One of the challenges of financial planning is that it may take a while to see results and/or enjoy the fruits of your labor. After all, time is the most important factor when building wealth and saving for retirement. However, there are some relatively quick and easy steps you can take today that will help improve your finances sooner rather than later.
- Take Full Advantage of Your Employer’s 401(k) Match
If you are employed by a company that offers a 401(k) match, it is important that you take full advantage of this benefit. A 401(k) match means that your company will deposit money in your 401(k) account equal to the contributions you make, up to a certain percentage or threshold. This is basically free money from your company, so if your employer offers a match, it is important to contribute enough to receive the full match so you do not leave money on the table. - Automate Your Savings
Life can be unpredictable, which is why it is important to have an emergency fund to help you weather the storm when money gets tight or you have an unexpected expense. In addition, you may have specific goals you are saving for, whether it is a down payment for a house or a car, saving for your kids’ college tuition, going back to school, or taking that dream vacation. No matter what your savings goals may be, setting up regular, automatic deposits to your savings and/or investment account(s) will help you achieve those goals sooner. - Move Your Savings to a High-Yield Interest Savings Account
As of September 2022, interest rates are the highest they have been in over a decade.
This means that interest rates on your deposits, such as money stored in a high-yield savings account, have increased too. A high-yield savings account allows your money to work harder for you by earning more interest just sitting there. Since the Federal Reserve started raising interest rates earlier this year, average annual percentage yields (APYs) on high-yield savings accounts have gone from an average of around 0.5% to more than 2%, with many experts predicting APYs as high as 3% by the end of the year. For a savings account with $10,000 in it, this could mean the difference between your funds earning $50 in interest over the course of one year or $200. - Create a Monthly Budget
It is hard to make sound financial decisions if you do not know how much money you have coming in and going out. Creating a budget is one of the most effective and empowering tools for improving your finances. To get started, write down your monthly income, as well as all your required expenses (rent/mortgage, car payment, car insurance, phone bill, etc.). Then subtract your required expenses from your income and what is left is your discretionary spending. Creating a budget at the start of every month will allow you to decide how your discretionary funds are spent. By tracking your spending each month, you can then make adjustments as needed. If spreadsheets are not your thing, there are a number of budgeting apps available to make this process as painless as possible. - Check Your Credit Score
If you do not know your credit score, you should. Your credit score influences everything from interest rates to whether you can rent an apartment. Several companies offer free credit scores, and many banks offer free credit score information to their customers. If your credit score is not where you want it to be, the next step is to look at what is affecting it. Are you making your payments on time? Are you using too much of your credit card limit? How much debt do you have? In order to fix any issues affecting your current rating, first you have to know what they are. Review your credit report for any errors as well, which might be adversely affecting your score.
These simple and easy steps are a good starting place for getting better control over your finances. However, effective long-term financial planning and investing are critical to creating the financial future you are dreaming of. A financial advisor can work with you to understand your goals, assess your risk tolerance, build a tailored plan just for you, and provide accountability and support in executing that plan. Have questions? Feel free to contact me to schedule a free consultation.