With a new year comes the chance to have a fresh start. According to a Fidelity study, more than one-third of Americans set a financial resolution for 2017. Whether or not you set a financial resolution, though, improving your finances is likely still important to you. To help with this, we came up with a list of the top five financial moves to make this year.
1. Create a Realistic Budget
A budget is simply a plan for your money. It can be as minimal or as comprehensive as you like. What’s important is that you know how much money you bring in versus how much money you spend and save.
A realistic budget is one that you can sensibly stick to over time. To create such a budget, you’ll need to track your expenses for a few months. You can do this by looking at your bank account and credit card statements and seeing how much you’ve spent in previous months. You can also use a tool like Empower or Mint to track your expenses for you.
Learn More: How to Budget If You Hate Budgeting
After you’ve tracked your monthly spending, you’ll need to decide how much you can reasonably save each month. If the amount you want to save each month is doable based on your current spending habits, great! Otherwise, you may have to reduce your spending in order to meet your savings goals.
(Personal Capital is now Empower)
2. Build an Emergency Fund
An emergency fund is an amount of cash set aside for use in the event of a financial crisis such as job loss or a large expense. If you don’t have an emergency fund already, this is the year to build one. Aside from the obvious financial benefit, an emergency fund also provides a peace of mind that’s priceless.
Resource: How to Decide If an Expense Is Emergency Fund-Worthy
To build your emergency fund, you can set it up like any other savings goal you have. You can decide on an amount to be transferred from your bank account into the savings account on a regular basis – for example, every two weeks or once per month – until you reach your goal. Personal finance experts recommend having three to six months of expenses saved in an emergency fund.
Your emergency fund should be liquid, meaning that it can converted into cash quickly. For this reason, it’s a good idea to keep your emergency in a savings account. To get the most interest on your money, consider an online-only bank such as **add affiliate link!!** Capital One 360 or Ally. Online banks offer high-yield savings accounts with competitive interest rates compared to traditional banks.
3. Save for Retirement
If you’re like many who have access to employer-sponsored retirement plans, make sure you’re contributing at least up to the employer’s match if applicable. The good thing about employer-sponsored 401(k)/403(b) plans is that the money comes out of your paycheck pre-tax. This reduces your taxable income for the year. It also makes it a bit easier to save because you won’t have to worry about any manual transfers.
If you’re self-employed, you can still save for retirement. You can save money in a Roth IRA or a traditional IRA. There are no income limits for contributing to a traditional IRA. But to contribute to a Roth IRA, there are income limits. Both retirement accounts offer tax benefits, but in different ways. Traditional IRA contributions are tax deductible, but the withdrawals are taxed in retirement. Roth IRA contributions aren’t tax deductible, but the withdrawals are tax-free in retirement.
Resource: Current IRA Contribution Limits
4. Review Your Insurance Policies
Review all of your insurance policies to make sure you and your family are substantially covered this year. One major insurance policy that you want to be sure to review is your health insurance. A large medical expense could put you in debt if you’re not adequately covered.
The biggest decision you’ll probably have to make is whether to enroll in a high-deductible health insurance plan or a regular health insurance plan. If you have a high-deductible health insurance plan, you’ll be eligible to contribute to a health savings account, which has multiple tax benefits. On the other hand, a regular health insurance plan will give you more predictable medical costs without you having to foot a large bill upfront before your insurance kicks in.
Other insurance policies to review include your life insurance, car insurance, homeowner’s insurance (if you own a home), and renter’s insurance (if you rent your home).
5. Determine Your Lifetime Goals
The last financial move to make this year is to determine your lifetime goals. What do you want achieve? Do you want to retire early? Do you build your own business? Whatever your lifetime goals are, you’ll need to take a look at how your finances fit into that picture. If you want to retire early, you’ll need to make sure you are contributing enough to retirement accounts now to fully fund your lifestyle in the future. If you want to build your own business, you’ll need to set income goals and profit projections to make sure you’re on track.
When you’re clear on what your lifetime goals are, it makes it easier to make decisions now. It makes it easier to say “no” to things that don’t fit into your plans and “yes” to opportunities that will further your progress.
As you can see, these financial moves are pretty involved. Each one requires some effort on your part. The good news is that these recommended actions can have a positive impact on your finances and your life overall.
I like to look at personal finance as one pillar of personal development. When you manage your money effectively, you are taking control of your future. Just take things one day at a time, and before you know it you’ll be making substantial progress by the end of the year.
2 Responses to “Top 5 Financial Moves to Make This Year”
I think lifestyle goals are so important and these also tie into the budget that you create. Depending on what kind of life you want to live, you will need to budget accordingly and start looking at expenses you can cut out, or find ways on how you can live below your means. These are all such great tips!
All good points. I’m pretty much following your suggestions. My goal for this year, is to really analyse all future purchase this year…”do I need this item?” I’m not an emotional spender, but I think I could live with less.