There’s really nothing that makes January that much different from any other month of the year. However, the start of a new year often makes us all take inventory of where we are and think about starting new goals. Whether you have business or personal goals, I challenge you to include improving your financial stability in this process.
Sometimes setting these goals can be daunting because it feels like there is so much to tackle at once. However, I find if I take my to-do list one at a time, it is much more manageable. Take one item that can have a big impact on your financial futureand make sure to follow through on it.
I’d like to propose three major areas to address that could make a huge difference in anyone’s financial future. Whether you have millions of dollars or are deep in debt there are at least one or two of these items that apply to you. Remember, take one, and commit to it!
I’d like to propose three major areas to address that could make a huge difference in anyone’s financial future. Whether you have millions of dollars or are deep in debt there are at least one or two of these items that apply to you. Remember, take one, and commit to it!
- Consolidate or Pay Down Revolving Debt (Credit Cards)
Paying down debt can always improve your financial stability (Right now we won’t get into the advantages of keeping low interest debt and investing instead. There are times when this is appropriate.). However, one huge area of concern this year is credit card debt. Rising interest rates can have a huge impact on credit card debt.
According to creditcards.com, the average interest rate on credit cards is 20.04% as of January 4, 2023. This is up from 17.09% six months ago.
Credit card debt is never advised by a financial advisor. However, we understand that sometimes situations make it hard to avoid. If you find yourself in this situation, now more than ever is a good time to look at transferring your balance to a zero interest credit card. CNBC released a list of the best zero interest cards at: cnbc.com/select/best-zero-interest-credit-cards.
Once you have transferred the balance, calculate what it will take to pay off your debt during the zero interest time period, and pay that amount monthly to eliminate this debt. Or, better yet, pay more than that when you can to pay it off faster. Going from a 20% interest rate to 0% will save you approximately $200 a year for every $1,000 in debt. That is significant! This is not your license to spend more. Go ahead and use your old card for daily purchases, but pledge to pay this off every month. Do not add any new charges to the 0% card.
2. Increase Savings
There are quite a few changes to retirement accounts such as 401(k)s, 403(b)s or Individual Retirement Accounts coming in the next few years. For 2023 the maximum possible retirement plan savings is increasing:
- The maximum savings in 401(k), 403(b) and other retirement plans is increasing:
- From $20,500 to $22,500 for employees under age 50
- From $27,000 to $30,000 for employees 50 and older
- Regular and Roth Individual Retirement Accounts
- From $6,000 to $6,500 for investors under age 50
- From $7,000 to $7,500 for investors 50 and older
Adjusting your savings rate to take advantage of these new higher limits or just to increase your savings closer to them can make a significant long-term advantage.
If this is not an option, there are always opportunities to save more. A taxable account can have some nice investment advantages. And it is important to understand where you are regarding retirement plan savings. Sometimes, it may make sense to utilize a taxable investment account rather then your 401(k) or 403(b) to improve liquidity or help manage potential future tax implications. This is something to discuss with your financial advisor.
3. Review Your Estate Plan/Will
If you have been following my newsletter very long, you will know that I believe having a well documented estate plan or will in place is a key piece of financial stability for you and your family.
- Make sure “transfer on death” instructions are on your bank accounts so that your heirs can have liquidity to pay bills and handle any expenses.
- Meet with an estate planning attorney to walk you through how to title all assets to avoid probate and ensure your wishes are carried out. Even if you feel like you don’t want to impose your wishes on heirs, it is extremely helpful during a stressful time to take these decisions out of their hands. If you have children, this is especially important.
- Consider using a professional trust company as executor of your will. Executor can be a much heavier job for a family member or close friend if there are children or special instructions that need to be carried out.
Again, like anything financial, stability and success is a process. Much like my annual new year dieting plans, we make strides forward and back. But, oftentimes, if we take it in moderation and commit to one item we can make a huge difference.