You can steer your future in the right direction via some smart money moves. Image: StockMonkeys.com
Here comes a new year -- and with it, probably, a desire to do things a bit better in 2016 than you did in 2015. Many of us wish our financial health was a little better, and the good news is that it can be a lot better, if we just take some steps now.
Following are three smart money moves to consider making in 2016.
Get credit-healthy
You can't be financially healthy if your credit-related life is in shambles. What can you do about it? Well, lots of things. For starters, if you're carrying high-interest rate debt, pay that off, pronto. (I know that's easier said than done, but it can be done. A temporary second job can help, as can cutting out some under-used or non-critical expenses, such as cable TV and gym memberships -- and you might even be able to call the credit card company and negotiate some better terms.)
Photo: frankieleon, Flickr
You also want a good credit score, derived from a strong credit record. Paying down your debt can help a lot, and so can paying all bills on time (or early!) from now on. Take some time to review your credit report from all three major credit agencies (Experian, TransUnion, and Equifax), too, because you might be able to boost your score just by having errors fixed. You can get a free copy of each agency's report on you once a year, via AnnualCreditReport.com. A good credit score can make a big difference in many situations, such as when you want to borrow money to buy a home, a new car, or for some other purpose. The table below shows recent national average interest rates for a 30-year fixed-rate $160,000 mortgage for different credit score ranges -- along with the monthly payments and total interest one would pay for each rate:
|
FICO Score |
National Average APR |
Monthly Payment |
Total Interest Paid |
|---|---|---|---|
|
760-850 |
3.72% |
$739 |
$105,905 |
|
700-759 |
3.95% |
$759 |
$113,201 |
|
680-699 |
4.12% |
$775 |
$119,091 |
|
660-679 |
4.34% |
$795 |
$126,299 |
|
640-659 |
4.77% |
$836 |
$141,059 |
|
620-639 |
5.31% |
$890 |
$160,321 |
Source: MyFICO.com.
Clearly, the better your score, the less you'll have to pay.
Use retirement accounts aggressively
Another smart money move to make in 2016 is to get serious about your retirement account. If you're just socking away a few percentage points of your salary each year, you may be undersaving, which can hurt you, come retirement. Take some time to determine how much money you'll need in retirement, how much you can expect from Social Security and other sources (the average Social Security retirement benefit was recently $1,338 per month, or about $16,000 per year), and how much you'll need to accumulate.
Once you have your plan, save aggressively, in your retirement accounts and elsewhere, and invest effectively. Learn the difference between Roth and traditional IRAs and 401(k)s -- the Roth varieties are designed to let you withdraw money from them in retirement tax-free, while the traditional varieties offer upfront tax savings. In 2016, you can contribute up to $5,500 in ($6,500 for those 50 or older) to IRAs, and even more to 401(k)s -- up to $18,000 for most of us and $24,000 for those 50 and older.
It's important to save aggressively as soon as you can because your dollars invested today will have more time to grow than dollars invested next year and later. If you can sock away $6,000 per year and it grows at an annual average rate of 8% for 20 years, you'll end up with roughly $300,000. More might serve you better, but that's still a very useful sum for retirement.
Taking a few steps today can give you a better tomorrow. Image: Pixabay.
Tend to dark matters
Finally, spend a little time getting your end-of-life affairs in order -- no matter your age. It's hard to think seriously about such things when you're in, say, your 40s, but people die unexpectedly in their 30s, 40s, 50s, and so on. You don't want to leave your loved ones in the lurch.
If anyone depends on your income (a spouse, kids, your parents, etc.), be sure to have life insurance. If you already have a policy, update your beneficiaries if you need to. Make sure you've specified beneficiaries for your various investment accounts, too.
Have a will drawn up -- either via a lawyer or by preparing it on your own after some online research. It's smart to consult an estate planning pro, such as a financial planner, too. They might point out that you'd be well served by a trust, or might recommend some strategies that can save you or your loved ones a lot of money. A living, or revocable, trust, for example, can let you avoid the sometimes long and costly (and public) probate process by directing how your property is to be handled before and after your death. While you're at it, set up a durable power of attorney, a living will, and advance medical directives. (Your spouse, if you have one, should also get these papers prepared.)
If you tend to these financial topics in 2016, you're likely to sleep better in 2017 and beyond and eventually enjoy a more comfortable retirement.
