The beginning of a New Year provides many individuals with a “fresh start” mentality, as people set out on new personal (or business) goals. While some may have goals for fitness, careers, family, or personal well being (physical, spiritual, or mental), I feel that sharing some tips on simple ways to save may be helpful, as well.
Create a Budget
By putting together a budget, you are organizing your income and expenses. This allows you to have control over your money, see where your money is going each month, and helps you organize your spending and savings. In addition, creating a budget may allow you to foresee a potential money problem further down the road, giving you time to prepare and make any necessary spending/saving adjustments. Organization of your funds can also help prepare you for both expected and unexpected costs.
Build an Emergency Fund
An emergency fund can be used as a financial safety bucket for major unexpected costs or events that you may come across further down the road (major car repair, losing a job, medical expenses, etc.). It is recommended that individuals have 3-6 months’ worth of expenses saved in the form of highly liquid assets (easily convertible to cash).
Avoid Credit Card Debt
Credit cards have benefits, and if used properly, can provide you with rewards and help you establish and build your credit. At the same time, if they are abused, they can be harmful, as monthly payments and accumulating interest can become an issue. If you use a credit card, be sure to pay it off every month to avoid carrying over balances and paying interest.
Create a Savings Goal for Retirement
Whether you are putting money into an IRA or into an employer sponsored plan, determine a set amount (dollar amount or percentage) that you automatically deposit into a savings/retirement account. Many professionals will say 15-20% of your income each year is enough, but it is recommended to consult with a financial professional to determine proper investment recommendations to ensure you will meet your financial goals and needs.
Start Saving for College Early
The costs of college tuition are a hot topic in todays society and continue to skyrocket. If you have kids and you are looking for ways to begin saving for their college education, it may be a good idea to consider a 529 Plan. A 529 plan is a tax-advantaged savings plan that is designed to help and encourage individuals to start saving today for educational expenses further down the road. These plans are typically sponsored by the state and offer two different options – a Prepaid Tuition Plan option, and an Education Savings Plan (details discussed in my November blog).
Fully Utilize Your Employer’s 401(k) Match
If you are enrolled in an Employer-Sponsored Plan, such as a 401(k), there is a good chance your employer is making a matching contribution. If your employer is matching your contributions up to a certain percentage of your salary, you should consider electing a contribution amount that maxes out your employers matching benefit. Otherwise, you are leaving free money on the table!
As you move into the second month of the New Year, hopefully these simple ways of saving and taking control of your finances are helpful. Should you have questions about financial products or investment vehicles/strategies, it is recommended that you discuss it with a financial professional.