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The 10 Worst Money Moves for the New Year

Here are the financial flubs you absolutely must avoid making in 2014

By Dana Anspach and MarketWatch

People don't plan to fail, they fail to plan. You've heard that before, haven't you? It's true. I don't think anyone sets out to be on a paycheck-to-paycheck plan by the time they reach their 60s. Yet it happens.(MORE: Welcome to Age 50: Top Money Tips)

If you want to achieve something, write it down. Then write down the action steps you need to take to make it happen and put together a timeline with dates as to when you are going to take those steps. If you're married, work with your spouse on this.

Will you increase your contributions to your retirement plan or beef up your emergency fund? Or maybe your top priority is setting aside money each month so you can buy your next car with cash.

The worst thing you can do? Set no savings goals at all and let fate dictate your financial success.

2. Upsize your lifestyle. Unemployment is continuing to go down. The stock market soared in 2013. You got a raise. You can spend a little more now, can't you?

The more you make, the more you need to save. Unless of course you want be forced into a drastic change in lifestyle when you reach retirement. This happens to far too many high income earners because each time they get a raise, they spend it by upsizing; fancier car, bigger house, nicer clothes, expensive wines, etc.

As your income goes up, you must find a balance.

Best practice: Use bonuses and raises to first pay down consumer debt (that's debt other than your mortgage). Once debt is gone, then commit half your bonuses and raises to savings and the other half to current spending.(MORE: Strategies to Help Handle Debt)

3. Ignore taxes. Taxes are complicated. It isn't worth your time to try to shave a few dollars off your tax bill, is it?

It's true, taxes are complicated. But once you take the time to structure your finances in a tax-efficient way, it becomes easier and easier to maintain. What can you do to get more tax-efficient? Here are a few ideas:

  • You can put taxable bond holdings inside tax-deferred retirement accounts and put stocks and stock fund holdings in taxable accounts.
  • In taxable accounts, you can see if municipal bonds offer a better after-tax return than taxable bonds.
  • If you're in a high tax, low-deduction year, you can maximize contributions to deductible retirement plans.
  • If you're in a low tax, high-deduction year, you can fund a Roth IRA or convert traditional IRA assets to a Roth IRA.

(MORE: 6 Investment Mistakes That Can Wreck Your Retirement)

The best idea: When you file your 2013 tax return, talk to your tax preparer about getting together in the fall to put together  tax projections. Ask this pro to explain your tax bracket and provide you with recommendations to make your future financial life more tax-efficient.

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4. Watch the stock market daily. Smart people have a handle on the pulse of the market and watch it constantly, don't they?

Actually, no. Most wealthy people I know outsource their investment management to professionals. Why? They spend their time continuing to do whatever it is that made them wealthy in the first place — and it wasn't trading the market that got them to where they are.

Unless investing is your business, your time spent watching the market is unlikely to pay off. Better to invest in yourself in other ways. Could you get a new certification, expand your leadership skills through specialized classes, or get another degree?

Those are time investments that will pay off for the rest of your life.

5. Don't make a financial plan. There is no point in projecting out your financial future. It all changes every year anyway, right?

Almost everything we do in life involves course corrections. Take driving the speed limit as an example — it involves a continuing process of speeding up and slowing down to maintain an average speed.

You save money so that it can be used to fund future spending. You need a financial plan that takes your current savings, your savings goals, and your investment approach, and projects the results into the future to show you what that money can do for you one day. Then you update the plan each year and make course corrections as needed.

 

Dana Anspach Read More
MarketWatch
By MarketWatch
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