Another new year is underway, which provides an incentive to get “your financial act together.” Below are ten suggestions to improve your finances during the year ahead:
Pay Yourself First (PYF)
PYF treats savings with the same high priority as a mortgage, rent, or car loan payment. The easiest way to “pay yourself first” is to have savings deducted automatically from your paycheck through a 401(k) or another workplace savings plan.
Keep Good Financial Records
A paper or digital file folder for each stock or mutual fund you own is useful. Save annual summary statements to help calculate a capital gain or loss when shares are sold. Reconcile and file bank checking account statements monthly.
Insure For Large Financial Risks
Insurance coverage should be reviewed periodically. Be sure to cover “big ticket” risks, such as liability, disability, loss of a breadwinner’s income, and destruction of your home, that would wipe out your savings without insurance coverage.
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Invest For Long Term Growth
History indicates a higher return in stocks (or growth mutual funds that invest in stocks) over time than any other asset class (e.g., bonds, cash). For a “low maintenance” approach to stock investing, consider a “total stock market” index fund that tracks the Wilshire 5000, a broad-based barometer of the U.S. stock market performance.
Live Below Your Means
This means spending less than you earn and using the difference to reduce debt and/or save for future financial goals. Try tracking your spending for a month to see where your money goes. Then identify expenses that you can painlessly reduce.
Comparing at least three lenders before applying for a loan or credit card is wise.
Compare the annual percentage rate, fees (e.g., late fee), and other features. Transfer existing credit balances to a lower-rate creditor or ask an existing creditor for a reduced rate.
Set Specific Financial Goals
SMART financial goals state what you want, when you want it, and how much it costs (e.g., a new car in 2028 with a $10,000 cash down payment). Once a goal is specific, divide the time into the dollar amount to see what you need to save.
Calculate Your Retirement Savings
Retirement calculations are tricky because you need to account for factors such as life expectancy, anticipated sources of income (e.g., Social Security), and the future value of existing savings (e.g., IRAs). Two helpful resources are Rutgers Cooperative Extension fact sheet #431 (“How Much Do I Need to Save for Retirement?”) and the “Ballpark Estimate” calculator on the Web site www.asec.org.
Get Financially Educated
Some suggested learning methods include adult education courses, books, magazines, newspapers, blogs, podcasts, websites, and financial advisors such as a certified financial planner.
When facing financial, as well as health, challenges, having a positive attitude is important. People who think positive experience greater success than “negative naysayers” because they believe there’s a connection between what they do today and what will happen in the future. In other words, “if it is to be, it’s up to me.”
Today is the first day of the rest of your financial life. Make the most of it and have a healthy, wealthy, and happy New Year.