By Gregory S. Ostrowski
It’s that time of year when we realize we may have indulged a little too much over the holidays, and maybe our bank account is feeling the impact. But not to worry. With a little foresight and planning, you can get back on track and help make the most of your money.
That said, here are some strategies that you could employ right now, no matter what stage of life you’re in...
Young Professional
Fully fund a contingency savings
If you haven’t yet set aside funds you can access quickly, now is the time to do so. Make sure you have at minimum three months, and ideally eight months of expenses set aside to cover unforeseen costs that could occur due to a health issue or job loss.
Make a budget and stick to it
Some people who believe they aren’t good with numbers look at budgeting as this insurmountable task. But if you like making lists to keep track of your to-dos, then a budget can simply be that. Just make a list of what you earn and what you spend money on, and track it in a simple spreadsheet.
Eliminate your debt (or as much as you can)
Not all debt is created equal. Student loan debt, for example, can actually have some advantages come tax time, since the interest you pay may be tax deductible. High interest credit card debt is something completely different. Do whatever it takes to pay this down, as the accruing interest can significantly hamper your ability to save for the future.
Participate in your 401k plan
If your employer has a 401k plan, make sure you enroll. Aside from getting a jump on saving for retirement, some employers will match your contribution up to a certain percentage. This is, as we say, “free money.” (And who doesn’t like that?)
Starting a Family
Keep tabs on your spending
If you started your career and were living on a limited budget, you probably didn’t think much about what to do with your excess cash. But if you’re established in your line of work and making more, it may become easier to spend on items you may not actually need. Be careful to continue to monitor your spending as if you’re still just making ends meet so your budget stays under control.
Monitor your credit
As larger ticket purchases start to come up, having good credit can go a long way in securing advantageous terms. Make sure you understand what credit lines you have open, and try to avoid making purchases like a home and car around the same time. Checks on your credit could cause your score to drop if they’re done too close to each other.
Discuss strategies with your tax professional
If you’re not a tax professional, you may have better luck reading a novel in a foreign language than you would understanding the tax code. That’s why it’s important to sit down with your tax advisor and discuss what options or strategies you may be able to employ to save some money when April 15th rolls around.
Contribute regularly to your retirement plan
First, make sure your retirement plan is established. If you’ve already set one up, make sure your contributions happen on a regular basis. The compounding interest can go a long way in helping you build your nest egg for the future. Skipping retirement payments in favor of items that depreciate, such as a flat screen TV, would not be the best idea in this case.
Sending Kids to College
Limit your borrowing
Ideally your children will receive full scholarships in their major or sport of choice. But in reality, your family will have to contribute at least some toward college tuition. If you can set money aside in an educational savings plan, such as a 529, you will be in better shape to not have to take out student loans. And paying with money that earned you interest is a whole lot better than paying someone else interest on money you borrowed.
Contribute all you can to your retirement plan
Based on your age, you may be able to contribute up to $18,000 into your 401k. This is beneficial, since it’s being invested on a tax-deferred basis during the time of your life when your earnings may be nearing its peak. You’ll pay taxes when you withdraw the funds, but the savings on the front end could very well outweigh the loss in taxes after.
Discuss financial decisions with your family
Keeping your family members informed of larger financial decisions and your overall financial outlook does two things. First, it educates your children about how money works and how much things actually cost. Second, it can give your family members more knowledge in the event something happens to you. While we don’t want to think about a situation like that, a little planning ahead of time can go a long way.
Stay calm during market dips
By this stage in your life you may have some money in the stock market. If you do, be aware that the market will have great days and bad days, and it’s important to stay patient when it does the latter. Just stay calm and stick to your plan.
Ready to Retire
Stay fit and healthy
As the saying goes, an ounce of prevention is worth a pound of cure. It is cliché, but with the rising cost of healthcare, staying out of the doctor’s office makes sense financially as well.
Understand your legal and estate matters
If you own property or have other assets, it’s a good idea to get a better sense of how each impacts your financial picture. Your financial professional can help you determine what options might be advantageous given your needs and wants, and can steer you in the right direction.
Confirm your beneficiaries
It’s a good idea to review your accounts and see who you have listed as a beneficiary. Sometimes life events can change this information, and it’s better to know ahead of time instead of fighting red tape after the fact.
Build your legacy
The holidays offered a time for reflection and giving. As we move into the New Year and things settle down, it may be a good time for you to consider how you want to make a lasting contribution, whether that be to your family, community, or place of worship. If that’s the case, talking to your financial professional can give you some ideas on how your life of work can be transformed into something that continues to give to others.
By following a few of these strategies you might just be on your way to enjoying your most prosperous year ever.
Gregory S. Ostrowski is a Managing Partner and Certified Financial Planner® with Scarborough Capital Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute judgment and are subject to change without notice. This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
