Mellody is President of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.
TOM: Happy New Year, Mellody!
MELLODY: Same to you, Tom!
TOM: This morning you are going to give us a few things to keep in mind so we start off the new year on a positive note.
Mellody: That’s right, Tom! Every time we turn the page on another year, it is always good to keep a few things in mind. Some of these things, like taxes, come like clockwork. Others are good to pay attention to in order to get in the right headspace and lay the groundwork to improve your financial footing.
Tom: So let’s start with the thing you can’t change: taxes.
Mellody: As you said, you cannot change the fact that you have to deal with taxes, but there are some things that you can do to make them less painful. First, you heard me say it a thousand times: organization is key to doing your taxes. Print out a checklist from one of the many tax preparation sites so you know what you need, and determine which forms you should use. January is also the month that important documents start getting mailed – w2s, 1099s – so be on the lookout so you do not throw any of this away!
A couple of things to pay attention this April on your 2014 taxes: first, if you do all or some of your work from home, you should look into the home office deduction. The rules for this deduction have been loosened, and you can save up to $1500. The main condition is that the space must be used exclusively as a home office. Secondly, if you did not have healthcare coverage in 2014, you will have to pay a fee when you do your taxes this year, and that fee will get higher in 2015 and 2016. And finally, just like every other year, remember to file on time to avoid any late fees and penalties.
Tom: What should we think about in terms of our 2015 finances?
Mellody: Well, Tom, right now is a great time to set financial goals for yourself and create a plan to achieve them if you have not already done so. A recent survey found that only 3 in 5 Americans are doing this. Setting goals for your money helps you to stay on track and be more aware of your day to day habits and limitations, so I encourage our listeners to set goals if they have not already, and to revisit them if they already have.
In the spirit of the new year, and financial goals, make it your 2015 resolution to do two things: one, allocate a greater percentage of your earnings to your retirement. While the goal is 10-15% of your income, if everyone increased they retirement contributions by 2%, that would make a huge difference by the time you hit 65.
And remember, all of those contributions are pre-tax, which could reduce the amount you owe to the IRS come April of 2016. Additionally, work to improve your credit score this year. This starts with knowing what it is, so get your free score from one of the big three credit bureaus this month and really look at it to get an idea of areas you might be able to improve. Committing to these two things will make your 2015 financially rewarding.
Lastly, in the even that you have not done so already, make sure you make your healthcare decisions. As we all know, healthcare costs can be financially ruinous. The Affordable Care Act enrollment period has just 5 weeks remaining, so make sure you get healthcare coverage!
Tom: What other things does 2015 have in store for us on the financial front?
Mellody: That’s a great question, Tom, and there are a few things I think we are probably going to see in 2015. Number 1 – Interest rates are going to rise. We had been on the lookout for this to happen in 2014, but the Fed under the guidance of Janet Yellen has been very cautious, not wanting to upset the economic apple cart.
However, with the news that the economy is growing at very healthy clip – 5% in q3, the fastest in 11 years – I think we will see the Fed move with greater confidence in 2015, including on the interest rate front. That means it will be more expensive to borrow money for home or car purchases. If you have a mortgage, you might want to look at refinancing before the rates go up. Higher interest rates will also negatively impact the bond market and slow the stock markets a bit.
However, with the strong economic numbers we have seen, you can also expect to see the markets continue to move in right direction. 2015 will almost certainly not be another year of double-digit gains, but I do think with the healthy economy and healthy corporate balance sheets, stocks will continue their bullish movements.
Along with a positive trend in stocks, we should continue to see a positive trend in the labor market, with workers, not employers, coming out on top. This past week we saw 21 states raise their minimum wage for the new year, so that is a good sign for workers at the lower end of the ladder. Additionally, as the labor market tightens, wages in white-collar jobs should continue to inch up more quickly than we have seen in a number of years.
Tom: Sounds like you are predicting a rosy 2015. Thanks for joining us this morning, Mellody!
Mellody: Here is to a great 2015, Tom!
