Three money moves to make before the year ends
By Matthew Scott
In a year where many people were shocked to find out that they wouldn’t be getting a tax return, it’s more important than ever to use the money you do have to your best advantage. So if you did get a tax return or if you are looking to be more financially responsible this year, here are three ideas to consider:
Open a Roth IRA – It’s always a good idea to put money away for retirement, and one of the best places to save is a Roth IRA. A Roth IRA allows you to contribute up to $6,000 of after-tax dollars for retirement in 2019; a catch-up provision allows those age 50 or older to contribute an additional $1,000. Placing retirement savings in a Roth lets the money grow with the advantage of knowing you can withdraw the funds tax free in retirement, avoiding the tax penalties of traditional individual retirement accounts (IRA). With a regular IRA, funds are taxed at your income tax rate at the time of withdrawal.
Another benefit to a Roth IRA is that under certain circumstances, you can make early withdrawals to pay for college or to purchase a home for the first time. But there are income limits to opening a Roth; $137,000 for single filers and $203,000 for married couples filing jointly. If you can open one, it’s a great asset to have.
Invest in adding new skills – You can’t go wrong investing in yourself, so allocate some of your earnings and time this year to learning a new skill that will help you get a raise at work, start a more lucrative career or build a part-time business on the side. The idea is to increase your earning potential through self improvement. You can explore paying for a formal degree or certificate program at a local college or university (your employer may offer tuition assistance) or look for low-cost mini-courses to become more efficient at software programs that may be crucial to your advancement. There are online courses in new technologies like coding that may start you on a more stable career path, or executive education programs that can be completed in a matter of weeks. Investing some of your resources in education this year could lead to a significantly higher income in years to come.
Pay down debt – One of the best ways to free up money is to eliminate as much consumer debt as you can. Average interest rates on debt from major credit cards, department stores cards and other installment payments can range from 14% to 24% or more. Credit card penalty rates can be as high as 29.9%. This debt is compounded daily at rates far higher than your savings account, so you want to eliminate this drag on your finances as quickly as possible. Create a plan to pay off your smallest credit card balances first, then, add what you would have paid on those cards to payments on the next lowest balance until you pay them all off.
Once you’ve paid down your debt, check your credit score and consider closing some of the accounts that may have contributed to your debt woes. See if your credit score improves over the next three months and then search for better credit card offers on websites like bankrate.com or creditcards.com. Taking this approach will help you to be smarter about using and managing credit card and installment debt.
Matthew Scott is a Brooklyn-based former managing editor of Black Enterprise and The Financial Times’ newsletter, Agenda, who writes about corporate governance and personal finance topics.