How to Get Your Finances in Order Before the Year Ends, Based on Job Type
By Janet Berry-Johnson, CPA
There are only a couple of weeks left in 2019. For many people, those weeks are already jam-packed with holidays, get-togethers, shopping, and travel. But hopefully you can carve out a little time to focus on getting your finances in order too.
Why? Well, maybe you’ve set financial goals in the new year, such as buying a home, starting an emergency fund
, or paying off credit card debt. Making a few smart money moves now will help you hit the ground running on those goals in 2020.
Even if you’re not the New Year’s resolution type, doing a year-end review of your financial situation and getting your finances in order can reduce stress
and set you up for a more secure future.
Of course, everybody’s finances are unique. A small business owner may have very different financial needs from someone with a full-time job. That’s why we’ve customized this based on your job type.
Find your job type below to see some strategies for getting your finances in order. Then read through the rest because some of these tips apply no matter your job status or budget!
How small business owners can get their finances in order
As a small business owner, you not only need to manage your business finances well, but you also need to manage your personal finances – and the two are often intertwined.
Separate business and personal finances
Keeping your business and personal finances separate saves you from a big headache at tax time when you’re trying to tally up all of your business expenses. And depending on how your business is structured, it might be a legal requirement.
If you don’t have one already, set up a separate business bank account and make sure all of your business expenses run through there.
Set up a retirement plan
As a small business owner, funding your retirement falls entirely on your shoulders. Even if you don’t have a ton of money to put away, setting up a retirement plan can generate some generous tax breaks by reducing your taxable income. There are a number of retirement plan options for small businesses so check out IRS Publication 3998
for help choosing the right one for you.
Some of them have a December 31 deadline if you want to make an investment in 2019, so don’t delay.
How independent contractors can get their finances in order
Independent contractors can include freelancers and gig workers. The IRS considers independent contractors to be small business owners, so the above tips apply as well. Here are a couple more.
Establish an emergency fund
Many independent contractors
have income that fluctuates from month to month. This makes it difficult to budget, pay bills, and save money. But that’s precisely why an emergency fund is so important.
Even if money is tight, work on reducing your expenses and building a savings buffer so you can weather an illness or a slow month.
Diversify your income
Consistent work from one or two clients provides welcome stability. But it can also spell disaster if one of those clients goes out of business or no longer needs your services.
While you might not have time to completely diversify your income before year end, you can pitch a new client or start researching new income streams to pursue within the next few months. Then, if anything happens to one of your top clients, you won’t be scrambling to replace the lost income.
How full-time employees can get their finances in order
Full-time employees have an advantage over small business owners and independent contractors in that their income is usually stable from month-to-month.
However, there are likely still things you can do to improve your finances.
Shop around for a new bank
Are you paying a monthly maintenance fee on your checking account? Is the interest rate on your savings account dismal? It might be time to switch banks.
Between local banks, credit unions, and online banks, there are more options than ever for where to do your banking, and switching can help you save money and get you a better rate of return on your money.
Take some time before year-end to research alternatives and maybe make a switch.
Contribute to your 401(k)
If you have access to a 401(k) at work and are expecting a year-end bonus from your employer, consider putting it in your 401(k).
Some plans don’t allow contributions outside of regular payroll deductions, so you might need to check with the HR department so see if this is possible. But if you can make a one-time lump sum contribution, it’s a great way to boost your retirement savings and lower your upcoming tax bill.
How employees with multiple jobs can get their finances in order
Many people today work multiple part-time jobs – sometimes out of necessity and sometimes by choice. It’s a smart way to get extra money to pay down debt and diversify income, but it comes with some challenges that people with only one job don’t have.
Review your Form W-4 for all jobs
IRS Form W-4
is the form employers use to calculate how much federal income tax to withhold from your paycheck. It might be tempting to save time by giving the same form to each employer, but you really need to fill out a separate form for each job to avoid a surprise tax bill at year-end.
If you have one main job where you make the most each month, claim all the allowances you normally would on the W-4 for that employer. For any other job, claim zero.
Check out the Multiple Jobs Worksheet on Form W-4 for more information.
Contribute to an IRA
If you’re not a full-time employee anywhere, you probably don’t have access to a 401(k) retirement plan. But that doesn’t mean you can’t save for retirement.
For 2019, you can contribute up to $6,000 to a traditional or Roth IRA. With a traditional IRA, your contribution is tax-deductible. With a Roth IRA, you can’t write-off contributions now, but withdrawals are tax-free in retirement.
How side-hustlers can get their finances in order
People with a full-time job and a side hustle benefit from the stability of their full-time job AND the extra earnings that come from a side hustle. But it’s important to use some of their limited free time to manage money.
Track your income and expenses
With a side hustle, you don’t get a W-2 at year-end to tell you how much money you made, and expenses come out of your own pocket. For that reason, you need a system to track income and expenses.
Not only is this important for tax time, but for knowing whether your side hustle is profitable. There are plenty of options for bookkeeping software, but if your side hustle income and expenses are relatively straightforward, a basic spreadsheet will suffice.
Plan ahead for taxes
Remember, it’s not just the money you make at your day job that’s taxable – income from your side hustle is taxable, too. And you don’t have an employer withholding those taxes for you.
Set aside a portion of all of the money you make from your side hustle for taxes to ensure you have plenty of cash on hand when it’s time to pay the IRS.
Some of these tips might take time to implement fully, but don’t let that prevent you from getting started. With just an hour or two over your lunch break or on the weekend, you can begin improving your finances. The trick is remembering that even small changes can add up to big bucks down the road.
Looking for more help getting your finances in order? Here are a few online resources that can help:
About the author
Janet Berry-Johnson is a Certified Public Accountant and freelance writer with a background in accounting and insurance. Her writing has appeared in Forbes, Freshbooks, The Penny Hoarder, and several other major outlets.