While economic conditions are improving the financial situation of many Americans remains fragile. Recent changes to the tax code, along with continuing economic uncertainty, make this a challenging year for many consumers and investors. The FINRA Investor Education Foundation has put together 5 tips that can help Americans successfully navigate changing conditions and avoid a personal financial cliff.
Lower your tax burden by saving to the 401(k) max. No matter what your tax rate is, saving for retirement in a 401(k) can help you save money on taxes and boost your retirement security. Contributions to a traditional 401(k) are not subject to income tax withholding and are not included in your taxable wages—and earnings on Roth 401(k) contributions are tax-free. The good news for savers is that in 2013, 401(k) limits go up to $17,500 and employees aged 50 or over can contribute an additional $5,500 for a total of $23,000. FINRA’s new 401(k) Save the Max Calculator does the math for you and helps you determine whether you are doing all you can to reduce your tax burden by saving for retirement.
A rainy day fund can lead to greater financial security. Building up a rainy day fund may be one of the most important things you can do to maintain solid financial footing. Set aside at least one month of your current salary (and work your way up to three months) in a federally insured savings account. Start small if you find saving daunting. If you started saving just 10 dollars a week, by this time next year you will have a rainy day fund of over $500. A rainy day fund will give you a cushion to handle a short-term job loss, a surprise car repair or other financial emergency.
HARP can help you refinance your mortgage. While current home mortgage rates are at an all-time low, many Americans have seen the value of their home decline. If you haven’t fallen behind on your mortgage payments, but have been unable to get traditional refinancing because the value of your home has declined, you may be eligible to refinance through the Home Affordable Refinance Program (HARP). HARP refinance loans require a loan application and underwriting process, and refinance fees will apply. More information is available at MakingHomeAffordable.gov, an official program of the Departments of Treasury & Housing and Urban Development.
Avoid Credit Card Debt. Digging yourself out of credit card debt is a lot harder than getting in to it. Try to pay all of your credit bills in full and on time. If you cannot pay your whole monthly bill, every dollar you pay above the minimum payment can reduce your interest payments. Women in particular should make a point to be careful with credit. A recent FINRA Foundation study found that, compared to men, women were five percentage points more likely to carry a balance, four points more likely to pay the minimum payment on their cards and six points more likely to be charged a late fee. Resources at SaveandInvest.org can help you track your spending.
Do a Yearly Background Check on Your Investment Professional. Only 14 percent of investors who have used an investment professional in the last five years reported checking that professional’s background with a state or federal regulator, according to a FINRA Foundation survey of more than 28,000 American adults. Investing a few minutes of your time to take this free and easy step could save you money and trouble down the road. And even if you have checked on your investment professional before, make it a habit to do a yearly check to see if there is any new disciplinary or other information you should know about. FINRA BrokerCheck® is a free tool that allows investors to check the professional background of brokerage firms and individual brokers, and investment adviser firms and representatives.