Money & Policy

The 10 Worst Money Moves for the New Year

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

(This article appeared previously on MarketWatch.com)These are the 10 things not to do with your money in 2014:

1. Set no savings goals. Goals? Whatever. You’ll save if there’s money left over.

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.
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.
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.
The worst thing you can do: Continue on with the ostrich approach, head in the sand, not knowing where your actions are taking you.
6. Don’t push the limits (for your retirement plans). The 2014 contribution limits to 401(k)s and IRAs remain the same as 2013, so you don’t need to do anything differently, do you?
It’s true the 2014 maximum contribution limits to most retirement plans remain the same as they were in 2013. They are: $17,500 for a 401(k) or $23,000 if you’re 50 or older and $5,500 for an IRA or $6,500 if you’re 50 or older. But some lesser known limits have changed. For example, the maximum amount of income you can have and still contribute to a Roth IRA increased slightly. You can only put money into a Roth IRA in 2014 if your adjusted gross income is under $129,000 and you’re single or under $191,000 if you’re married and filing jointly.
Whatever the limits may be, are you pushing them? What’s the worst thing that could happen by making a maximum contribution to a Roth IRA or increasing your emergency fund to seven months of living expenses instead of six? Heck, if you get to the end of the year and don’t like having more money saved, you can change your mind and spend it!
Best practice: learn what retirement plans are available to you and use them.
7. Track nothing. It’s too much work to track spending, debt or savings. What good would it do you anyway?
I’m a business owner. I track everything. I project cash-flow expenses per month and each and every month measure total deposits and withdrawals and compare them to the projection. I track my personal expenses in a similar way.
And after the close of each calendar quarter I track total values for each account I have and the total remaining debt on anything I owe. It takes about 30 minutes a month to do this. Is 30 minutes a month too much to commit to your financial success?
Tracking can be as detailed or a simple as you’d like. I prefer the simple approach. My monthly spending goes on one credit card (for the points of course) and at the beginning of the year I set my average monthly allowable spending. If I’m slightly over one month, I commit to being slightly under the following month.
There’s a management saying: “What can be measured, can be improved.”
Don’t skip out on this one. Start this year by measuring your 2013 year-end net worth and January 2014’s total expenses and savings.
8. Buy the investments that did well last year. You should always look at last year’s top performers before investing, right?
Several years ago, one of the mutual fund companies looked back at investment results if you did one of the following: 1) Always bought the asset class that did the best the prior year; 2) Always bought the asset class that did the worst the prior year or 3) Invested equal amounts each year in all 10 asset classes.
I thought buying the asset class that did the worst last year would surely deliver the best results over 10 or 20 years, but I was wrong. Investing equal amounts in all the asset classes, regardless of last year’s results, proved to be the winning approach.
The worst thing you can do is get caught up in past performance. Instead, focus on diversification and contributing consistently to savings.
9. Double down on your views. Your favorite political pundit has exclaimed: “go all gold.” You should listen, right?
My favorite tweet of 2013 said, “We all have serious flaws and inconsistencies in our politics. Difference is, some of us choose to invest based on them.” Michael Kitces retweeted it, but I think it came from @reformed broker.
Driven by their political views,  I’ve watched many smart people sit on the sidelines for the last few years, or worse, they bought peak gold, and they continue to plow money into it, thinking its time will soon come. Maybe they’re right, but what if they’re dead wrong?
Voice your political opinion as vociferously as you’d like. But follow an investment plan that is most likely to work regardless of what is going on in Washington.
10. Learn nothing, do nothing. You don’t have time to learn about finance other than reading an article or two here and there, do you?
I bet you’ve invested a lot of time in learning your profession, craft or career. You’ve learned through school, additional training, and many years of experience. This learning has paid off through a continued ability to earn a living.
One day your living will come from your savings, investments, and social programs like Social Security. As that day approaches, you must invest time in learning about retirement-income approaches. You can read books, find online webinars to attend or take a personal finance class offered through your local community outreach program. I’ve even seen some upcoming retirees decide to go through financial planning courses just so they would have their own thorough understanding of the subject matter.
You’ve heard the definition of insanity right? Keep on doing the same thing over and over and expect different results. So out of all the worst money moves we’ve covered, what’s the very worst thing you can do?
Take the insane approach and don’t change a single thing to further you financial success this year.Dana Anspach, CFP, RMA, Kolbe Certified Consultant, is the author of Control Your Retirement Destiny (Apress), a book for the 50-plus crowd looking for practical, how-to knowledge on aligning finances for a transition out of the work force. She is the founder of Sensible Money, LLC, a fee-only registered investment advisory firm in Scottsdale, Arizona, and is About.com’s Guide to MoneyOver55. You can follow Dana on Twitter:@moneyover55 or Facebook.



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