7 Important Money is simple to believe that “next year” or when you eventually land the desired promotion, you’ll manage your money better. Unfortunately, time passes so quickly, making it simple to daydream about financial stability for years on end without really achieving your objectives.
However, which actions have the greatest 7 Important Money Moves chance of having an impact? We spoke with a number of financial experts to find out what actions they believed almost everyone could take in 2020 and beyond. Their responses are shown below.
Review and Adjust Your Budget:
The first of the year is a great opportunity to review how much you’re saving for retirement, says financial planner and Retirement Starts Today podcast presenter Benjamin Brandt. Thankfully, in 2020, the Internal Revenue Service (IRS) raised the maximum amount that you may contribute to a 401(k) plan. This boosted the maximum amount to $19,500.
“Could you save a little more for the future version of yourself?” asks him. “Calculate what a 1% increase in your savings rate might be, and commit to that increase.”
When savings are increased in such tiny steps, you might not even realize the money is gone from your budget, but you never know unless you try.
Increase Your Retirement Contributions:
The presenter of the On My Way to Wealth podcast and financial advisor Luis F. Rosa advises almost everyone to take some time to reflect on any significant life transitions they have had in the past year or two, such as getting married, getting divorced, or having a kid.
According to him, you should also confirm that the beneficiary names on your life insurance policy, 401(k), and other funds are current and reflect your intentions.
Pay Down High-Interest Debt:
The majority of individuals attempt to save as much of their money as they can, buying anything they want with the money they have left over. “Reverse their thinking” is what individuals must do, according to Strategic Financial Group financial expert Christopher Clepp, if they want to stop this tendency in their life.
Clepp suggests that rather than focusing on savings as an afterthought and purchasing everything you want, you could “invest for the lifestyle you want and spend what is left over.”
If you’re saving enough money in the first place, you don’t need to keep track of every expense, he adds. “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.”
Reevaluate Your Investment Strategy:
Although credit card debt doesn’t actually benefit anyone in life, it may not be too bad for many individuals in the near run. After all, credit cards have an average annual percentage rate (APR) of more than 17%, making them a bad choice if you need to borrow money. They may also easily be exploited as a crutch to create a lifestyle you can’t actually afford because you can use them to keep spending.
According to Clepp, everyone should resolve to pay off their credit card debt completely in 2020. He makes the point that paying off a $5,000 credit card debt with an average annual percentage rate (APR) between the ages of 35 and 65 will result in interest payments that are nearly $20,000 in total. That’s a huge amount of money, and you can probably think of a lot of applications for it.
Boost Your Emergency Fund:
According to Clepp, even if an individual believes their insurance needs are current, they should review them annually.
“All the careful future planning can be undone by an unexpected accident,” he asserts. The first thing you should do every year is evaluate your coverage for auto, house, and umbrella insurance.
Locate a resource who can enlighten you about the policies. “Cheaper isn’t always better, but you may be able to find comparable coverage for a better price,” according to him.
In addition, if you have dependents or are married, be careful to verify your requirements for life insurance. After that, check your disability insurance policy to make sure you have enough coverage.
Plan for Major Expenses:
Even if your budget is operating smoothly thus far, financial counselor Brandon Renfro, Ph.D., advises everyone to attempt budgeting their money and to take the time to reassess it in the new year.
“You may find that there are smaller budget items you can eliminate,” according to him. “The key here is a lot of times the smaller items go unnoticed, precisely because they are small.”
Reviewing your annual spending plan and budget may help you identify areas where you’re overspending that you may cut to save even more money. Additionally, you could discover that you’re not actually using subscription services or other items you pay for. If that’s the case, you might terminate any services you’re not using and use the money for savings or debt reduction, for example, elsewhere in your budget.
“This goes a little farther than simply confirming that you took the specific actions you had planned to,” he continues. “Here, you are confirming that the actions you took actually got you closer to accomplishing what you hoped to accomplish.”
For instance, if you had budgeted an additional $100 a month for your credit card or auto loan. If so, see the progress you’ve made toward having it paid off. That’s fantastic if you met your objective, and you might want to stick with it. If not, you ought to be questioning why not and making plans to get back on course. (Also see 5 Steps for Effective Budgeting.)
Plan for Major Expenses:
Although few individuals monitor this aspect of their financial health, financial advisor R.J. Weiss of The Ways to Wealth advises that people should also pay attention to another aspect of their lives: their credit score.
“This goal often gets prioritized when a large purchase is up ahead, such as a home,” according to him. “Yet, it’s something that you should monitor and improve as there are many benefits to having a great score.”
He advises customers to focus on lowering their overall credit use. This is the ratio of your used revolving credit to your available credit. For example, your total usage is 50% if you have $5,000 in credit card debt and $10,000 in total credit limits.
“A great target to aim for is a ratio below 30%,” he states. “Keep in mind, you can do this by paying off your debt, as well as increasing the total amount you have available.”