It’s that time of year again – the time when everyone focuses on the holidays. This includes buying gifts, planning holiday travel and preparing for all those holiday parties.
Yet, this is also the time of year when you can easily let things fall to the wayside, including your own finances and career. So, before you let yourself get carried away with holiday spending, it’s time to take an inward look at your own money matters.
A good place to start is to answer this question: Are you paid by the hour or are you salaried? The answer to this question is important because how — and when — you earn your money can make a big difference in the year-end financial actions you take. For example, if you are a salaried employee, you may already have company-sponsored insurance and a retirement plan in place. If you are hourly, however, you may have to set up your own retirement account and purchase insurance. On the other hand, if you work an hourly job, you may have the opportunity to earn extra money by working overtime hours.
So, with one month left to go in 2018, take a look at these 6 financial housekeeping moves for salaried versus hourly employees.
Contribute to a Retirement Plan
Regularly saving money in a retirement plan is one of the most important things you can do to prepare yourself for retirement. And one of the best ways to do that is by contributing to a 401(k), a tax-deferred retirement plan offered by many employers.
You’ll often hear about 401(k) plans coming with a “company match.” Matching contributions are when your employer will deposit a dollar amount or certain percentage into your retirement plan. It’s basically free money from your job – which you can get just for contributing to your retirement account.
“Perhaps the worst financial mistake someone can make is turning down free money,” says Robert Johnson, a professor of finance at Creighton University.
“If one doesn’t contribute enough in a 401(k) plan that has a company match, one is basically turning down free money.”
Here’s how you can maximize your investments if you have an hourly or salaried job.
- Max out your allowable retirement account contributions by adjusting your limits through your employer or investment portal.
- If you’re already spreading yourself too thin financially, aim to contribute as much as you can to your 401(k) to get the maximum company match.
Hourly and self-employed:
- If you’re an hourly employee, check with human resources or your company’s finance department to see if you’re eligible for a work-sponsored 401(k).
- If not, or if you’re a contractor, make it your year-end goal to open up your own individual retirement account (IRA). Deposits to a traditional IRA are tax-deferred, while Roth IRAs are tax-free at withdrawal.
Review Your Insurance Policies
“As the year comes to a close, it’s important to review insurance policies to make sure your coverage still fits your life,” says Lingwe Wang, co-founder of life insurance provider Ethos.
Take a look at the suggestions below.
Salary (and hourly, where applicable):
- Thoroughly review your insurance policies, to include health, auto, homeowners and life – particularly if you anticipate a major life change in the upcoming year, like a marriage, birth or relocation.
- Open new policies and close old ones. Make this move by determining if you may need more or less coverage, depending on your individual situation.
- Monitor insurance rates. Keep an eye on insurance rates all year, but make sure you conduct a full scale review at the end of each year.
- Pay attention to your deductibles. Here’s a good example: “If you have an expensive (medical) procedure coming up, and have reached or nearly reached your deductible, you could consider scheduling the procedure this year, rather than next, to maximize your benefits,” says Kevin Gallegos, senior vice president of client enrollment for Freedom Debt Relief.
- Pick a plan. Now is the time to select the health insurance coverage right for you. Open enrollment for healthcare coverage on the health insurance marketplace lasts from November 1 to December 15. Make sure you don’t miss this window!
Utilize an FSA (if applicable)
A Flexible Spending Account, or FSA for short, is a tax-exempt way to save money to pay for certain qualifying medical expenses that may not be covered by your health insurance. This may include prescription medications, co-payments, or even portions of your deductible.
If you’ve been making deposits into an employer-sponsored FSA plan, start using those dollars. According to HealthCare.gov, you’ll generally need to spend your FSA funds within your plan year. So, if you started coverage at the time of open enrollment, this leaves just two short months before the money you’ve socked away goes to waste.
“There is still time to make relevant purchases to use the money,” says Gallegos.
“Many kinds of products and services apply, so if it’s too late for a doctor’s appointment, determine if you need other qualifying items.”
If you don’t have an FSA in place, now is the time to open one for more flexibility within your health insurance coverage. You’re allowed to deposit up to $2,650 per year, per employer, into an account.
Check Your Credit Report
Ensuring your credit is in good standing is important no matter whether you’re salaried or hourly.
With that, make a habit of checking your credit report at least once a year, and now is a great time to start. Your credit report is available for free at annualcreditreport.com and by reviewing your report, you’ll be able to spot signs of identity theft, which can adversely affect your report and credit score.
If you find anything that looks suspicious or errant — such as a loan listed as delinquent that you paid off, an unfamiliar looking credit account, incorrect spellings or dollar amounts, or other information that’s amiss — you can dispute your findings with the three credit bureaus: TransUnion, Equifax and Experian.
Checking your credit report gives you the security and control you need over your financial situation, regardless of your employment status: full-time, part-time, salaried, hourly or contract.
Prep Your Taxes
Before you know it, the holidays will be over, a new year will have begun, and tax time will be here. April 15, 2019 is the next deadline for filing taxes, so make sure you prepare ahead of time.
Salary and hourly:
- Check your tax withholdings. “Depending on your preference and your salary, some tax withholdings are better than others,” notes McCall Robison, chief editor of Best Company.
“Look at this year’s finances and tax withholdings, and determine if your current tax withholding is working with your budget. If not, you may want to change your tax withholding choice to better work with your financial situation.”
- Calculate any extra pay you earned throughout the year. For example, if you worked overtime or earned tips, include that in your total annual income. To learn more about how to report tips on your tax return, you may want to access IRS Form 4070.
Build Your Budget
Salaried and hourly employees may be paid differently, but making an effort to start a budget or make changes to improve your current budget is a great way for everyone to save money.
“Take into account your budget for the current year and think of where you could improve,” advises Robison.
“Did you eat out too much this year? Are there some bills you could cut down on? Do an expense audit, making a list of all of your bills and other expenses, and see where you can improve next year. This will give you a great start in the new year.”
A Fresh Financial Beginning at the End of the Year
The end of the year is an opportunity to make positive financial changes in the upcoming year. No matter what kind of work you do, how much you’re paid, how you’re paid, or what your unique work situation is, this is the time to make some smart money moves.