FORT KNOX, Ky. — How well did you do financially in 2023?
Were you able to save more toward retirement? Did you set up an account for emergencies or pay off any existing debt?
With the New Year here, some Americans are anxious to restructure their financial plan to meet their money goals. Every new year brings a “new beginning,” in which we typically resolve to do better in everything from eating healthier to exercising more or quitting a nasty habit.
However, studies show that despite our commitments to make improvements, the resolutions come and go. Experts say change is a process, and processes take time. If we make the process too cumbersome, we may not stick to our plans.
Remember, there are always revisions that can be made throughout the year to become a better money manager and improve your financial wellbeing. As one source put it, “You could be skating on the edge of disaster or in tip-top shape, but the bottom line is, you need to think about where you are now, and where you need to be to take complete control.”
So, let’s put the past behind us and start fresh. Who knows, making smart financial decisions just might allow 2024 to become our best year ever.
Here are some financial tips that might help as you begin your New Year plan:
Review the previous year.
· Were your financial goals met in 2023?
· Is your debt repayment current? What have you done to rectify it?
· Is the interest you are paying too high?
· What areas do you need to focus on in 2024?
· Are you prepared now to file your 2023 taxes?
Monitor what you spend.
· Break the habit of “wasteful spending.”
· Develop a realistic written plan. The best way to budget is gather your bills and make a list of recurring expenses. Rank them by order of importance. True necessities should be placed as the priorities, such as housing, food, utilities, insurance, cell phone and gasoline.
· Track what you spend. Save receipts, record and review what you are spending weekly.
· Look for patterns, define your spending habits, then adjust them.
· Consider using financial apps, like Mint, YNAB (You Need a Budget), Every Dollar. But avoid apps with that require a monthly fee.
Spend less and save more.
If you wanted to lose weight, you would consume less calories while exercising more and tracking your calorie count. A similar scenario involves money.
· All of us have different spending behaviors, including spending leaks – money spent without a plan. These might include impulse buying, paying unnecessary fees and for services we don’t use, frequenting convenient stores, gym memberships we don’t use, social media apps, gaming or monthly subscriptions. Consider what applies to you.
· The key is watching what you spend: don’t spend more than you make.
· Implement a “no-spend day.” Put yourself on a financial diet once or twice a week. This means no impulse buying, no eating out, no entertainment, etc. This is a good way to control your spending. Soon, you will find yourself doing this more than once or twice a week and finding enjoyment in it.
Set specific goals.
· Financial goals are things you hope to achieve. They could be short or long-term in nature. For example: aspire to purchase a home, send Susie to college, or buy a new car.
· Choosing an unrealistic, unsustainable goal sets you up for failure. Your goal should reflect your behavior.
· Use the SMART goals – Specific, Measurable, Attainable, Relevant, and Time-bound.
· Determine what you need to sock away each month per each goal.
Resolve to become debt free.
Many are buried in debt, even when they don’t realize it. Consider all the categories in your budget and ask yourself, “Where can I free up money to liquidate existing debt to attain financial freedom?”
· There are two strategies to reducing debt. The “Golden Rule” strategy dictates that you pay off the debt with the highest interest rate first because you will save more money from the high annual percentage rates. As you knock down the big debts, you can then begin to redirect funds toward other financial goals or knocking down the next debt. The idea is that by doing this, you will benefit in lowering credit utilization.
· Other financial experts feel it makes more sense to attack the smallest debt first as this strategy gives you momentum to do more, especially if you are trying to eliminate multiple debts. Finances are usually emotional, and even a small dent you can make to pay them off will make you feel much better about your financial health.
· While any debt has the potential to affect your credit score, some may have a larger impact than others. There are debt payoff calculators you can utilize that estimate the amount of time it takes to pay off your debt.
· You can save thousands of dollars by making power payments – paying more than the minimum required. This includes any debt you have, such as the mortgage, car payments, personal loans and credit cards. Avoid paying the minimum just because you can.
· If your credit score is a good one, you might consider consolidating or transferring a credit card to a 0% card. Beware, however, of the transfer fee.
· Just remember, the higher your debt, the lower your credit score. Your debt load should remain below 36% of your pre-tax income.
Pay yourself first.
This concept helps us manage our finances by building our plan around current and future goals. It is a great tool to help us live within the guidelines of designated priorities.
· The concept allows you to focus on the big picture.
· You contribute a specified savings from each paycheck automatically when received and avoid what is left over.
· Question: Can you save three to six months of your expenses each month?
· Build your plan around your goals rather than your expenses.
· Don’t forget to set aside money for emergencies.
Boost your retirement savings.
There is a difference between saving and investing.
· Saving is for emergencies and involves money you can access quickly if needed. It is also insured up to $250,000 by the FDIC. Investing is money you set aside for the long term, toward retirement, in the Thrift Savings Plan, 401(k) plans or other broker investments.
· Determine which dollar amount you can invest. Can you invest 10-15% of your net income each month? Do it, if so.
· How long do you have before you will retire? Can you take more risk?
· Consider an automatic withdrawal from your paycheck directly to the investment.
· Take advantage of employer matching, which amounts to FREE MONEY.
· Consider tax-deferred growth.
· Can you fully max out your investment contributions for 2024? The IRS limit for TSP this year is $23,000 ($884.62 per paycheck) a year.
· If over age 50, can you contribute a “catch-up” to your Roth IRA? Note the Secure Act 2.0 changes.
· Redirect raises or bonuses toward your retirement account. Not only will you lower your taxes, you will also build a healthy nest egg.
· Pay attention to the fees financial institutions are charging you.
Review your insurance costs.
· Review coverage for your vehicles, mortgage and life insurance policies.
· Do your policies cover what is important to you?
· Are there extra features you feel you can live without?
· Have you done a comparison check with other competitive companies?
· Check for discounts: multiple coverage, good driver, number and age of drivers, etc.
· Adjust your deductibles: the higher the deductible, the lower your premium.
Estate plan.
· Have you updated or made personal changes to your estate plan and will? This might include adoption; birth of a child or grandchild; marriage; divorce, which includes reasons to update your life insurance; last will and testament; bank account; and investments that align with your wishes.
Health savings or flexible spending accounts.
· Ask about a tax advantages health savings account that can be set up through your employer.
· These accounts play a pivotal role in helping manage your health care.
· Purchase medical savings plans available for taxpayers that cover qualified expenses – glasses, dental work and other health care costs.
Social Security.
· Social Security is designed to replace 40% of your pre-retirement income.
· You can begin drawing it at age 62 or the full retirement age. Determine which is in your best interest.
· By taking social security at your FRA, your money will grow 8% a year.
· If you wait and collect at age 70, there is a bonus. The bonus would grow each year estimated at 8%.
· If you work a minimum of 35 years, you may be eligible for $4,555 a month.
· Do your homework and explore your options.
Maintain financial responsibility.
· Make all payments on time. Know that 35% of your credit score is calculated by how you make your payments.
· Avoid paying late fees.
· Make financial literacy a priority.
Get rid of financial clutter.
· Clean up loose ends.
· Throw away documents you have saved but haven’t looked at in over a year.
· Place documents you want to keep in a file folder, binder or safe deposit box, and make sure it can easily be identified.
· Consider documents necessary to keep long-term.
There are numerous ways you can improve your finances. Craft a plan that works for you, one that fits your style and behavior.
The New Year may bring some financial surprises, but the key to success is being prepared for the unknown. Make better choices and develop good spending and saving habits, which lead to financial success.
If you have financial questions, consider making an appointment with an Army Community Service professional financial counselor to help educate and assist in making informed financial decisions.
To schedule an in-person or virtual appointment, call 502-624-5989.
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