Commit to making a financial plan.
You need a plan. It does not have to be complicated; a simple plan will often do. First you need to identify your financial goals. A financial plan will provide the necessary steps to achieve them. Is retirement one of your financial goals? Contributing $100 a month to your 401(k) is not a financial plan. You need to decide when you would like to retire, how much you will need to retire and whether you are on track to achieve the financial goal of retiring comfortably. Constructing a retirement plan is more complicated and you may need professional help. Maybe your goal is to purchase a first home. You need a plan. You need to know how much of a home you can afford. Will you be able to pay the mortgage, taxes and insurance? How will this compare with the current rent you are paying? This would be a relatively simple plan.
If you already have a plan now is a good time to review and update it if necessary.
Save more than you did in 2014.
Saving money requires discipline. Living paycheck to paycheck is not a financial plan. There is an old saying “Pay yourself first”. There is much wisdom in these words. You can create a plan to accomplish this. It is called a budget. A budget is a form of a financial plan that can be very useful for achieving your financial goals. Did you save any money in 2014? If not, do you know why? The first step is to learn why you did not save in 2014 so that it will not happen again. Was it too much credit card debt? See the next tip for suggestions for reducing and eliminating credit card debt.
Reduce your debt (especially high interest debt).
You will never rid yourself of credit card debt without first establishing it as one of your financial goals and creating a plan to reduce and ultimately eliminate the debt. Paying the monthly minimum is not a plan. There are tools to help with this problem and also credit counseling companies that can help, but avoid ones that charge a fee. A budget can be a useful tool for this purpose, but self-discipline is also a requirement. Debt consolidation can be helpful in some cases and refinancing a mortgage or home equity loan can be part of the plan. You should not be paying interest rates of 12 to 15 percent or higher in this low interest rate economy.
Take a hard look at your investments.
Review your investments annually at a minimum and more often if necessary. Now is a great time to do this. Look at your retirement accounts and non-retirement accounts. Are your investments diversified? Are they in line with your risk tolerance (if they keep you awake at night they are not). Are you paying too much in fees? Fees are not always adequately disclosed as they are often net of investment returns. You should be able to get information about 401(k) fees from your employer. Your broker or financial advisor can provide information about fees in your brokerage accounts that you should know about. Visit Morningstar online for information about specific mutual fund and exchange traded fund (ETF) fees.
Establish a 529 savings plan for your children’s or grandchildren’s college education.
A 529 plan can be a great tax-advantaged savings vehicle for paying for college for your kids or grandkids, especially if you start while they are young. Every state sponsors 529 plans. Look for one with low fees. You can do it yourself or use an advisor. If you use an advisor do not use one that is paid on commission (you want a fee only advisor).
Look for ways to reduce your taxes.
The 2015 tax filing season has begun. There is no reason to pay more than you are legally obligated to pay (Judge Learned Hand). The tax code is complicated and errors and omissions can be costly. Use online software if you prepare your own return. Software will not guarantee that your return is correct, but it will eliminate math errors and often identify deductions you may overlook. A paid preparer should suggest ways for you to reduce your taxes, but many do not. You may need to seek out the services of a tax professional for a review of prior years' tax returns if you believe you are paying too much in taxes.
Utilizing some or all of these suggestions should result in
a happier and rewarding 2015 for you.
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