and Roth IRA.
Remember, contributions to a traditional IRA can be made until April 15 (and you can file for an extension).
4. Get a better credit card deal
How much of a balance is left on your credit card? It’s time to accelerate payments to clear it, otherwise you’ll continue to get hammered with 18%-20% APR carrying that debt around. Realistically, if you can’t pay off your credit card debt in full this year, you might want to consider shifting the balance to another card where parking your debt won’t cost you anything.
If you’re thinking of transferring your card’s balance, be prepared to pay a transfer fee, which can be as much as 3%. To determine whether a balance transfer is worth the cost, calculate how much you’ll be saving on interest over the length of time you plan to carry the debt.
Note: You should only attempt to do this if you’re good at managing your finances because you’ll have to contribute more to paying off the balance before your transfer deal ends. So make sure you have a decent credit history and can handle the responsibility of accelerated payments.
5. Pay off your debts
Take a look at your debts and rank them according to which is charging the most interest for carrying a balance. Overpay the debt with the biggest interest rate so that you’re not taking such a big financial hit.
6. Shop around for better rates
How long have you had your auto, life or home insurance? Sticking with the same insurance for years doesn’t necessarily mean you are getting the best deal. If you haven’t taken a look at other insurance options, it may be time to do so at the start of the year. Compare rates at different companies and see if you can get a better deal elsewhere — or sleep better at night knowing your loyalty really getting you the best rate.