It’s quite easy to let our finances go when we have many other responsibilities and tasks that keep us busy, but our finances don’t just improve on their own. Conscious steps and actions are needed to get into financial stability or independence. January is the best time of the year to take action that can make a huge difference in your financial picture.
Here are three of the most important actions to take, according to financial experts:
1. Update your budget
Brian Bender, head of Schwab Retirement Plan Services suggests making a list of anticipated big expenses for the coming year such as a possible move, pricey vacation, or marriage. It is best to be prepared for these costs and reflect them in your budget.
According to Kimberly Palmer, a personal finance expert at NerdWallet, it is best to look back at your purchase over the last couple of months to get an idea of how much you send. Palmer said that you can then create a ballpark estimate of your budget or where you want to use your money. She added that it is best to use the 50/30/20 budget, which means 50% of your income will be used for your needs, 30% for your wants, and the remaining 20% for savings and debts.
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2. Review your emergency savings
One of the best ways to sleep soundly at night is to have a solid emergency savings account, according to Cristina Guglielmetti, the president of Future Perfect Planning in Brooklyn.
According to Guglielmetti, it is good to calculate your key monthly expense such as rent, food, utilities, and pet care, and later on, decide on the number of months you want the account to be able to cover should you lose your job.
She suggests keeping cash in a high-yield savings account and you have to make sure your savings are FDIC insured and protected from loss.
3. Make sure you’re on track for retirement
Experts say the best time to check your retirement savings goals and to make any needed changes is during the start of the new year.
Guglielmetti said that some people may be able to take an upper hand on the increased annual contribution plan limits. Workers who are 50 years old is eligible to make additional “catch-up” contributions.
Rita Assaf, vice president of retirement with Fidelity Investments said that a small increase in your savings is helpful. For instance, if a 35-year-old worker earning $600, 000 a year will increase his saving contribution by 1%, an additional $110,000 during his retirement could be generated, giving him a 7% annual return.
Assaf added that it’s best to try saving at least your company match level if you have access to a 401(k) with a company match. If you don’t do this, it’s like you are leaving free money on the table.
