We are half-way through 2015; tax season is over and summer has officially begun! Besides summer vacations, backyard BBQs and just simply enjoying the warm weather, summer is a good time to give yourself a financial check-up to make sure you are still on track. Here are a few things you should do soon:
Check your credit report. If you haven’t already done so this year, you should request your free annual credit report at www.annualcreditreport.com. With all the tax return fraud this past tax season and the ever-increasing data breaches, where personal information is being stolen, I think it is even more important now that we check our credit reports regularly for any fraudulent activity. Checking our credit report also gives us an opportunity to make sure our outstanding debt is being accurately reported. Your free annual credit report consists of reports from the three major credit reporting agencies: Equifax, TransUnion and Experian. You can stagger your requests from each credit reporting agency every four months, this way you are able to check your credit report for free three times a year.
Track your spending. If you didn’t do this at the beginning of the year, now would be a great time to look at what you spend each month. Write down all your non-discretionary bills (i.e. rent/mortgage, car payment, utilities, etc.) and your discretionary spending (i.e. going out to eat, entertainment expenses, the morning Starbucks stop, etc.) You may be surprised to see what excesses you have in your monthly spending habits. By reducing your unnecessary expenses, you may be able to put more money away for things such as increasing your emergency fund, retirement, the annual vacation fund, or even paying down a debt quicker.
While using new found money to fund goals such as retirement or a vacation fund is very rewarding, it is very important that you also fund your emergency account. We all have unexpected emergency expenses (job loss, home repairs, medical expenses, etc.). By having three to six months of living expenses set aside, we will be prepared for these types of expenditures without having to borrow or increase our credit card debt.
Retirement savings. If you have a retirement plan at work (i.e. 401(k) or 403(b)), make sure you are at least contributing what your company will match, as you don’t want to leave any “free money” on the table. If you are already doing this, but are not maxing out your contributions (in 2015 the maximum contribution is $18,000 if you are under 50 and $24,000 if you are 50 or older), see if you can increase your contribution rate. If you are already contributing the maximum to your workplace plan, check out if you qualify to contribute to a Roth IRA (maximum contributions are $5,500 if you are under 50 and $6,500 if you are 50 or older).
Paycheck Withholding Accuracy: If you overpaid Uncle Sam and received a large refund on your latest tax return or you unexpectedly owed more than you anticipated, now is a good time to revise your W-4 at work while there is still time left in the year where it will make a difference. If you owed too much, either increase your workplace plan contributions or reduce the number of exemptions you are claiming so more income taxes are withheld. If you received a large refund, increase the number of exemptions so less is withheld. This will give you more cash in your pocket throughout the year.
Heath Insurance Marketplace: If you purchased insurance through the government (or the Marketplace, as they call it) you may be getting advanced payments of the premium tax credit. These advanced payments are paid directly to the insurance company, which lowers the cost of your monthly premium. Last year was the first year taxpayers received a form 1095 and due to their income may have owed money back on their tax return, due to under-reporting of their income when they signed up for their health insurance coverage. If you have a change in your income or other circumstances that could significantly change your taxable income, you should report these changes to the Marketplace, so they can adjust your monthly credit premium. Changes in your circumstances include:
a) an increase/decrease in your income; b) marriage or divorce; c) birth of a child; d) starting a job with health insurance; e) gaining or losing your eligibility for other health care coverage; f) changing your residence.
Taking the time for a mid-year check-up will give you peace of mind that your financial goals are on track, and give you the opportunity to fine tune your budget and spot any errors while there is still time to make a change.
Good Luck and enjoy the summer!