The end of 2022 is mere months away, and you may be thinking “How can I start thinking about year-end finances when we haven’t even had Halloween yet?” Well, like all the big-box stores out there who sell Halloween candy in July, it’s important to plan early.
There is still time to take stock of your household finances now so that you can end the year more prepared for 2023 should any surprises arise. Here are some money moves you can take now to understand your finances better.
Check your W-4 withholding
Are you withholding too much or too little taxes from your paychecks? The IRS has a tool, the Tax Withholding Estimator, on its website that anyone can use to determine how much income tax you should be withholding from your paychecks. If you tend to get a big refund because you have too much income tax withheld, you are essentially providing the U.S. government with an interest-free loan, money that you could otherwise be using to buy goods, pay for services, whittle down your debt, or put into savings. Get ready to pay at tax time if you don’t have enough income tax withheld. Checking your W-4 withholding now will allow you to determine if you need to adjust the amount so you don’t have any big surprises.
Increase your 401(k) contributions
Any amount you put into your 401(k) account reduces your taxable income. If your employer will match your contributions up to a certain amount, consider putting that much into your retirement this year. Maximum 401(k) contributions are $20,500 if you are younger than 50, and $27,000 if you are 50 or older. Strive for that amount only if it makes financial sense for you. You want to pay down debt, pay bills on time, put money into emergency savings, even reach a financial goal before you consider maxing out your contributions.
Max out your HSA if you can
You can put more money, tax-free, into your health savings account (HSA), which you may have if you have a high-deductible health plan. There are limits to what you can contribute annually depending on whether you have individual coverage ($3,650) or family coverage ($7,300). Withdrawing money from your HSA for qualified medical expenses, dental care and vision care is also tax-free. If you haven’t spent down your HSA account, any savings in your HSA gains tax-free interest and you can roll over the balance into the next year without any worry of losing it. Flexible spending accounts (FSA) are not treated the same, so if you have a balance there, use it or lose it before the end of the year.
Check your credit report
Each of the three big consumer reporting companies (TransUnion, Experian and Equifax) will provide copies of your credit report every 12 months, so take advantage of this and check your credit. Doing so will let you see whether the information in them is accurate and current. You will also be able to determine whether or not you need to make changes to what you are doing now to improve your credit score.
Look at your emergency fund
Do you have funds set aside for unexpected emergencies? A car repair, job loss or medical bill could throw you off track, making it difficult to recover from these unplanned expenses. The pandemic shined the spotlight on just how necessary emergency savings are, so if you don’t have an emergency fund, start now. Even small contributions regularly will give you some peace of mind than not having one at all.
Plan for tax changes
For the last couple of years, certain tax deductions and credits such as the Child Tax Credit, Child and Dependent Care Tax Credit and Earned Income Tax Credit saw expanded eligibility due to the American Rescue Plan Act to get more help to families. However, they have now expired and reverted back to pre-COVID levels. Eligibility and amounts are narrowed, resulting in possibly smaller refund checks. You will no longer be able to deduct any charitable donations unless you are itemizing, and there are no further economic impact payments.
If you have used apps such as PayPal and Venmo to receive payment for goods and services over $600, that income will be reported to the IRS, as has always been required, but you will now need to file a 1099-K form to report that income. This does not apply to money exchanged with friends and family made on these apps.
Plan for the holidays
Start planning for the holidays now and how you will fund those gifts and feasts. Because of the tax law changes, it is important to understand what happens if you spend your refund in advance by putting purchases on credit cards. We all love to receive big checks, and for many of us, that is an average $3,000 refund that may be the largest sum we will get all year. Depending on your situation, that comes at a cost that you may not be in the position to cover when your tax refund is smaller than you anticipated. Consider squirreling money away now into a holiday savings fund, set spending limits and be realistic about it.
Where to go for help
Whether you have the resources to do all, some or none of the above, you have options. Not everyone has the financial resources or breathing room to set aside an emergency fund or max out their 401(k). Because of that, there are programs in place to assist individuals and families.
A number of area organizations, including The River Center, have Christmas programs if you find yourself unable to purchase presents without causing more financial hardship. These programs have early deadlines, so it is best to inquire about them before Nov. 1.
This year, the New Hampshire Emergency Rental Assistance Program was implemented to assist eligible residents in paying their rent and utilities during the pandemic. Southern New Hampshire Services and Southwestern Community Services both have assistance programs to ease the cost of heating and utility expenses for eligible residents.
The River Center has a free money coaching program and virtual book club to help you make sense of and organize your household finances. Starting in mid-January, the free tax program will be taking calls for appointments from February through to April for eligible taxpayers. We also host the FACT Book on our website and you can contact our community resource specialist for assistance in locating local and regional resources.
The River Center: A Family and Community Resource Center provides community connections, parenting support, free tax preparation and money coaching to strengthen individuals and families in the eastern Monadnock region. Funding comes from Monadnock United Way, New Hampshire Charitable Foundation and the generous contributions of individuals, businesses and private foundations. We are at 9 Vose Farm Road, Suite 115, Peterborough. For information, please call 603-924-6800 or visit our website at rivercenternh.org.
NisaSimila is communications and Money Matters coordinator at The River Center in Peterborough.