Here’s the third in a series of monthly posts focusing on meeting small, manageable financial objectives in order to create a path to overall financial success (and only a day late!). You can find February’s post here.
How’s it going with collecting your spending data? Last month’s goal was to begin centralizing all of your spending in one place for ease of analysis later. Has it been a difficult switch? If so, why? Were you spreading your expenses around to multiple credit cards, and a debit card, and using cash for other things? Was there a reason for that, or was there no rhyme or reason for what things get paid by which method?
And most importantly: explore your emotional reaction to committing to one method for all your expenses. If you chose a credit card is your method, were you tempted to ‘cheat’ and simply pay cash for some things? After all, if it’s not reported on the credit card it doesn’t count, right?
I suspect the above is a very common reason why budgeting is so hard for people: accountability. It’s so, so easy to convince ourselves that “one little purchase” won’t hurt. And the thing is, it probably won't: one purchase isn’t likely to blow your budget. But what it will do is propagate the feeling that spending is something to be ashamed of and hidden, rather than something you do because you really want to, and you know you can, and you planned ahead and prepared for it, and it will bring you real happiness. The purpose of using one payment method for all spending is so that we can really find the overall spending number that will work with your plan, and allow you to achieve your other, longer-term goals.
I think it’s really critical to work all these reactions and feelings out now, before we start really putting any numbers down. Take the next couple of months to really commit to the step, and confront any resistance you put up for yourself.
In the meantime, some other, non-budgeting steps to take:
Make your 2015 IRA contribution: April 18 is your deadline for filing your tax return, as well as the deadline to fund an IRA (traditional or Roth) for 2015. Get those contributions in! The maximum amount you can invest is $5,500 (if you’re under 50) and $6,500 (if you’re over 50). If you’re wondering whether you’re under the income limits: here’s the IRS guidance for traditional deductible IRA income limits if you’re covered by a 401k or similar plan at work, if you’re not, and if you want to contribute to a non-deductible Roth IRA instead. (I’ll cover the difference between Roth and traditional IRAs in a later post.) Even better, if you feel comfortable you will be within the limits for 2016 as well, automate your current-year contributions too! You will get another year of growth.
Fund your health-savings account for 2015: April 18 is also the deadline to make a 2015 contribution to a health-savings account. (Maximum contributions: $3,350 for a single taxpayer, or $6,650 for a family). Like an IRA, savers over age 50 get an additional $1,000 catchup contribution. If you have a, high-deductible healthcare plan, a Health Savings Account can make a great extra savings vehicle for investors who are maxing out their contributions to their traditional 401(k)s. You get to deduct the contributions in the year they are made, they grow tax-free, and qualified withdrawals are tax-free.