With 2018 coming to a close, it’s now time to focus on those resolutions. Most people make all sorts of ambitious goals for the new year: to lose weight, get in shape, reconnect with old friends, travel to a new destination, etc. Resolutions are wonderful because they give us focus and a renewed energy to go after those dreams and goals we have long been chasing.
This year, add some financial resolutions to your list. Here are five financial resolutions to focus on for the New Year:
1. Pay Yourself First
If your employer offers to match a portion of your contributions to your employer sponsored retirement plan (like in a 401(k) or 403(b), for example), take advantage of it! In an ideal world, you would be able to maximize your contributions each year up to the limit ($18,500 for the tax year 2018). However, at the very least, contribute enough to take advantage of your employer’s match. Why? Because your employer’s money is FREE money.
It can be tempting to fund other areas of your life instead of your retirement, we know. There are always plenty of things that have a habit of coming up or getting in the way. This year, prioritize paying yourself first. Contribute to your employer sponsored retirement plan and take advantage of the employer match. Already taking advantage of this offering? Increase your annual contribution! Even a small increase can make a big difference over time. Make this year the year you get ahead!
2. Improve Your Credit
Credit scores impact nearly every large purchase (or loan) you make. This year, make it a goal to improve your credit score, even by just a small margin. How can you do so? Start first by checking your credit score on Experian.com. In order to improve your score, you first need to KNOW your score. (You are entitled to a free credit report every twelve months from each of the three main credit bureaus: Experian, Equifax, and TransUnion).
What’s a good credit score? While the range varies according to what source you consult, a score of 690 and above is generally considered “good” credit. That said, an excellent score is 720 and above (the maximum score is 850). Aim for a score of 750, if possible. With a score of 750, you’ll find you have many favorable options when it comes to interest-rates on long-term financing and credit cards.
How can you improve your credit? Here are a few quick strategies:
- Pay all of your bills on time
- Pay down any outstanding debts (consult a financial planner or advisor for assistance managing debts)
- Keep debt coverage ratio to 30% (meaning if your credit limit is $1,000 – aim to keep a balance of $300 (30%) or less on your card at all times)
- Don’t open multiple cards at one time
- Keep one card open for a long period of time to demonstrate credibility and a responsible spending history
3. Strategically Pay Off Your Debt
If you have outstanding debts, first ensure you are making the minimum payments for all accounts. Then, arrange your debts from highest interest rate to lowest. For the highest interest rate debts, aim to pay as much as you can each month (i.e. credit card bills), and continue making minimum payments on all other debts. Continue to pay off as much of your high interest rate debt as you can each month until that debt has been eliminated. Once you have eliminated the debt with the highest interest rate, turn your attention to the debt with the next highest interest rate, and so on. Strategically paying off your debts will allow you to minimize the interest rate impact over time.
4. Open an Investment Account
Investing can definitely be intimidating and overwhelming for a lot of people, but taking advantage of the power of compound interest is so important. Yes, there are absolutely times when the stock market will fluctuate, but without investing, you will not be able to keep pace with inflation. The U.S. Dollar increases in value by about 3% a year, while your average savings account pays you only 0.1% of interest. If you are saving all of your money in the bank, your money simply cannot keep pace with inflation.
Investing does not have to be overly aggressive, risky, and scary. Work with an experienced professional who can actively manage and diversify your investments, and who will work with you to develop a thoughtful, purposeful portfolio that is right for you in order to meet your needs.
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