On New Year’s Day, my husband and I sit down at the kitchen table and map out our financial plan for the year. We have three children, so whether it’s deciding on our travel plans or allocating money for retirement, we make decisions that divvy up how we will spend and invest our money over the next 12 months.
This annual planning session achieves two goals: It helps us balance our family planning activities while providing a quick review of our current investments. On one hand, it’s fun to consider a trip to Disney or a Caribbean cruise for our family vacation. On the other hand, we check on the progress of our cash and investment accounts to make certain we’ll have enough money to live comfortably now, as well as 20 years from now, while paying for three college educations in between.
If you want to get a jump on your 2019 finances, here are six tips on how to allocate your time and money to help ensure you are saving and investing in the right places:
No. 1: Pay off all Holiday Bills.
My husband and I enjoy giving gifts to family, friends and our community, especially this time of year, and it does add up. While we use cash for some gifts, we pay for others with credit cards to earn the rewards before paying off any debt in January. Our goal is to quickly pay off these credit cards and start 2019 free of any credit card or other consumer debt.
No. 2: Plan the Family Vacation Schedule.
This task accomplishes two things. First, it provides a timeline so we can set aside the money to pay for the vacations. For example, if we want to take a summer vacation once the school year is over, we have roughly six months to budget for that. Second, I can block out time on my work calendar. This has been the No. 1 reason our vacation plans have fallen apart in the past — and it doesn’t make me very popular at home!
No. 3: Set Aside Money to Fund our Individual Retirement Accounts.
In 2019, individuals can contribute $6,000 if they are under age 50 and $7,000 if over age 50. That’s a $500 increase from 2018. I like the discipline and challenge of saving the maximum each year, since you can’t go back and make up for missed years of IRA contributions. Remember you need to have earned income in order to contribute to an IRA.
No. 4: Fund 529 College Education Savings Plans for our Children.
In addition to giving families a way to save, many states provide a tax deduction for these contributions. We live in Georgia, which allows a married couple to deduct the first $4,000 they contribute for each child on their state income tax. Education is a priority for our family, and we know we need to sock away much more than $4,000 per child each year to reach our goals.
No. 5: Fund Our Health Savings Account.
We choose a high-deductible health insurance plan, which means we can contribute before-tax money to a health savings account to pay for doctor visits and other medical bills. The amount people can contribute to these accounts in 2019 is $3,500 for singles and $7,000 for families, with an extra $1,000 for those over age 55. Our goal is to not touch the money in our HSA each year, and let it build up for retirement or any unforeseen large family medical expense we might encounter down the road.
No. 6: Increase Our 401(k) Retirement Fund contributions.
I’m a big advocate of contributing the maximum amount to this account each year, which will be $19,000 in 2019 for those under age 50 and $25,000 for those ages 50 and over. Like IRAs, you can’t go back and make up for missed years of 401(k) savings, so make this a priority now.
Because we want to set aside money for all of these accounts, we budget monthly savings for the 401(k) and 529 plans, and periodic lump sum deposits into our IRAs and HSA during the year as we have extra cashflow. All the while making sure our vacations can be paid for without lingering credit card bills.
Don’t be intimidated by the planning process. It may take time to mix the fun part (planning the family vacation) with the hard part (saving all of that money now instead of spending it). But taking a few hours each January to knock out a plan will help pay dividends for many years to come.
Lisa Brown is a partner and wealth adviser at Brightworth, an Atlanta-based wealth management firm serving high net worth families across the country. “The most rewarding part of my job is helping my clients retire well, with confidence and security about their future.” Working with busy corporate executives for nearly 20 years has been her passion inside the office. Outside the office she’s an avid runner and supporter of charitable causes focused on homeless children and their families.