Whether you have made financial resolutions for the New Year or not, it is a great time to evaluate your finances as well as your waistline. While thinking about your health, consider your financial health. While making plans and setting goals for the year ahead, make sure you have a financial plan to make those things happen as well. Here are five ways you should be getting a financial check-up for 2016.
Take an honest look at all of your sources of debt and the minimum monthly payments. Remember to include all of your debt obligations – credit cards, student loans, car loans, mortgage, or any other monthly debts. Are you only paying the minimum? Are you taking on more debt every month or in the process of paying down your total outstanding balance? Do you have a plan to address your debt situation?
Americans are not great at saving, but the good news is that many of us are starting to get the picture. Although far off the historical average of over 8%, the savings rate in the United States is up from last year to 5.5%. How are you doing at saving? If you have a plan for saving, stick to it. If this is a place you are falling short, make a plan to turn it around and increase your savings now. Consider having a portion of your pay automatically transferred into a savings account. Try a twelve-month savings challenge such as this one that I did last year.
The New Year is a great time to re-evaluate your budget. Is it still working for you? Where do you need to make adjustments? Is there a certain category where you keep going over budget every month? If so, think about what you can do to get that back in line or where you can make adjustments to other categories to account for higher costs. Simply continuing to go over budget is not a long-term viable solution. Do your New Years resolutions include things like gym memberships, travel, and eating out less often? Update your budget accordingly.
Some people watch their retirement accounts like a hawk and are constantly making trades. I am not one of those people. First, I have a long way to go until I hit retirement age. This is not one of those posts telling you how to retire by 40. Second, I invest my retirement savings with a rather simple long-term philosophy. When you are over twenty years from retirement, put most of your money into the stock market. Spread a little across real estate, money market, and bonds. When you cross over that line and have fewer than twenty years to retirement, slowly start flipping that equation in the other direction to take money out of stocks. I do, however, recommend rebalancing your retirement account every quarter. So, go ahead and do that this month.
Unfortunately, its’s about time to start thinking about filing your income taxes again. The most horrible time of the year, right? Before you start having a tax panic attack, do one simple thing. Make sure that your employer is allocating the proper number of allowances on your W2 for the upcoming year. This will save you a lot of grief next year at this time.
The gender gap in retirement savings is real, and there are two main culprits for this gap. The first is that on average women earn less than men. Not only is it true that too often women are getting paid less as men to do the same job, but the bigger problem from a retirement savings perspective is that women are generally employed in lower paying fields and positions. This puts women at a clear disadvantage when you look at total retirement dollars. However, the gender gain retirement savings is minimal when you compare when and men in the same position or income level.
The second component in the gender gap is that on average women work 12 years less than men over the course of their career. In particular, many women put their careers on hold or work only part-time while they raise their young children. This creates a huge loss in retirement savings early in life when that income is so critical. One of the best tips for retirement savings success is to start early because the compounding effect of your rate of return is able to do so much of the work for you.
So, I have three tips to help women with their retirement savings:
1. Educate yourself. Women are not necessarily less financially literate than men, but they are certainly less confident in their knowledge. Read, ask questions, and gain the knowledge you need to confidently manage your finances. There are so many great books and web sites specializing in personal finance and investment topics. Find a place where you feel comfortable asking questions.
2. Don’t rely on social security or your spouse’s retirement plan. Invest in yourself for yourself. Don’t skimp on putting money into your retirement account because you would rather spend it on your family. You are not being selfish but are looking out for your future needs so that you won’t be a financial burden on your children when they are grown.
3. Increase your retirement savings as quickly as possible. Max out your 401(k) contribution with your company or seek out an alternative IRA if your employer does not offer a retirement savings plan. The sooner you can start adding money to your account, the better off you are because compounding interest can do a lot of the work for you. As a matter of fact, the money you save for retirement from your first job will have a much greater impact on your retirement date than will your salary at retirement. Compounding interest is a true miracle of finance.
Are you saving for your retirement now? When did you start? Do you feel in control of your retirement account or are you completely lost? What do you wish you knew about retirement when you got your first job?