In the theme of Christmas and the spirit of giving, I plan to use the next few days leading up to Christmas to continue counting down the 12 Days of Christmas in all their Foolish glory. In my rendition of this Christmas tale, you won't be hearing about turtledoves or French hens, but you'll probably hear about great ways to save money in 2013, or about CEOs who laid rotten eggs in 2012.
In the previous "Foolish Days of Christmas," we've looked at:
As always, I ask you to sing along with me: "On the second day of Christmas my true love gave to me ..."
Two things you must do since the Mayans were wrong!
It's Dec. 22, 2012, and, as far as I can tell, we're all still here. This means that your hopes of never paying federal income taxes again or going to work again have been dashed. Instead, whether you like it or not, you'll need to do these two crucial things in 2013.
1. Start or add to your individual retirement account
Guess what? We didn't float off into space, no planets flew off course and headed our way, and no interplanetary black hole emerged to swallow the earth. Not only are you still here, but with improvement exploding out of the health-care sector, you're going to be here for a while. Plain and simple, it's time to bite the bullet and either start a retirement account or add to an already existing retirement account.
On the 11th Day of Christmas, I hinted that opening or adding to a 401(k) or individual retirement account could be a good way to save money. Today, I'm focusing specifically on IRAs -- both traditional IRAs and Roth IRAs.
Assuming you meet the adjusted-gross income requirement, traditional IRAs offer taxpayers a way for their money to grow tax-free and a tax-deduction for the amount they invest (up to a maximum of $5,500 in 2013). Penalty-free distributions can begin at age 59.5 and only then are taxed as ordinary income.
On the other side of the coin is the Roth IRA, which also allows a taxpayer's money to grow completely tax-free. Unlike a traditional IRA, there is no upfront tax deduction; however, you won't pay any taxes when you begin taking distributions at age 59.5 or after. You can read a more complete comparison of the two IRA types in The Motley Fool's "all about" section.
As I discussed on the Seventh Day of Christmas, there are plenty of great companies you can add right now to start or reinvigorate your IRA. Buying Coca-Cola (NYSE: KO ) , for instance, offers investors a chance to own the most recognized brand in the world according to Interbrand. An investment in Waste Management (NYSE: WM ) would give investors exposure to a necessity of life (trash collection and generation) as well as give them green energy exposure thanks to the company's methane-gas-to-electricity operations. Even cutting-edge health-care companies such as Johnson & Johnson (NYSE: JNJ ) , which along with Coke has raised its dividend for 50 straight years, offer investors a great stream of income and growth potential.
2. Assess your budget/financial situation
I know this is about as bad as going to the doctor to get a tetanus shot, but you're going to need to sit down, sharpen your pencil (or, in 2013 terms, break out your Quicken Books), and take a good hard look at your spending habits and income. There will be a lot of legal changes ushered in over the next year, and you need to be fully prepared when they go into effect.
The first factor set to change the income landscape for many Americans is the fiscal cliff. If you've been hiding under a rock -- which is actually feasible, considering that people bought cave shelters in anticipation of the Mayan reckoning -- the fiscal cliff, a combination of tax increases and spending cuts, is poised to raise taxes for a vast majority of Americans. Even if a compromise is reached in Congress between both political parties, certain aspects of income, including taxes on dividends, mortgage interest deductions, payroll taxes, and the like, could change. You need to be prepared now so you don't suffer Uncle Sam sticker shock in April 2014 when it comes time to file your taxes.
Another highly anticipated factor that all Americans need to pay attention to is the looming implementation of the Patient Protection and Affordable Care Act in 2014. Just because it's a year away, that doesn't mean you should wait a year to do your homework. For some 16 million individuals, you'll be added to the federal governments' ever-expanding Medicaid coverage, and government-based health-care providers like Molina Healthcare (NYSE: MOH ) and WellPoint (NYSE: WLP ) , which recently purchased AMERIGROUP (NYSE: AGP ) , will clamor like wolves to get your business and the government's premium payments. For the remainder of you uninsured (and even currently insured) folks, it's time to start testing the marketplace and looking for coverage. Soon, health insurance will be a mandate and, as such, users should be using this time wisely to examine all of their health insurance options.
Making the right financial decisions today makes a world of difference in your golden years, but with most people chronically under-saving for retirement it's clear not enough is being done. Don't make the same mistakes as the masses. I urge you to learn about The Shocking Can't-Miss Truth About Your Retirement. It won't cost you a thing, but don't wait, because your free report won't be available forever.