by Galia Gichon
If you want to get your finances off to a good start this year but don’t even know where to begin, here are some pointers to help move you in the right direction. While this list might seem overwhelming, you can pick just one item and make it a priority. If you can conquer one, you are well on your way to financial health.
1) Make your savings automatic. If you think you can’t afford it, start with a small dollar amount, like $25 per month. You won’t even miss it. Making your savings automatic is the key to your success! If you’re already doing this, increase the amount you’re saving by 3 or 4 percent. Put this money in a bank or account where it’s harder to get to. Try ING (www.ingdirect.com)—they have no minimum, no fees, and have one of the highest-paying interest rates for a savings account.
2) Increase your retirement savings by 3 percent. You will barely feel it at first, and soon not at all. On a $50,000 salary, 3 percent more will save you an additional $1,500 each year. And that number will increase if you work for a company that offers matching funds.
3) Invest in real estate. If you’re renting, make buying a home a priority. Even if it seems far away, put together a savings plan for a down payment. Say you want to buy a home for $250,000 and you need $50,000 down (20 percent). You may already have $25,000 saved and need another $25,000. If you can find $1,000 a month to save (automatically!), you should have your home in a year and a half. If you already own a home, pay extra on your mortgage. Making one extra payment a year can shorten a 30-year mortgage by 10 years! Why do all this? Because owning real estate is one of the best ways to become financially healthy.
4) No more credit cards! Stop using credit and debit cards—period! For my clients with debt, this is the easiest and best way toward becoming debt-free. If you don’t have the cash, don’t buy it. It’s as simple as that.
5) Self-employed? Make sure you have disability insurance. It is one of the most important decisions you can make. One in five people has a chance of becoming disabled. If you get hurt, no one is looking out for you. Check out www.workingtoday.org for a great disability policy.
6) Check up on your mutual funds. With everything that’s going on in the mutual fund industry today, a checkup on your funds is essential. Look them up on www.morningstar.com. How have your funds performed compared to similar funds? If worse, then do some further research and reassess your fund choices.
7) Diversify, diversify, diversify. If you want your money in 20 years or more (i.e. retirement), spread out your investments among Large-Cap, Small-Cap, Growth, Value, International, and Bonds. For shorter-term goals, make sure you aren’t taking on too much risk.
Saving for college. If you haven’t already, set up a 529 fund, which offers tax-free benefits, to help save more money for your child’s college education. For more information about your state’s fund, visit www.savingforcollege.com.
9) Do you have a will? I keep mentioning this to clients. If you have any savings or investments or any material possessions you would like to pass on, you need a will. To save some money, buy a will kit at www.nolo.com or Staples.
10) Take a class. Get that extra help you need. Take a class to learn more about your finances. In addition to the practical information, you’ll feel motivated by the other people in the room wanting to take charge of their finances as well.
Galia Gichon is a member of the New York City Incubator and runs Down-to-Earth Finance