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.
Shop Wisely: Most people don't know that there is a right time to buy certain products. Plan your annual purchases in January and, with patience, you could save a bundle.
Hobson said the best deals occur when a retailer is starting to get new merchandise and wants to get rid of old inventory. For example, if you want to buy winter clothes, wait until February or March to get better deals, she said. You should also consider purchasing new patio furniture in October, rather than in June, she added.
January is the best time to buy linens and bedding, and retailers usually have their "white sales" this month, she added. You can also find bargains on furniture in January and July, just before new shipments arrive.
Do not buy jewelry around the holidays, Valentine's Day or Mother's Day, because jewelers will be less willing to make deals because of high demand, she added.
Health Care: Health care costs are rising dramatically. The average employee will pay $2,200 in premiums -- up 12 percent from 2010 -- for employer health insurance, Hobson said. Employees will also pay an additional $2,200 in out-of-pocket expenses, she added.
The easiest way to save money on health care is not to get sick, so don't neglect your regular check-ups. Last year's Patient Protection and Affordable Care Act made most preventative services free, she said. Provided your plan is eligible and you use an in-network doctor, you won't have any out-of-pocket expenses for vital testing such as diabetes testing, some cancer screenings and regular well baby visits, Hobson added.
Taking advantage of preventative free services may allow you to catch problems early and prevent expensive trips to the emergency room, she said.
To find out if you qualify for these free services, ask your doctor, health insurance company or visit www.healthcare.gov
Hold off purchasing a new car until January. The dealerships are eager to offer money-saving deals during that time as they have to make room for next year's car models.
The best way to tackle debt is by eliminating your credit card bills. Start by paying down the card with the highest interest rate first then move onto the card with the next-highest interest rate. Paying off high interest rate debt first allows you to save money on interests in the long-run.
Don't make financial decisions in a vacuum. Speak openly with the entire family. By involving the entire family, everyone has a vested interest in the financial health of the family. It also teaches young people the value of money.