By Brittany N. Cox
Registered Investment Advisor at Nestlerode & Loy Investment Advisors
We have just started a new year and many people have resolutions and changes they are thinking about to better themselves and their lives. Those resolutions commonly have to do with healthy living, exercising, traveling, etc. However, have you thought about your finances for your resolutions?
According to a Fidelity Investment survey, nearly one third of Americans have a money-related resolutions for 2019. The beginning of the year is a good time to start planning out your finances for the coming year. Do you have a budget? Rainy day savings? Adequate retirement contributions? I like to plan things out at the beginning of the year, so I have a roadmap for where I want to go in the next 12 months.
Of that one third of Americans who are planning a finance-related resolution, 48 percent are planning to save more money. One thing to think about is your budget. I like to create a spreadsheet of all the payments I know I will have for the year so that I know exactly what I will be paying out every month. There are also many apps available if you prefer electronic tracking on your phone or tablet. Budgeting for the year helps factor in annual and semi-annual payments such as property taxes, car insurance, heating costs, etc. Every month will be different and you should include saving for birthdays, vacations and holidays.
Also use your budget to track your savings each month. If you plan out how much you will save as if it is an expense, it is easier to follow through and, in the end, becomes a habit. We suggest having three to six months’ expenses set aside in an emergency savings in case something unexpected comes up such as a leaking roof or a broken-down car. When you know what to expect and when to expect it, you take a lot of stress and potential pitfalls out of the picture.
It’s also a good time to think about your retirement plan and contributions. Are you contributing to your employer plan? If so, be sure you are contributing enough to get the maximum match from your employer. An employer’s match is the most significant return you can get on any investment, so definitely take full advantage of it. For those who do not have a retirement plan at work (those who seem to be in the worst position, per many studies) or who are not eligible yet, you should continue to contribute toward retirement. For example, roll over your former employers’ 401k(s) to an IRA and make contributions until you are eligible again for your employer’s plan.
Some exciting news for savers in the new year is that the IRS has increased the amount you can contribute to your IRA, Roth IRA, and 401(k) plans. After six years of being able to contribute $5,500, you can now put $6,000 into your IRA for 2019. The amount you can contribute to your 401(k) or similar workplace retirement plan goes from $18,500 in 2018 to $19,000 in 2019. Catch up contributions for those 50 and older in 2019 are an additional $6,000 for workplace plans and $1,000 for IRAs. This makes it a good time to review your contributions and, if your budget allows, sock away the extra money into your retirement accounts.
While budgeting and planning, you should be sure to check your credit score annually. An individual can obtain their credit score for free once per year from each of the three major consumer reporting agencies in the U.S., which are Experian, Equifax and TransUnion. Checking your own credit report does not hurt your score like an inquiry for new credit would. You should check your report from each of the three agencies as there may be some differences depending on if all the creditors you deal with report to all three agencies. Checking your credit report verifies your information is correct and up-to-date.
Take the new year to create your resolutions, including your financial resolutions, and create a roadmap to help yourself be better prepared. You should recruit your financial advisor to help you review your contributions and asset allocations to be sure you are well-diversified and making the most of your savings for the upcoming year.