Published in: Banks | Dec. 14, 2019
By: Maurie Backman
Achieve these, and you'll be sitting pretty in the new year.
The start of a new year is always a popular time to resolve to improve different aspects of life, and your finances are no exception. Now that 2020 is almost upon us, here are a few important money-related goals it pays to set for yourself.
No matter your age or income level, building an emergency fund should be your chief financial goal if yours is not already fully loaded. Without a decent sum of money tucked away in a savings account, you'll risk racking up loads of debt the next time a major unplanned bill lands in your lap, or you encounter a situation where you lose your income for a period of time (say, because you get hurt, fall ill, or get laid off). Your emergency fund should contain enough money to cover three to six months of essential living expenses, so if you're currently sitting on less than that, pledge to do better.
We just talked about the importance of building emergency savings, and if you want to know how you'll eke out the extra money, the answer could boil down to budgeting. By following a budget, you'll get a better sense of what your spending categories look like, and you'll be able to make smart choices if you need to cut back. Best of all, setting up a budget is easy. Just go through your bank and credit card statements to see what your various bills cost you on average, and then list them on a spreadsheet so you have the option to tweak those numbers on screen and see what cutting back in different places might do for you.
If you're carrying credit card debt, you're no doubt aware that the longer you hang onto it, the more interest you'll accrue. That's wasted money that you're giving away to your credit card companies. If you've been doing so for quite a while, it's time to break the cycle. A good way to do this is to examine your budget, identify some expenses to cut back on, and use your freed-up cash to pay down your credit cards until you're finally in the clear. Getting a second job to boost your income also works in this regard, especially if you don't wind up getting a raise in the new year.
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If you've yet to start socking away money in an IRA or 401(k), now's the time to get started. The more years you keep your money invested, the more growth you'll benefit from. In 2020, If you're under 50, you'll get the option to save up to $6,000 in your IRA, or up to $19,500 in your 401(k). If you're 50 or older, you'll get a $1,000 catch-up in your IRA that raises your contribution limit to $7,000, and a $6,500 401(k) catch-up that brings your total allowable contribution to $26,000. But don't worry about maxing out just yet. If you're not used to saving anything for retirement at all, start small and work your way up. You can especially get away with taking it slow if you're still in your 20s, and have many years in the workforce ahead of you.
As you sit down to map out your financial objectives for the new year, try not to focus on the sacrifices you'll need to make to achieve them. Instead, focus on what you stand to gain -- financial security, a better grasp on your expenses, and the peace of mind that comes with carrying less debt than you did before.
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