A New year, a new financial you!!
As we are still early in the new year, now would be a good time to make some financial planning resolutions. Many people make resolutions around their physical health like going to the gym, cutting some calories, or embarking on the “dry January”. But it is equally important to create goals around your financial health as well. It is stressful to think about financial goals, but each of the ideas below will allow you some flexibility to make changes from month to month, but the important part is to make a plan that you can stick to over the long-term and start moving forward.
Meet your match – Contributing to an employer retirement plan is a great way to help reduce your taxable income. However, it can be difficult to contribute the full amount allowed ($23,000 for 2024) with all the other expenses in life, especially if you are a younger person or new to the work force. Many retirement plans will match a percentage of their employee’s contribution. A good goal for this year would be to at least contribute the amount from your paycheck that would result in the maximum contribution from your employer. This will help lower your taxable income, the employer contribution is “free money” (subject to vesting), and it will help to start that retirement nest egg. The chart below shows what the compounding of $2,500 a year of contributions just from your employer would look like in 40 years at an average return of 7% per year.
Pay off High-Cost Debt – Make a plan to pay off credit card debt. It can be overwhelming to think about paying off high credit card balances all at once, but with credit card interest rates extremely high, at least make a plan that is achievable and start paying down that high-cost debt. For example, if you have a $15,000 balance on your credit card and have a monthly minimum payment of $500 it will take 4 years to pay off that credit card bill and the total interest paid will be about $8,800! If you make an additional payment of $100 per month above the minimum, the credit card will be paid off in about 3 years with total interest of about $6,400. Any amount that you are able to add over the minimum makes a difference.
Kick a costly Habit – Take a look at your expenses and see if there is a way to either stop a costly habit or at least reduce the cost of that habit. An easy habit to pick on is coffee. It can be very hard to give up coffee, but this is an area where there is a cheaper alternative available. Spending $4 a day at Starbucks may not seem like a lot, but it adds up to over $1,300 a year. If you make your own coffee at home the cost is less than $1 per cup. That comes up to about $335 per year. A savings of almost $1,000 which can be used to pay down that high interest credit card debt. You will be saving money on the coffee AND will be saving money paying down the credit card resulting in lower interest payments over time.
Creating financial plans and goals can be overwhelming but try to start by taking small steps and creating some achievable goals. Over time, you will be able to adjust the goals to fit your lifestyle or change in income situation, but starting the process is key to moving toward achieving your financial goals.
Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.