By Holly Johnson on 7 January 2020
It's easy to think you'll get your finances together "next
year" or when you finally get the promotion you've been after.
Unfortunately, time keeps on ticking away, making it easy to spend years
dreaming of financial security without making progress toward your goals.
Now that 2020 has arrived, it may be the perfect time to stop
making excuses and start making moves. After all, it's more than a new year —
we're in a brand-new decade.
But which moves have the potential for the most impact? We
interviewed several financial advisors to find out which steps they think
nearly everyone could benefit from in 2020 and beyond, and here's what they
said.
1. Increase your contributions to tax-advantaged retirement
accounts
According to financial advisor Benjamin Brandt, who is the host
of retirement podcast Retirement Starts Today, the beginning of the year is an
excellent time to reevaluate how much you're putting away for retirement.
Fortunately, the Internal Revenue Service (IRS) increased the maximum you can
contribute to a 401(k) account in 2020, bringing up your total maximum
contribution amount to $19,500.
"Could you save a little more for the future version of
yourself?" he asks. "Calculate what a 1% increase in your savings
rate might be, and commit to that increase."
You might not even notice the money missing from your budget
when savings is increased in such small increments, but you'll never know
unless you try. (See also: 5 Money Moves to Make Before You Turn
40)
2. Take stock of changes in your life that took place over the
last year
Financial planner Luis F. Rosa, who is also the host of
the On My Way to Wealth podcast, says that pretty much
everyone should sit down and analyze any big life changes they've endured over
the last year or two, including marriage, divorce, or the birth of a new
child.
You should also review your beneficiary designations on your
401K, life insurance, and other accounts to make sure they are up to date as
per your wishes, he says. (See also: 5 Money Moves Every Single Parent
Should Make)
3. Learn to live within your means
Most people manage their money in the most backwards way
possible, meaning they buy what they want and try to save anything that's left.
Financial advisor Christopher Clepp of Strategic Financial Group says people
need to "reverse their thinking" if they hope to reverse this trend
in their lives.
Instead of buying what you want and worrying about savings as an
afterthought, Clepp says to "invest for the lifestyle you want and spend
what is left over."
You don't need to keep track of every expenditure if you're
saving enough to begin with, he says. "If you need to save 20% per month,
then save that first and the other 80% spend as you see fit as long as you
don't exceed that number or run up credit card debt."
4. Pay off credit card debt
Credit card debt may not be overly problematic for many people
in the short-term, but this type of debt doesn't really help anyone in life.
Credit cards carry an average APR of over 17%, after all, so they're a poor
option when you need to borrow money. And since you can use them to keep
spending, they can easily be used as a crutch to build a lifestyle you can't
really afford.
Clepp says everyone should make 2020 the year they pay off credit card debt once
and for all. He points out that, if you carry an average of $5,000 in credit
card debt with an average APR from ages 35 to 65, that debt will cost you close
to $20,000 in interest payments. That's a ridiculous amount of money, and I'm
sure you can think of plenty of ways you'd want to spend that much cash.
5. Assess your insurance needs
Clepp also says that people need to look over their insurance
needs every year, even if they think they're up to date.
"All the careful future planning can be undone by an
unexpected accident," he says. First and foremost, you should review your
home insurance, auto insurance, and any umbrella insurance coverage you have
each year.
Find someone who will educate you about the policies.
"Cheaper isn't always better, but you may be able to find comparable
coverage for a better price," he says.
Also, make sure to review your life insurance needs if
you're married or have dependents. From there, review your disability insurance
to make sure you're adequately protected.
6. Start using a budget
Financial planner Brandon Renfro, Ph.D. says everyone should
give budgeting their income a try, and everyone should take the time to review
their budget in the new year — even if it's working well so far.
"You may find that there are smaller budget items you can
eliminate," he says. "The key here is a lot of times the smaller
items go unnoticed, precisely because they are small."
By going over your budget and spending for the year, you may
find you're splurging in areas that don't matter to you, which could easily be
reduced for more savings. You may also find you're not really using things
you're paying for, such as subscription services. In that case, you could
cancel unused services and funnel that money elsewhere in your budget, such as
savings or debt repayment.
Renfro says that, on top of reviewing your budget, you should
also review any progress you're making toward your financial goals.
"This goes a little farther than simply confirming that you
took the specific actions you had planned to," he says. "Here, you
are confirming that the actions you took actually got you closer to
accomplishing what you hoped to accomplish."
For example, maybe you planned to pay an extra $100 each month
on your car loan or credit card. If you did, see how much closer you are to
getting it paid off. If you achieved your goal, that's great, and you may just
want to stay the course. If not, you should be asking yourself why not and
taking steps to get back on track. (See also: 5 Steps to Successful Budgeting)
7. Improve your credit score
Financial planner R.J. Weiss of The Ways to Wealth says another
area of people's lives they should focus on is their credit score, although few
people keep an eye on this component of their financial health.
"This goal often gets prioritized when a large purchase is
up ahead, such as a home," he says. "Yet, it's something that you
should monitor and improve as there are many benefits to having a great
score."
Specifically, he suggests consumers work on decreasing their
total credit utilization. This is the amount of revolving credit you use
compared to the amount of available credit you have. If you have total credit
limits of $10,000 and $5,000 in credit card debt, for example, your total
utilization is 50%.
"A great target to aim for is a ratio below 30%," he
says. "Keep in mind, you can do this by paying off your debt, as well as
increasing the total amount you have available."
https://www.wisebread.com/7-important-money-moves-to-make-in-the-new-year-according-to-financial-advisors
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