Christmas and New Year Day may be considered the best times of the year but if the holidays give your wallet the chills, it may be time to change a few things. Here are some personal finance tips, guaranteed to lessen your financial worries about the present and future. If you haven’t already adopted these, why not do so, during the holiday season?
1. Max out your retirement funds (IRAs and 401ks)
if you live in the United States of America, one of the best retirement planning tools available for you is the Individual Retirement Account (IRA) and the 401(k). You can open traditional IRAs and Roth IRAs at banks and brokerage houses to save for retirement individually, while your 401(k) can only be created with the help of your employer. These specialized savings accounts offer significant benefits:
- The IRA gives you deferred tax benefits (you do not pay income tax until you withdraw the money) on your contributions,
- There is an annual limit of $5,500 on IRA contributions, which can be increased to $6,000 per annum if you are 50 years old or more. Make use of these catch-up contributions,
- The 401(k) plan can come with a matching feature where your employer promises to match your contribution to the fund. Maximize your contributions to the 401(k) plan to yield the greatest benefit from this matching feature because it is like a 100% return on your money,
- The annual contribution limit to your 401(k) is $18,000 but this limit moves up to $22,000 if you are 50 years or older, to accommodate “catch-up contributions”.
2. Frugal celebrations – Enjoy the holidays on a budget
There are plenty of ways to celebrate Christmas and the new year while sticking to a tight budget. Here are some popular low budget ideas to celebrate the holidays:
- Shop for presents throughout the year to catch the best deals as they become available,
Limit the number of presents given out by running a secret Santa gift exchange, so everyone gets one present and buys one present. Agree to a universal gift budget so everyone’s on board.
Reuse last year’s decorations, or make your own. There are tons of frugal holiday decoration ideas online. Google is your friend.
If you host lavish dinners, maybe cut back on the menu or prepare low-cost meals this year to suit your budget. Remember, frugal food can also please the palate, not just the wallet.
3. Setup an emergency fund, if you haven’t already
Life is a bumpy road for which we all need an emergency fund. One may reason that any emergency, such as a car accident, medical bill not covered by insurance, getting fired from work, or unforeseen house repairs can easily be covered with money from one of the many saving funds they already own, such as a college fund or retirement fund. However, this should not stop you from setting up a separate savings fund because you do not want to jeopardize your future for the sake of your present, and it will tighten up your budget for the next few months as you make room to replenish those specialized saving funds.
In short, create a separate savings account and chip in a few hundred dollars at a time to reach a target of half a year’s expenses. Do not touch that money for consumption purposes, unless absolutely necessary.
4. Give charity
The gift of charity is not only a gift for the receiver but the giver as well. As we get ready to celebrate the holidays and mark the end of a year with our loved ones, we must not forget how lucky we are to do so in the warmth of our homes. There are literally millions of people who do not enjoy these privileges and can use our help.
5. Save for your children’s college
This would make a unique and valuable gift for your children, as well as teach them about the importance of planning for their future and reduce your burden in the future. You need not gift away $1,000 for their college tuition, but can simply open up a guardian account and put in an opening balance, to which more can be added over time.
Some cultures encourage students to pay for college themselves, and while that has many merits, there are also many cultures in which parents pay for their children’s education through and through. To each his own. Remember, you can also help your cousins, nieces and nephews save up for college.
What other financial gifts can you think of giving yourself and others this year?