Meeting a deadline is an important concept to master in school, because anyone who misses handing in the required assignment by the due date risks getting a failing grade. I'm sure many of us have vivid memories of the late night rush, both emotionally and literally. After all, what else got your blood pumping faster than trying to finish a 10-hour assignment 60 minutes before it’s due? The results were subpar, of course, since the focus was on speed to completion instead of quality.
This phenomenon happens at the workplace too. It is commonplace to see employees taking it slow at the beginning of projects, only to work longer hours and faster when deadlines are near. In fact, I remember some of my colleagues wouldn't even begin to tackle any small tasks that were requested of them until the day of the deadline, when they could have helped everybody out by spending five minutes to just finish it earlier.
This procrastination also often extends to how we handle our finances. We just stepped into the new year, but you probably still remember the push to make last-minute money moves before December 31st. Sure, we benefit from making those financial moves just in time for the deadline, but we would benefit even more if we made similar moves early in the year. Here are a few reasons you should make financial moves in January:
Planning for taxes is much easier if you start early. We have to spend too much of our precious time minimizing our tax bite, because our country has made the tax code so complicated. However, a few strategic moves can have a huge effect on how much we end up paying Uncle Sam. By starting out the year with taxes in mind, we have much more flexibility in what we can do. Consider tax loss harvesting on capital gains and losses, for example. There are simply many more opportunities to make this move if we look throughout the year instead of only trying in December.
Tax-deferred accounts have longer to grow. Many people wait until the last minute to fund their IRAs. By doing so, they are missing out on a full year of appreciation. You can argue that markets are volatile and there's a good chance that waiting will mean saving yourself from a possible market crash. But since the long-term trend of the market is up, the chances your money is better off in the market in any given year is greater than if the money is on the sidelines. The kicker is that whether you fund your account as soon as possible in January or 15 months later before the April tax deadline the following year, you are still putting in the same amount of money. So don't wait. Fund your IRAs early in the year, every year.
Funding early will likely mean you save more often. When you are always waiting until the last minute to fund your IRA, you will inevitably miss a few deadlines. It could be because you were attending to more urgent matters, you needed the cash for something else, or you simply forgot. Whatever the reason, a missed contribution is a missed opportunity. Contributing early eliminates this problem, because you will still have time to contribute the yearly limit even if you missed your initial contribution time frame.
Saving early paves the way for you to save more. One of the best financial moves you can make in your lifetime is to follow the mantra of "save early and often". By making your financial moves as early as possible, you are giving yourself the chance to see the benefit of having your money work harder for you, which will encourage you to save more.
You will make fewer mistakes. Being rushed is one of the easiest ways to make mistakes. Perhaps you didn't have time to pick an investment that suits your risk tolerance or typed in the wrong amount. Or maybe you didn't have time to look at your options and missed a chance to get a bonus for contributing your retirement funds to a specific financial institution. Mistakes happen to everyone. But doing things at the last minute could cause you to make more errors or prevent you from fixing them in time to meet a deadline.
Don’t be a procrastinator. If you shift your financial workload to the beginning of the year instead of waiting until the last minute, you will spend the same amount of time on your finances, but have longer to reap the rewards of your investments.
David Ning runs MoneyNing, a personal finance site that shares money moves you can make to significantly increase your chances of having a comfortable retirement. He likes to share simple changes that anyone can make, such as picking the best online savings account and figuring out whether a 0 percent balance transfer credit card makes sense.