Preparing Your Finances in the New Year
If you’ve fallen off the wagon with your new year’s resolutions, it isn’t too late to refocus your efforts. Now’s still a great time to get a fresh start on all things, including your finances. Here are some ways to bring improved financial health and security into your life over the course of this year.
Get organized
It’s hard to get ahead if you don’t know where your money goes. Budgeting is one of the most effective ways to take charge of your cash. Start by subtracting all expenses, including recurring bills, food, transportation and entertainment - from your monthly income. If you don’t like the numbers, you’ll need to make some adjustments by either eliminating unnecessary spending or increasing income with extra work hours or a better paying position.
Once your basic budget is set, installing free software such as Mint or Level Money takes the work out of staying on track. It’s also a good idea to automate finances as much as possible, which might include direct deposit, an automatic savings plan and automatic bill pay. Including credit monitoring and efforts to improve scores in your organization process is also wise.
Plan a comfortable retirement
It takes a pretty big nest egg to finance the average 20 years Americans spend in retirement. Chances are you’ll need anywhere from 70% to 90% or more of your final income each year to live comfortably, and it’s likely that Social Security won’t cover all your expenses. Now is the time to start saving for retirement. In addition to contributing the maximum employer-matched amount to any retirement plans at work, try to put as much as you can afford into your own private retirement fund, which should include tax-advantaged IRAs and other investments available at financial institutions like FedChoice Federal Credit Union.
Prepare for the unexpected
No one wants to think about medical emergencies, job loss or major property damage, but building an emergency fund can be a lifesaver in the unlikely event of these challenges. Work to save at least three to six months’ worth of expenses and keep it in a special savings account earmarked for this purpose only. Even if you can only afford a few extra dollars per week, be sure to make regular deposits to this account. This cash may need to be accessed at a moment’s notice, so the liquidity of savings or money market accounts makes them perfect for growing emergency funds.
Knock down debt
Even with a great job, high-interest debt can threaten financial stability. To slash debt as inexpensively as possible, concentrate on your highest-interest balance first while continuing to make timely smaller payments to the rest of your balances. When this first debt is paid, focus on the next highest-interest obligation, and continue with this method until you’re free of debt.
When debt from multiple sources is truly out of hand you may want to consider debt consolidation, a process that combines various debts into a single monthly bill. This approach is wise when interest and overall monthly expense can be reduced to make it easier to make timely payments. Financial institutions offer a number of affordable debt consolidation strategies including personal loans and home equity financing.
The bottom line
The combination of organization, saving and debt reduction sets the stage for prosperity in 2016 and well beyond. You’ll have the means to pursue exciting financial goals, enjoy some of life’s little extras and sail gracefully through whatever the future brings.
Roberta Pescow, NerdWallet
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