5 New Year’s Resolutions for a Brighter Financial Future
It’s a familiar predicament for many: we start the new year off steadfast to our resolution to become better with money, only to fall back on our same old habits a few months later. If this sounds like you, don’t worry, you’re not alone. According to a survey by Inc, only about 8 percent of people are actually successful in achieving their New Year’s resolutions. Much of this can be attributed to setting unrealistic expectations upon yourself that might stray too far from your normal way of living; ultimately resulting in the inevitable: unsustainable resolutions. With that in mind, here are a few financial resolutions for 2019 that will be easier to keep.
Save More Money
It’s normal for Americans to want to increase their savings. In fact, saving more and spending less make up 32 percent of all New Year’s resolutions. But how much should you save exactly? Well, experts suggest individuals save at least 10 percent of every paycheck. The idea is that, if you start saving while you’re young, you’ll only ever need to set aside a small amount of money each month to fund your retirement. Saving isn’t always easy though, and if you’re not used it, it can seem daunting to not have access to 10 percent of every paycheck. The simplest way to remain committed to your savings goal is to set up an automatic transfer from your checking to your savings account every month. Alternatively, you can take advantage of a mobile bank account that can do this for you automatically—like this one.
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Pay off Your Debts
The average American has $5,551 in credit card debt. To make matters worse, not only does that require Americans to pay further interest charges, but outstanding debts have the potential to hamper your credit score. In today’s mortgage and student loan-impeding society, debt has become all too common. But getting out of debt won’t just help your financial future, it will also feel psychologically liberating. Start the new year off right by paying off as much debt as possible (and saving yourself from future interest charges), or using a debit card to avoid this dilemma altogether.
Increase Your Credit Score
Your credit score is a three-digit number lenders use to assess your capacity to pay back money in a timely manner. As such, it’s imperative that you maintain a high credit score to qualify for something like a mortgage or a credit card with the most favorable terms. There are dozens, if not hundreds of credit scores, however, most models take into account your payment history on loans and credit cards, how much credit you typically use, how long you’ve had an account open, and how often you apply for new credit. To raise your credit score, pay your bills on time, pay off debt and keep balances low on credit cards, and regularly monitor your credit reports via TransUnion, Equifax, and Experian. If you see any inaccuracies on your credit report, don’t feel brash for disputing errors. Doing so may have positive implications on your financial future.
Increase Your Retirement Contributions
The bad news? Pensions are increasingly becoming a thing of the past and Social Security will simply not provide you with enough money to support your retirement—in fact, the program was only ever designed to replace about 40% of the average American’s pre-retirement income. The good news? Retirement plan contribution limits increased at the dawn of this new year. If you’re under 50 years old, you can now save up to $19,000 per year in a 401(k), and $6,000 in an IRA. If you’re 50 or older, the limit has risen to $25,000 and $7,000 respectively, as a means to catch up on your retirement savings for the not-too-distant future.
How you decide to invest will depend a lot on your age, and your investment portfolio will look drastically different than someone in another phase of their life. When wondering when you should start investing, the answer is immediately! The sooner you start, the more you’ll be able to reap the benefits of one of the world’s greatest wonders: compounding interest. Unlike simple interest charged against you (or interest as you’d typically think about it), compound interest on your investments works in your favor. As a young professional, aim to contribute 10 to 15 percent of your salary to your workplace 401(k) or 403(b), invest as much as you can in your Roth IRA, and invest 70 to 85 percent in stock funds, and the rest in bonds. You can afford to be riskier when you’re in it for the long-run. However, as you near retirement, you’ll want to be more conservative with your investment portfolio. At the age of 50 or older, a mix of 60 percent stock investments and 50 percent bonds will make for a stabler portfolio, enabling a brighter financial future.