WANT TO GET YOUR finances headed in the right direction? Below are nine steps to take in the year ahead. With each step, I’ve included links to the relevant sections of HumbleDollar’s money guide.
1. Ask why. Before you start opening financial accounts and making trades, you need to figure out what you’re trying to achieve. “Not a problem,” you respond. You know what you want: A bigger house, a faster car, early retirement, a second home.
But before you devote your hard-earned dollar to these goals, think hard about whether you truly desire these things—or whether you’ve settled on these goals because they were important to your parents or because you’re trying to impress the neighbors.
2. Size up your opportunities. Got money to save? Where you stash those dollars depends on the opportunities available to you. For instance, your top goal each year should be contributing enough to your employer’s 401(k) plan to collect the full matching contribution. Don’t have a 401(k)? The next priorities would include paying off any credit-card debt, funding an IRA and so on down the list.
3. Get started as an investor. Don’t have much money to invest? While many financial firms have raised their required minimums, there are still plenty of good options for folks on tight budgets.
4. Buy a target-date retirement fund. Once you get that brokerage or mutual-fund account open, you’ll need to figure out what to buy. My advice: If you’re new to the investment game, seriously consider a target-date retirement fund. That will give you broad diversification in a single fund, plus a mix of stocks and bonds geared to your retirement date.
5. Rethink your life insurance. Maybe you recently got married or had a baby, and you need to boost coverage. Or perhaps the kids have left home or your net worth has ballooned, so you need less life insurance, because your family would be okay financially if you went under the next bus.
6. Build up your emergency fund—by funding a Roth IRA. Suppose you find yourself out of work. If you have made regular annual contributions to a Roth IRA, you may be in better financial shape than you imagine—because you can withdraw those contributions at any time, with no taxes or penalties owed.
7. Revisit last year’s spending. Think back over the purchases, large and small, that you made over the past 12 months. Which do you remember most fondly? Use that to guide your spending in the year ahead.
8. Plan your estate. Maybe all you need is a will and the right beneficiaries listed on your retirement accounts—or maybe you need a far more elaborate estate plan. To get started, take a look at our estate-planning checklist.
9. Talk to your family about your finances. If you have teenagers, discuss how much you can contribute toward college costs. If your children are now adults, tell them about your estate plan. Whether you have a lot of money or a little, these conversations can be invaluable.