It’s everyone’s favorite topic: personal finance.
Oh, that’s not your favorite thing to talk about?
In that case, the new year is a great time to reevaluate your financial situation and set goals for the coming year. You get annual medical checkups; why not also treat yourself to a yearly financial checkup? Here are a few, basic tips to get you started.
1. Use a tool to track your finances. From budgeting to retirement savings to complete financial profiles, there are tons of free tools out there to help you and hold you accountable for your spending. Some of my favorites are Personal Capital, which provides a complete overview of all of your spending and saving activities, and Future Advisor, which analyzes your investment accounts and retirement goals and suggests portfolio adjustments to maximize your returns. (It’s like having a free financial advisor.)
2. Take a look at your spending and see where you can cut back. Sometimes, changing just one spending habit can greatly improve your ability to save.
3. Check your credit score. It’s free to do once per year, and it’s important to carefully check everything on your report to make sure it’s correct. Incorrect items could reduce your credit score and affect your ability to get a mortgage or student/car loan. Reporting incorrect items is easy and can be done through whatever service you use to pull your report. (I’ve done it myself!)
4. Invest in a retirement plan. Whether you have one through work or have to open one yourself, it’s NEVER too early to start investing for retirement — even if you can only save $10 per month!
As Millennials, we can’t count on Social Security to be there when we reach retirement age. It’s up to us to save for our retirement, and you can do that by maxing out your company-sponsored retirement plan (e.g., 401(k), 403(b)) or a self-directed IRA (which you can open yourself using brokerages like TD Ameritrade, Vanguard, etc.).
Also, saving in a tax-deferred retirement account (401(k), 403(b), etc.) reduces your tax liability. You know that chunk of money that comes out of your paycheck and goes straight to Uncle Sam? That number lessens as you increase contributions to retirement. So, you pay less to the government plus you save more for yourself. Win-win!
Already maxing out your retirement account but still want to save more? A Roth IRA allows you to invest dollars post-tax, meaning you pay taxes now but don’t have to pay taxes when you withdraw the money at retirement (when your tax bracket will likely be higher).
5. If you’re keeping all of your extra cash in a savings account, you could be losing money, even though you think you are generating interest. Savings and checking accounts earn very low interest rates — sometimes too low to even beat the rate of inflation, meaning your money is losing value by sitting in a savings account. For example, if the Federal Reserve reaches its target inflation rate of 2% and your account is earning 0.5%, you are losing money! Investopedia has ideas for other ways to save.