New Year’s resolutions are made to be broken. Rather than encourage you to go on a budget or exercise more, let’s put aside traditional resolutions that require months or even a lifetime of sustained effort. With a little work now, we can improve your finances for the rest of your life.
Increase your retirement plan contribution by 1 percentage point: Reaching financial independence is all about the automation of successful habits. Most of you have a retirement plan through work, whether it’s a 401(k) plan or a 403(b) at a nonprofit or educational institution. If you’re currently saving 5% of your pay into your plan, bump it to up to 6%. Make a reminder every six months to increase your contribution by another percentage point. By doing this gradually you’ll likely never miss the money.
There are many ways to get sidetracked when investing in your work retirement plan. What investments should you use? Rather than overthink this process, most should invest in a target retirement fund geared for the year closest to their anticipated retirement date.
With most retirement plans you can opt to make traditional contributions, which are pre-tax, and Roth contributions that are after-tax. Most should focus on Roth contributions as we currently have historically low tax rates. If your family is high income, earning at least $350,000 a year (or half that amount if single), then pre-tax contributions make more sense in most cases. Can’t decide between Roth and traditional contributions? Then split your savings between them. One final reminder is that the maximum annual employee contribution into a 401(k) is $19,500 a year or $26,000 if you’re at least 50 years old by the end of the year.
Set up your accounts to automate savings: Most of us have our paychecks deposited directly into checking. The issue is that checking account funds tend to get spent and earn little interest along the way. If you don’t already have one, open an online savings account at Ally, American Express, or Marcus. Although they pay modest interest rates now, they will go up when we return to a more normal economic environment. Second, arrange for your paycheck to be deposited directly into that online savings account. Third, schedule a regular transfer between your online savings to your checking so you can pay your bills.
These steps may sound like busywork. Why does it matter to deposit your pay into savings? It accomplishes at least four important goals. Your money works harder for you as it earns interest in your savings account. It also puts you into the default mode of saving rather than spending. It forces you to think about your expenses as you decide how much to regularly transfer into your checking. Finally, going forward it gives you an easy way to see how much you’ve been spending. Just look up how much you’ve transferred from your online savings to checking over the last year.
Freeze your credit: For years it’s been free and easy to freeze your credit with all three major bureaus. The last time I did this, it took 30 minutes. Freezing your credit means that no one can apply for credit in your name without having the password necessary to “thaw” your credit. A credit freeze is much better than credit monitoring services because it keeps the crooks from even applying for credit rather than alerting you once you’re a victim. Consumer advocate Clark Howard has long been the Captain of Credit Freeze. You’ll find an updated guide on credit freezes with all three bureaus at his web site at clark.com.
David Gardner is a certified financial planner practicing in Boulder County. The opinions expressed by the author are his own and are not intended to serve as specific financial, accounting, or tax advice.
The Link LonkJanuary 10, 2021 at 09:04PM
https://www.dailycamera.com/2021/01/10/david-gardner-forget-new-years-resolutions
David Gardner: Forget New Year’s resolutions - Boulder Daily Camera
https://news.google.com/search?q=forget&hl=en-US&gl=US&ceid=US:en
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