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3 Quick and Effective Financial Tips Thumbnail

3 Quick and Effective Financial Tips

Today is going to be a relatively short article. I am sharing three tips I find to be both simple and rather effective when it comes to personal finances. These are common ones I see that are often overlooked. It is maybe a 2-minute read.

 Freeze Your Credit Reports

  • This is applicable no matter your age.
  • Freeze your credit reports with the various credit reporting agencies.
  • There are three agencies - Transunion, Equifax and Experian.
  • While this will not stop any of your personal information that is already out there, it will help mitigate the odds of new credit accounts being opened in the future.
  • The short version of how it works is that if someone is trying to open a credit account at say Home Depot under your information, when Home Depot goes to verify your credit score they will not be able to because the reports cannot be accessed. Therefore, Home Depot should not approve this new credit account being opened by someone impersonating you.
  • The big question I always get is along the lines of – But what if I need to open a credit account, say for buying a car. It is simple to lift the freezes, either permanently or temporarily (my preference).

 Start the Catch-Up Immediately

  • There is the good old Catch-Up for those turning 50.
  • This allows you to put away more into retirement accounts.
  • For example, the Catch-Up for 401ks this calendar year (2024) is $7,500.
  • Here is the tip – You can use this Catch-Up in the year you turn 50. You do NOT have to wait until you turn 50 to start.
  • So, if your 50th birthday happens to be December 31st this year, you can start using the Catch-Up on January 1st of this year.
  • I often see people waiting the year after they turn 50.
  • Start using the Catch-Up as soon as you are eligible and let the power of compounding work for you.

 Recognize the Power of Tax-Free Accounts

  • First off, Tax-Free Accounts are things like Roths and Health Savings Accounts.
  • I am going to focus on Roths here.
  • Also, Tax-Free Accounts are sometimes referred to as Never To Be Taxed Again Accounts.
  • Regardless, it may be beneficial to take advantage of the Tax-Free nature of Roths.
  • Simply, does it make sense to put those investments with the greatest potential for growth into an account that will never be taxed? I think the answer is Yes.
  • A basic example:
    1. Let’s say you need to have 60% of your investable assets in stocks and the rest in bonds and cash.
    2. This is across all of your portfolios (401ks, IRAs, Taxable and Tax-Free).
    3. It may make sense in your situation to focus those investments with lower growth potential in accounts that will be taxed at Ordinary Income, such as your 401ks and IRAs.
    4. Again, then it may be worthwhile to go heavier with equities in your Roth IRA since this will never be taxed (assuming you follow the rules).
  • This is not only an investment allocation strategy but is focused more on tax planning.
  • So, if your advisor hasn’t recommended your Roths have more equities feel free to inquire why.

 

This seems like a good place to stop. Hopefully you picked up at least one nugget.

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