Whether you need to set new goals for the future, ditch the habits hindering your wealth-building potential, or—most likely—a mixture of the two, the new year offers a great opportunity to reassess and revamp your financial life, build on successes and turn failures into teachable moments.
Here are some tips to help ensure your money strategies for 2018 are on point, allowing you to take a few more steps toward becoming the very best version of your financial self.
- Create/update your budget. Regardless of income, virtually anyone can benefit from laying out their fiscal priorities and resources to make certain their financial choices are optimized to deliver maximum value. Whether you choose a slick automated app or an old-fashioned spreadsheet, try to commit to a budget that limits expenses to no more than 50% of your monthly take-home pay. Add a line item to pay yourself consistently each month, in a way that aligns with your short, intermediate and long-term goals.
- Review your account statements from 2017. A nominal fee to use an out-of-network ATM. That $20 charge for extra data in your mobile plan. The small commission charge for transactions in your self-directed brokerage account. None of these may be significant individually, but together these small, frequently avoidable costs can add up over the course of the year into surprising and substantial totals. Review all the account statements for your bank, retirement, investment, memberships, and utility accounts to ensure any management fees, transaction-related charges or commissions are justified.
- Automate as much as possible. Your time is valuable. Automate contributions to your savings and retirement accounts. Use online bill pay to make sure you never miss a credit card, loan or utility payment due date. New, more holistic programs, like Fifth Third’s Life360 platform can offer a customized roadmap for wealth management as well as investment strategies that can help optimize your portfolio in simple and intuitive ways.
- Check in with your liquidity. The financial health of a corporation is measured, in part, by its liquidity. The same principle applies to your personal finances: An adequate, accessible emergency savings fund you can tap into when the unexpected happens—without consequences like penalties, tax implications, or interest charges—means you won’t have to sell losing investments or rely on high-interest credit cards in a time of need. Experts typically recommend saving a minimum of three to six months worth of your take-home pay. If you’re self-employed, the sole breadwinner, or aren’t confident about your job security, aim to save up to one year’s worth of your monthly take-home pay.
- Invest in your future1. Consistent retirement account contributions can deliver multiple benefits, not only as a vehicle that allows small investments the potential to grow into much bigger balances over time, but also by potentially lowering your taxable income and, depending on your income and eligibility, presenting opportunities for tax deductions1.
- If your employer offers a 401(k), the maximum contribution limits will increase from $18,000 to $18,500 in 2018 or up to $24,500 for those age 50 and older. Adjust your contributions with your employer in 2018 to reap the benefits of the increase.
- If you haven’t contributed to a traditional IRA for the 2017 tax year and are eligible to do so, you have until April 17, 2018, to make IRA contributions for the 2017 tax year.
- As of the 2018 tax year, the income cap that determines Roth IRA contribution eligibility has increased. The adjusted gross income (AGI) phase-out range for married couples filing jointly is now $189,000 to $199,000, up from $186,000 to $196,000 in 2017. For single and head-of-household filers, the income phase-out range is now $120,000 to $135,000, up from $118,000 to $133,000 in 2017.
- If you turned 70½ in 2017, you must take your 2017 required minimum distribution by April 1, 2018.
- Reconsider your risk tolerance. Though investors have grown accustomed to the rewards the bullish market has delivered over the past seven years, even the most skilled financial experts and economists cannot predict market movement precisely. Remember the adage “nothing lasts forever.
Don’t let media headlines drive your investment decisions. Having an accurate understanding of your portfolio diversity can speak volumes about whether your current asset allocation is appropriately aligned with your risk tolerance. Not sure how to balance the idea of possibly losing money, compared to the missed opportunity to make more of it? Rutgers offers a quiz to help you objectively assess just how much risk you’re willing to bear.
10 Key Financial Questions to Answer as You Plan for the New Year
- Where am I now? Take the time to dig into your finances and get a handle on the true state of your assets.
- Am I overexposed? Determine whether your current insurance coverage adequately protects your home, health, assets, life, and ability to work at this point in your life.
- What annual events threw my budget off last year? Avoid budget turmoil by identifying the annual events that tend to throw your finances into disarray.
- What lifestyle changes might improve my finances? The investments you make in your mental, physical, and emotional health now could mean far fewer issues over the course of your life—which could potentially translate to lower medical and insurance costs as well as an overall higher quality of life.
- What are my biggest financial fears? Hone in on what gives you financial anxiety, and empower yourself to take small but consistent steps that turn worries into action.
- What will I do with a bonus, inheritance, or cost of living increase? If you come into some unexpected cash this year, have a plan for your windfall before it arrives in your bank account.
- What goals do I want to reach, and why? Make your financial goals actionable with realistic timeframes categorized as short-, medium-, and long-term. Your goals are personal to your values; identify the “why” behind each.
- How will I track my progress? Goals that are measurable and actionable can provide you a greater sense of control over your financial life.
- What number do I need to reach to be retirement-ready? The amount of money you need to save for retirement is based partially on the lifestyle you intend to lead in retirement and when you intend to retire.
- What financial information would I like to know? Identify three financial topics you’d like to learn more about in 2018 to ramp up your understanding of new potential opportunities you may want to discuss in more detail with your financial professional.