You would think as much as everyone is worried about how the fiscal cliff may impact their wallet that money management would be top-of-mind, but TD Ameritrade's 2013 Outlook Survey revealed that although half of those polled said 2012 was financially challenging, 42% say they prefer to make health-related New Year's resolutions over money-related resolutions, 16%. Maybe it's because they are optimistic. Some 43% said they expect the economy to rebound next year, compared to nearly double the percent who believed that this time last year. Some 45 percent also said they expect 2013 to be better financially for them personally.
But for all the optimism, without action, financial progress in 2013 could fade as fast as the days of 2012.
The experts weigh in on what should top your to-do list in 2013 to shore up your savings and especially your retirement stash.
Pay yourself first
It's about you. Instead of paying bills and expenses first and saving whatever is left over, take the opposite approach. Set aside money for saving, retirement, college planning, debt repayment and then take care of everything else, says Scott Varon, a certified financial planner with MassMutual. “Your company retirement plan forces you to pay yourself first, since a percentage of your paycheck is automatically deducted. Implement this concept in other areas. It works.”
Quite simply, “Save until it hurts. If you're at 10% go to 12, if you're at 12, go to 15%,” says Mike Alfred, CEO of BrightScope, a provider of independent retirement plan ratings and investment research.
By all means, contribute enough to your 401k to get the employer match.
Make it easier to save
Set up direct-deposit into savings to up the odds of meeting your savings goals. Go a step further. “If you're tempted to raid the savings account regularly, consider setting up the account so that it requires two signatures to do a withdrawal,” says Bill Druliner, GreenPath Midwest regional manager. “Then you and a trusted friend would both need to agree that it was appropriate to take funds from the savings.”
Identify the areas where you are most prone to blow your budget. Decide to use cash for those purchases and limit the amount of cash you put in your wallet each week to the amount you've decided to spend. Psychologically it's harder to part with paper money than to swipe a credit or debit card, and seeing the amount of money available as a fixed, finite thing can help you control your spending says Druliner.
You can set up automated budget alerts, using your bank or credit union's website or service like Mint.com, he adds. For any purchase over $100, wait one week before buying. “This will determine whether you can live without it (and most cases you can.) It will also give you time to shop around,” says Craig Steinhoff, a certified public accountant with Hill, Barth & King.
You can save money by automating bill payment. You won't wrack up hefty late fees that add up over the course of a year. In addition, some lenders and utility companies will provide a reduced interest rate or other rebate for use of their automated payment services, says Kevin Gallegos, a vice president for the Freedom Financial Network.
Trade in your FSA for an HSA
If you're nearing retirement and use a FSA to help cover medical expenses, it may be time to ditch it and open a Health Savings Account instead, says Keith Mendonsa, consumer specialist at eHealthInsurance.com. Why? Due to a provision of health reform, FSA contributions are being limited to $2,500 in 2013. but you can use pre-tax or tax-deductible dollars from a HSA for the same qualifying medical expenses. You can sign up or apply for an HSA-eligible health insurance plan and open a HSA. The HSA contribution for 2013 is $3,250 for individual coverage or $6,450 for family coverage. Plus, if you're 55 or older, you can contribute an additional $1,000 in 2013. Unlike, FSAs, money in a HSA is yours to keep and will rover over and grow year over year.
“Think of it as a tax-advantaged medical savings account for retirement. Just make sure that you new HSA-eligible health insurance plan meets your coverage needs and budget. Don't cancel any current coverage until you're approved for a new plan,” says Mendonsa.
Expand your knowledge
Even if you think you're no amateur when it comes to finances, there's always room to learn more. There is a wealth of information available on personal finances. Many community groups, non-profits and credit unions have free courses available to learn about money management. Find out what's being offered where you live, or work your way through a variety of personal finance sites on the web. Vow to learn something new about money every month in 2013. Take advantage of any free financial education offered by your employer.
Get the most for your money
Switching your bank accounts can be a headache. Most people don't realize how many savings options they have, or that their money could earn higher interest rates elsewhere. But by doing a little homework you can find superior options through internet banks, says Raymond Quinlan, executive vice president of banking at CIT Group. “Without the need for brick-and-mortar real estate, Internet banks have a lower cost structure and they could provide a better interest rate,” says Quinlan. Look for an internet bank that is insured by the FDIC and that doesn't charge fees. While you might want a brick-and-mortar bank for your day-to-day cash, “take long-term savings to an Internet savings partner,” says Quinlan.
Also, if you have a standard checking account, realize options exist. Some checking accounts even offer daily compounded interest on checking balances. The Ally Bank's Interest Checking Account requires no minimum deposit, no monthly maintenance fees, as well as Ally Perks debit rewards program, with no sign-up or points to track or redeem.
If you make just one change in 2013 what should it be? Says Steven Smith, author of Money for Life – Successful Money Management and Financial Fitness in Just 12 Weeks, “Spending less than you make on a consistent basis is the key to reaching financial fitness and financial stability. You can't increase your savings, make investments, reduce debt or even make wise spending decisions if you're consistently overspending your income each month.”