If you’re self-employed, you may need to make estimated quarterly payments. You could consult a tax professional to find out how much those should be.
ADJUST YOUR RETIREMENT SAVINGS
Consider increasing and diversifying your retirement contributions. After you take full advantage of any available company match in a 401(k) or 403(b), look into funding a Roth IRA. Financial planners often recommend having at least some money in a Roth so you can better control your tax bill in retirement. If your income is too high to make a direct Roth contribution — the ability to contribute starts to phase out at modified adjusted gross income of $140,000 for singles and $208,000 for married filing jointly — you could consider converting a portion of an existing traditional IRA.
CHECK YOUR SPENDING
Budgeting apps and personal finance websites can help you see where your money went in 2020 and help you make a plan for 2021. You can also look back over bank or credit card statements. But even if you can’t get the full year’s worth of transactions, reviewing just a few months can show you some patterns and help you identify spending you want to change.
SET UP YOUR SAVINGS ‘BUCKETS’
Preparing for irregular but predictable expenses can help you feel less panicked when those bills arrive. These expenses can include insurance premiums, property taxes, car and home repairs, vacations, back-to-school shopping and holidays. Check your spending in each of these areas for the past few years to ballpark how much to save this year.
Once you have your savings goals for each category, consider setting up separate savings accounts at an online bank that doesn’t charge monthly fees. You can divide the amounts by the number of paychecks you’ll get before the money is needed, and set up automatic transfers from your checking account to the appropriate savings account after each payday.
PUT CHARITABLE CONTRIBUTIONS ON AUTOMATIC
Most charities prefer getting regular contributions throughout the year, since the steady income helps them plan. You may discover you can give more if you’re not trying to squeeze your contributions in with other year-end spending. You can use your bank’s bill pay system to send monthly checks or arrange with the charity to charge a credit card.
SPEND YOUR MEDICAL FSA
Flexible spending accounts are employer-provided benefits that allow you to put aside tax-free money for medical or child care expenses.
If you signed up for your employer’s medical FSA, try to spend that money as early in the year as possible. You don’t have to wait until the money is taken from your paycheck to use it for eligible health care expenses. (That’s different from child care FSAs, which don’t allow you to spend money before you contribute it.)
Spending early has a few advantages. You don’t risk leaving money in the account and potentially losing it. (Many employers extend the deadline for using the money past Dec. 31, but at some point unspent money is forfeited.)
Incurring medical expenses early in the year can help you meet insurance deductibles, too, so the rest of your health care can cost less. Also, if you leave your job during the year, you don’t have to finish making FSA contributions. In other words, you can spend the full amount you had planned to contribute, up to $2,750, without actually having to contribute the full amount.