With the new year comes a ton of resolutions that none of us ever stick to. But I think we can all agree 2021 should be a year of positive growth, especially after the long, hard year we’ve all had.
So instead of making a New Year’s resolution to exercise more (boring) or quit drinking (lame), try out one or two from this list, and use these tips to make the most of the new year!
Here are four simple things you can do to save money next year.
1. Take stock of your finances
One of the nice things about getting a jump on things now is it means you have to sit down and go through all your financial documents, your bank statements, your 401(k), your credit card bills and other statements and get organized. That’ll start you down the road to being ready for tax day. Plus, planning ahead can help you avoid a big tax bill this year. For example, you might see, “Oh, I need to contribute to my retirement plan,” and if you start the year off doing that, you’ll lower your tax bill by reducing your taxable income.
2. Check in on your retirement fund
For most of us, this is the biggest single thing we can do to help our future selves. Your employer might provide a 401K or a 403B. If they offer matching, take full advantage of that if you can — otherwise you’re leaving money on the table. In 2021, the max contribution to a 401K/403B is $19,500. You may be able to add even more to it if you’re over 50, since the catch-up contribution limit has increased from $6,000 to $6,500.
For an individual retirement account (IRA) that you set up without your employer, the annual contribution limit is $6,000 (or $7,000, if you’re 50 or older). This is also a great time to review your finances and try to increase your contribution, if you can. An extra percent or two can really add up with the magic of compound interest.
3. Take a look at your HSA or FSA
Contributing to a health savings account (HSA) or flexible spending account (FSA) is a good way to lower your overall tax bill by helping you set aside tax-free money for your healthcare, commuting or dependent care expenses. But keep in mind that these tax-favored health plans also come with a “use it or lose it” policy, so check your balance to see how much is actually there and then follow up, either through your online account or with your human resources department, to confirm the deadline you need to spend those funds by. In some cases, you may be able to roll over up to $550 or get a two-and-a-half month grace period to spend it.
If you do want to use up your HSA or FSA funds before the end of the year but don’t have any more medical expenses to put it toward, check out the online FSA store. It has lots of products that are eligible for purchase with these accounts — everything from over-the-counter drugs and baby supplies to first aid kits and physical therapy devices. And don’t forget to save your receipts! You’ll need them when it’s time to itemize your HSA or FSA expenses.
4. Don’t forget to check your tax withholdings
You’ll typically set the amount of income tax that gets withheld from your paycheck when you start a new job and fill out a W-4. But life changes like getting married or divorced, having a baby or buying a home may affect how much you want to withhold during the year. Plus, if you’re keeping too much or too little from your paycheck, that could mean a bigger headache at tax time (no one wants an unexpected tax bill or penalty). You can discuss your withholding amount with a tax professional or use the free IRS tax withholding calculator to see if you’re withholding the right amount