7 Ways to Clean Up Your Finances Before the New Year

7 ways clean up your finances

It may be hard to believe, but the New Year is rapidly approaching. And with the holidays just around the corner, this is the perfect opportunity to take a few minutes to clean up your finances.

Some people might wait until spring to take care of some financial “spring cleaning.” But spending a little time on your finances every fall can help you make the holidays more financially feasible.

Here are seven different ways you can get a jump start on cleaning up your finances before the New Year is here.

1. Consolidate unused bank accounts

Start your financial cleanup by making a list of all of your bank, credit card, investment, retirement, and other accounts.

Having an account inventory helps you better manage your financial life across different banks and financial institutions.

And, keeping bank and investment accounts open that you no longer use just adds financial clutter to your life. That’s why it’s best to take a little time to close unneeded accounts.

Remember though that closing credit card accounts can lower your credit score. So don’t rush to close all of them at once. Particularly if they don’t have an annual fee.

Budgeting tools like Mint and Personal Capital can help you stay organized. And, keep a reliable list of accounts and balances year round. Consider joining one of these while taking care of your account cleanup.

2. Check your credit report

Your credit report is like your academic transcript for your borrowing history, and your credit score is like your GPA.

Checking your credit report and credit score at least annually helps you make sure your credit history is accurate. And, that you are on track for an excellent credit score.

A great credit score helps you get lower interest rates. It can also mean the difference between getting approved or denied for a mortgage loan when trying to buy a home.

Therefore, do everything you can to try to improve your credit score. And don’t hesitate to contact your financial institution or file a dispute at the credit bureaus to remove any inaccurate negative information you may find.

You can get a free credit report annually by law at annualcreditreport.com.

3. Shop around for cheaper insurance

A few months ago I canceled my AllState car insurance to sign up for Metromile. It’s a pay-per-mile auto insurance company that costs about half of what I was paying before.

This is a prime example of why it’s important to shop around for auto, renter’s, homeowner’s, and other types of insurance at least every two or three years. Otherwise, you’d miss better bargain deals.

Also, if you enrolled for health insurance through the Affordable Care Act Marketplace, be on the lookout for open enrollment periods. That’s when you can shop around for the best coverage offered through Obamacare and potentially save on premiums if you switch coverage.

4. Roll over your old 401(k)

401(k) fees can rob your retirement accounts of hundreds of thousands of dollars over the course of your career.

However, if you rollover your old 401(k) accounts into a Rollover IRA at your favorite brokerage it’s usually pretty easy and free. And, it will help keep some of those fees in your pocket, rather than the pocket of a plan administrator your old employer chose for you.

Also, don’t withdraw money from an old 401(k) and pay expensive taxes or fees. Roll it over the right way so you don’t pay a cent in the process. And your retirement fund will keep on growing.

And don’t make the financial mistake of not creating your retirement plan when you’re young. It will put you at a huge disadvantage down the road.

5. Max out your IRA and HSA

The good new is you can contribute to a Traditional IRA, Roth IRA, or health savings account (HSA) until tax day in April.

What’s more, Traditional IRA contributions and HSA contributions directly lower your taxes by your highest marginal tax rate. That’s usually 25% for most of us.

The maximum you can contribute for 2016 is $5,500 for an IRA, $3,350 for an HSA for individuals and $6,750 for families. So if you max out your traditional IRA, that will lower your tax bill this year by about $1,375.

A Roth IRA doesn’t help you save on your taxes. However, it does allow for tax-free withdrawals during retirement. That’s why a Roth IRA is better than a Traditional IRA for most young professionals.

6. Make a plan to organize your taxes

Some people have it pretty easy during tax season. All they need is a W-2 from their employer and a 1098-E for their student loan interest deduction if necessary.

Others, however, have a stack of 1098s, 1099s, and other forms to fill out and file on time.

Organizing for your taxes is easy if you expect a simple return. But those of us who have investments, mortgages, children, and side hustles have much more complex taxes.

Listing out the forms you will need to file ahead of time helps make tax prep season a lot easier for you. You’ll have less stress and be able to meet filing deadlines without submitting an amended return.

7. Take action on a financial goal

Think about your number one financial goal for next year. What is one step you can take this fall to help you get closer to it?

Perhaps it’s making an extra retirement account contribution. Or, sending in an extra student loan payment. Maybe you want to finally open a savings account for that emergency fund you’ve been putting off.

Whatever you are trying to accomplish, you have the power to do it better and faster. If you take a positive personal finance action today, your future self will thank you tomorrow.

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