Are you happy with your financial decisions in 2017? Are you ending the year with more money than you started with? The end of the year is a great time to take stock of your situation, assess what you did well, and look for areas where you can improve.
While 80% of New Years resolutions fail by February, you don't have to make a bunch of promises to yourself that you won't keep this year. Instead, consider making these three smart money moves in 2018.
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1. Reevaluate your relationships
Do you like your bank, or do you get annoyed every time you're charged to take money out of an ATM? Does your credit card reward you for buying things you actually spend money on, or are you not actually claiming rewards you earn? Is your mutual fund making you money, or is your fund manager charging high fees for average performance and leaving you with middling returns?
As many as 20% of all cardholders are carrying the wrong credit card. Millions of customers pay rising ATM fees -- on average, $4.57 -- for withdrawing their money from another bank's ATM. Worst of all, high investment fees could be costing you hundreds of thousands and derailing your retirement.
This year, it's time to take stock of whether the financial companies you're doing business with are treating you right, or costing you more money than they're worth.
As 2018 begins, gather your account statements and take a close look at their interest, fees, rewards, and gains. Compare the financial products you're currently using with those of competitors. If you find they no longer fit your lifestyle, shop around for investment products, credit cards, and banks that will help your money grow.
2. Stop unnecessary spending
Eight in 10 Americans admit to overspending, six in 10 have no budget, and about half of all Americans say they spend too much money because of emotions like stress and excitement.
While there are lots of reasons Americans overspend, these expenditures aren't necessarily increasing their happiness. In fact, more than half of all respondents to a 2013 survey said they sometimes or often felt remorse after making a purchase. To make sure you're not wasting hard-earned money, make 2018 the year you finally take control of spending.
There are different approaches to mastering your money. The simplest is to have a portion of your paycheck automatically diverted to retirement and savings accounts -- ideally around 20% -- and keep the rest of your spending limited to funds you have available.
If you take this approach, you don't have to worry about budgeting and can't spend more than you planned -- as long as you don't break out the credit cards. But if this doesn't work for you because your bills are too high, or you find yourself reaching for the plastic, you'll need a more detailed budget.
To make a budget you can live by, start by tracking your spending for at least 30 days to identify trouble areas and make sure your plans are realistic. Give every dollar a job, and use the envelope system to ensure you're only spending what you've allocated for each category of expenditures.
3. Get serious about saving money
The personal savings rate was just 3.2% in the United States as of October 2017. With such a low rate of savings, it's unsurprising that almost 60% of Americans don't have $500 in the bank, and 39% of Americans have nothing at all saved for retirement.
Among those who are saving, the average contributions to a 401(k) are just 6.2% -- far below the 15% to 20% of your income you'll need to save if you don't want to worry about going broke in retirement.
If you want to be prepared for a money emergency and able to achieve long-term financial goals, like retiring some day, make 2018 the year you get serious about saving.
Start by signing up for your 401(k), or opening an IRA if you don't already have a tax-advantaged retirement account. If you've got these accounts open already, increase your contributions. While you should save as much as possible, you don't have to add a huge amount to your contributions to make a difference.
If you're paid biweekly and put aside an additional $38.50 per paycheck, you'd save just over $1,000 during the year. This chart shows what an additional $1,000 in annual savings would turn into, if you invested it each year and kept the money invested until age 67:
|
Age When You Begin Investing |
Total Invested From Your $1,000 Annual Contributions |
Value of Your $1,000 Annual Investment at Age 67 |
Investment Gains on $1,000 Annual Investment |
|---|---|---|---|
|
20 |
$47,000 |
$329,224 |
$282,224 |
|
25 |
$42,000 |
$230,632 |
$188,632 |
|
30 |
$37,000 |
$160,337 |
$123,337 |
|
35 |
$32,000 |
$110,218 |
$78,218 |
|
40 |
$27,000 |
$74,483 |
$47,483 |
|
45 |
$22,000 |
$49,005 |
$27,005 |
|
50 |
$17,000 |
$30,840 |
$13,840 |
|
55 |
$12,000 |
$17,888 |
$5,888 |
|
60 |
$7,000 |
$8,554 |
$1,554 |
Coming up with $38.50 per paycheck doesn't require a huge lifestyle change -- and the more you increase your savings, the better off you'll be.
To make sure you're saving enough, treat transfers to your retirement and savings accounts on payday as fixed expenses that must be paid first, just like your rent and utility bills. You owe yourself the chance at financial security, and should make fulfilling that obligation one of the first things you do when money comes in.
You can have a more financially secure 2018
To end 2018 wealthier and more financially secure than you were when you started the year, you don't have to make a bunch of hard-to-keep resolutions. Just make sure your money is working for you by calling your financial providers to account, avoiding waste, and investing in yourself.
When 2019 arrives and you look back at the year, you'll be proud of all you've accomplished when you look at how much your net worth has grown.
