It's a new year and you improve your financial health with several steps that you can take right now.
Mellody Hobson, president of Ariel Investments and "Good Morning America" personal finance contributor, appeared on the show this morning to tell you just how to get your financial house in order and save hundreds of dollars this year.
Click HERE to get Mellody's web-extra tips
Banking: Check your existing bank account and see if it's still right for you. Because of the passage of the 2009 credit card act and the Dodd-Frank financial reform bill, bank fee revenues have taken a hit. The credit card act alone will cost banks an estimated $50 billion in revenue, Hobson said.
Banks have been trying to make up for those lost revenues by increasing other fees. Some are eliminating free checking, or imposing several requirements -- including a higher minimum balance, or direct deposit -- in order to keep the account fee-free, she said.
Chase Bank won't charge you a monthly fee on their basic checking account if you make five debit transactions or have one direct deposit of at least $500 a month, Hobson said. If you don't meet those requirements, you'll be assessed a $6-a-month fee, she said.
Bank of America has an e-checking account and customers can avoid the monthly fee if they conduct all their transactions online, Hobson added. Their MyAccess checking account has a monthly fee of $8.95 unless you make direct deposits or maintain a balance of $1,500.
Here's what you should do. First, go to your bank and ask them to tell you all the fees that are associated with your account. Second, determine what services you need and whether they're worth the fee. Go to bankrate.com to compare fees and switch balances if your current bank is no longer right for you, she said.
Pay Down Debt: With the extension of tax cut, many employees who make about $50,000 a year will see about $50 more per month in their paychecks, Hobson said.
Her advice: Don't spend it. Use it to pay down your credit card debt. If you have $5,000 in credit card debt at 14 percent interest and you currently pay $250 a month, she calculated that you would pay interest charges of $727. If you put the extra $50 per month towards the debt each month, you would save $134 in interest charges, she said.
Emergency Fund: Once you've paid that debt down, put that extra $50 per month toward your emergency fund. This is money you shouldn't touch unless you have a true emergency, and Hobson suggested you should have an emergency fund containing three to six months' living expenses.
One you've done that, Hobson recommended that you increase your contributions to your 401(k) or IRA retirement accounts.
Tax Refund: Many Americans see their tax refunds as extra money, but Hobson said you shouldn't think of it that way. According to the IRS, the average refund last year was about $3,000. Remember, though, that a tax refund is basically the money you overpaid in taxes during the year, so you're just getting back your own money. Use that money to pay down debt, build your emergency fun and increase your retirement savings, Hobson said.
If your refund is too large, you may consider increasing the number of allowances on your taxes so you can get more of your money in each paycheck, she added. To change the number of allowances, visit your employer's Human Resources office and make the change on your W-4 form.