The beginning of a new year offers the perfect opportunity to reflect back on the choices we’ve made in the previous one, and to make any necessary adjustments for better returns in the months ahead.
This is perhaps the most true when it comes to our financial decisions. Many of the systems you put in place for 2013 might not suit you in 2014. Perhaps you’ve received a large holiday bonus, or maybe even a raise? Maybe you’ve moved into a new house, had kids or became a stay-at-home parent. Whatever your circumstances, take the time to check in with your personal finance situation … and to avoid making these big mistakes in the new year.
Mistake No. 1: Not creating a Will and getting life insurance if you’ve had a child
If you had a child this year, a lot of things about your finances will need to change, but the most important things to start with will be getting an up-do-date Will and shopping around for a reasonable life insurance policy. It’s a sad thought, but planning for what would happen to your children if something happened to you is part of being a responsible parent. Without a Will, it’s probable that your assets would be divided according to the law of the state you live in if something were to happen to you, perhaps preventing your child from receiving items that could hold both monetary and sentimental value. (Check out this calculator to see how your estate would be distributed if you were to pass away without a Will.)
A solid life insurance policy goes hand-in-hand with a Will. Life insurance provides your family members with the security to keep living their lives as normally as possible, financially, should something happen to you. In some cases it can even help pay for college for your child. (Check out this article for more on the different types of life insurance policies available.)
Mistake No. 2: Not maxing out your 401(k)
If last year you thought you couldn’t max out your 401(k), let this be the year you start doing just that. Especially if your job offers any kind of match on your retirement plan, not participating to the full extent of that match means that you are literally leaving free money on the table. Check out this 401(k) Savings Calculator from Bloomberg to find out just how much more money you could be saving if you increased your retirement savings to fully fund your company’s match.
Mistake No. 3: Not increasing your regular savings amount
Did you dip into that emergency savings account this year to help pay for those new tires, or to re-shingle the roof? If you did, your regular savings account could probably use a boost in 2014, as well. Even if your savings account managed to stay intact throughout the past year, it’s never a bad idea to keep stashing cash away. Experts suggest aiming for at least a three — six month emergency fund if you can (up to a year would be even better, especially if you have a family to care for). If you’ve already got that, that’s great! Consider putting whatever amount you had been saving in an emergency account towards paying down any debt, or into a retirement account instead. (Just make sure you know the 2014 limits for different retirement accounts, and don’t go above them!)
Mistake No. 4: Sticking with the same budget
Just because the budget you’re currently using worked for you last year doesn’t mean you need to — or should — stick with it during the new one. Did you get a raise that you didn’t factor into your savings plans? Are you paying for a gym membership or cable service that you never use? Maybe you’ve budgeted way too much for food when you could cut back if you just cooked in a few extra nights a week. Take some time this month to go through your current budget line by line, and make notes for the places you think you can cut back in, or where you could stand to give yourself a bit more slack. Make the necessary adjustments.
Mistake No. 5: Not following up with your insurance policies
Not making the necessary changes to important insurance policies like home or renters, car and life insurance policies can really cost you big when it comes time to put those policies to use. Consider updating your carriers with any important new information, such as:
- For car insurance: A new car, any tickets you’ve accumulated, a change in driving habits, an additional driver to your car or a move
- For home/renters insurance: A move, any large new purchases or changes to your home or apartment (a new alarm system, new smoke detectors or dead-bolt lock installations, for example, might help lower your monthly payments)
- For life insurance: Any big changes to your health or lifestyle (smoking, for example, or the discovery of any serious medical conditions)
Mistake No. 6: Blowing that holiday bonus in one spot
Receiving a big holiday bonus is a great feeling this time of year — but if you blow it all in one spot you’ll probably be left with buyer’s remorse come January 1. Consider instead putting it towards paying down your pesky debt so you can start your new year off with a fresh start, or maybe even consider setting up to avoid Mistake No. 7 …
Mistake No. 7: Not starting to save for next year’s gifts … NOW
This is the year you’ll have all your ducks in a row to prepare ahead of time for … wait for it …next Christmas. Take a breath — it’s actually quite easy. Take an hour to go through all your receipts from your holiday spending this year — including travel, food, decorations and gifts — and divide it by eleven. Set up a reoccurring savings deposit every month from your checking account to be set aside specifically for holiday goodies. You’ll be so glad you did come next December.
Cheryl Lock is a personal finance writer at and former editor at LearnVest and Parents magazine. When she’s not writing, she enjoys travel, which she blogs about at wearywanderer.wordpress.com.