It’s the second week of January and I’m finally settled back into my routine after the hustle of the holidays. No matter how busy life gets in these first few weeks, I always make time to set goals for the upcoming year and look back at my finances. January is Financial Wellness Month, so join me in embracing the new year by making these financial decisions.
The new year is a fresh start for all dreams, spoken and unspoken. To fuel those dreams money is often needed, so setting and keeping savings goals is key to beginning the year. As you set your savings goals, think about how you will pay for unexpected expenses, that thing you want to do or have in the next couple years, and what you want your future and kids’ future to look like.
The general rule of thumb is you should be saving at least 10 percent of your income each month. Savings is easier said than done, and may require cutting a few expenses and opting for cheaper alternatives than you normally would, even if it’s only a few dollars a month. Hey, you have to start somewhere!
No matter what your saving goals are, make sure you determine the monthly amount to save (dollar amount/number of months to goal) and consider an auto-savings plan to help you meet your goals!
Save for the unexpected
No matter who you are, Murphy’s Law will find you if you don’t have savings for the unexpected expenses in life. Set aside money each month for when Murphy knocks on your door. This is your ‘emergency fund’ in case the car breaks down or someone gets laid off, for example. The key is to not touch it unless you absolutely have to.
Start Saving for That Thing
We all have that thing we constantly remind ourselves to start saving for. In my family, it’s a new-to-us vehicle and a trip to Canada to see my in-laws. For you, it may be a mortgage, the side business you’ve been dreaming of or a trip around the world.
For example, say your trip to Canada is going to cost $5,000 and you want to go next March. If you started now, you would need to save $384 each month for the next 13 months. Yes, that’s a lot of money, but it will feel so much better to take the trip knowing it is already paid off.
Start Planning for the Future
Time is of the essence when it comes to building your retirement savings or your kids’ college funds. If you haven’t started, now’s the time. If you have, make this the year you step up your game.
If your employer offers a 401(k), either start contributing or consider contributing more, starting with the next pay period. An IRA can also be a great addition to your savings plan. Each of these options has different requirements and tax advantages, so do some research. Or better yet, set a meeting with your financial adviser.
Much like a 401(k), college funds are most beneficial when started early on. But no matter what age your child is, January is a great time to talk to your financial planner about the benefits of contributing to a 529 college savings account. There are a number of 529 variations, so find the one that best fits your situation. As with 401(k)s and IRAs, the 529 makes the bulk of its money over time. Ah, the power of compounding interest!
Adjust Your Budget and Stick To It
Right now is the perfect time to take stock of what worked and didn’t work in your budget over the last 12 months. Look at your expenditures – did you spend more than you budgeted in certain categories (e.g. gas, groceries, dining out)? Spend less in others? If you answered yes to either, then don’t just ignore, adjust so you can meet your savings goals!
Consider using a site like PowerWallet, Mint.com, or Personal Capital to help you easily track your spending and adjust your budget as needed. If you really need to kick your budget into gear, adopt the classic “cash-in-envelopes” plan. Put your category totals (in cash) in labeled envelopes, and when the money’s gone from that particular envelope, the spending stops.
No matter how you budget, the goal is to spend less than you make and start saving towards your goals.
January provides us all with a clean slate and fresh start. Making these moves now will set you up for a year (or lifetime) of less stress and more financial freedom.
Kat's Money Corner is posted on Dollars & Sense every Tuesday. Kat Hnatyshyn, when not blogging or caring for her little ones, is a manager with CommunityAmerica Credit Union. For more financial chatter, click http://twitter.com/savinmavens or visithttp://communityamerica.com.