It’s a new year — and the start of a brand-new decade — so why not make it the start of a new financial you? Let’s make 2020 the year of financial freedom. To help you get started, here are some areas to focus on.
Create a budget and track your spending
A budget forces you to take a closer look at your spending habits and see how much money you can free up for saving. By creating a budget and keeping track of where your money goes, you may notice you’re spending money on things you don’t need or in more areas than you thought. A budget helps keep your eye on the prize and ensures you don’t spend money you don’t have.
Increase retirement plan contributions
The more money you put into your plan now, the bigger your potential retirement balance will be. Increasing your contribution even 1% — which may only be an extra $15, $20, or $25 per paycheck — can make a big difference over the long term. You might even consider making this an annual practice. If your company offers a matching contribution, make sure you’re contributing enough to receive the full match. It’s free money that helps your account grow.
Take control of debt
Make this the year you make an extra effort to pay down (or pay off) as much of your debt as you can. You could start by paying off the debt with the highest interest rate because it’s costing you the most money; or, you could pay off the debt with the lowest balance first, so you can feel the progress and accomplishment quicker. The less debt you have can help lower financial stress, give you more financial freedom, and help you focus on other financial goals such as saving for retirement.
Review investment mixture and risk
Whether your retirement date is clearly in view or you’re still decades away, it’s important to make sure your investment mixture and risks still match your investment goals and plans. While being aggressive late in your career may serve you well in rising stock markets, it could be disastrous in a declining market and potentially put you at risk close to retirement. For younger investors, being too conservative could limit your growth potential, causing you to miss out on great earning years knowing you have time to ride out market fluctuations.
Boost your emergency fund
Having an emergency fund gives you confidence that you can tackle any of life’s unexpected events without adding financial worries to your list. The goal is to save enough to cover at least 3-6 months’ worth of living expenses. This doesn’t include any money you’d use for entertainment, dining out, vacation, etc. Don’t be discouraged, as it may seem overwhelming or unrealistic. Build it up by saving small amounts on a regular basis, and over time, you’ll eventually meet your goal. The important thing is that you’ve started saving something.
Set short- and long-term financial goals
You’re more inclined to save if you have specific goals. People who set specific goals are more likely to achieve them than those who don’t. Create specific goals and determine what you need to do now to accomplish them. Setting short-terms goals can help you reach your long-term goals. We all have financial aspirations, and creating financial goals forces us to prioritize what’s important to us.