Start 2019 Off with a Bang with These 19 Money Tips
A new year is upon us! Help make 2019 the best year ever with these 19 money tips.
1.) Establish/Review your budget for the new year
The beginning of a new year is a great time to start building new habits or to revisit old ones. One of the most important, wealth-building financial habits that you can form is budgeting consistently. If you’ve never made a budget before, now is a good time to start and stick with it. For those that have a budget, but haven’t looked at it in a while, the new year is a good time to look at expenses that could be cut and saved instead. Whether you categorize and name every dollar in your budget, or you do a “golfballs and beer” method of budgeting, the key is to stick with it and continue to do it consistently.
2.) Increase Retirement Contributions
Now is a great time to revisit how much you are saving towards retirement. If you’ve recently had a pay raise or have not been the best at saving money in the past, make a commitment this year to increase the amount that you are contributing to your retirement plan through work. Increasing your savings rate by even a percentage point or two can make a difference in the long run. In future years, continue to make incremental increases in savings until you are maxing out your annual contributions to the plan(s). Gradual changes over several years can lead to a significant difference long-term.
If you have already maxed out your annual contributions through your employer’s plan, look at contributing to a Roth IRA (or perhaps begin utilizing a backdoor Roth IRA strategy if your income is too high to contribute directly).
3.) Review Your Insurance Coverage
Let’s face it, insurance is not the most thrilling subject to talk or think about for most people. If you’ve been dragging your feet about getting the appropriate amount of insurance coverage (life, disability, home and auto coverage, etc.) put in place because you’d rather talk about something more fun and exciting, it’s time to step up and deal with it. If the unthinkable happens somewhere down the road, you will be thankful that you took the time and endured the inconvenience in order to get the correct coverage in place. Likewise, if you have coverage in place, but it’s been a while since you’ve reviewed it, there is no time better than the present to review and update your coverage, as necessary.
4.) Review Emergency Fund Savings
Whether it be a car breaking down or your home’s air conditioner going out, unexpected expenses happen from time to time. That’s why it’s important to have 3-6 months’ worth of expenses saved up in a savings account for an emergency. The beginning of the year is a good time to do a quick review of your emergency fund and ensure that you have adequate savings in place. If you’re emergency fund is a bit low, use excess cash from your first few paychecks of the year to build up your cash reserves.
5.) Maximize the Money in Your Emergency Fund
While it’s important to have adequate cash reserves on hand, you also want to maximize the interest that your money receives while in the bank. Online banks such as Ally and Marcus by Goldman Sachs, along with services such as maxmyinterest.com, generally provide higher interest rates on their savings accounts than large brick-and-mortar national banks, while still offering FDIC insurance for deposits up to $250,000. *Please note that it’s extremely important that your savings account is FDIC insured! There have been companies recently advertising “savings” accounts that end up being investment accounts that are not FDIC insured.*
6.) Rebalance Your Investment Portfolio
Over time, the ebbs and flows of the market can make your portfolio drift away from its ideal asset allocation. When this happens, it’s important to periodically rebalance your portfolio to bring the portfolio back into an appropriate allocation based on your goals and timeline. To do this, sell off the portions of the portfolio that have appreciated in value (and thus make up a larger portion of the portfolio than originally intended), and reinvest that money back into the parts of the portfolio that are currently out of favor with the market.
7.) Pay Down Debt
If you have substantial amounts of consumer debt, make this the year where you start digging yourself out of that hole! Whether you use a “debt snowball” approach or more of a “debt avalanche” method, the most important thing is to make the conscience effort to attack it and stick with it!
8.) Get a Side Hustle
One way to get rid of your aforementioned debt more quickly or to supercharge your savings is to get a “side hustle”. Wait tables, drive an uber, hunt garage sales for items that can be quickly sold online. There are tons of creative ways to generate more cashflow in order to help reach your financial goals more quickly. If you have a particular skill that people find valuable, such as web design or auto repair, use it to make a little extra money on the side.
9.) Start Contributing to an HSA
As I’ve mentioned before, Health Savings Accounts (HSAs) are amazing. When making a contribution to an HSA, you receive the “tax trifecta”: a tax deduction when making a contribution to the plan, tax-deferred growth while the money is in the plan, and tax-free withdrawal for a qualified medical expense! The only caveat is that you must be enrolled in a High Deductible Health Plan (HDHP) in order to contribute to an HSA. For 2019, a family can contribute up to $7,000 annually ($3,500 for singles). If you and your family are currently enrolled in a HDHP, but are not currently contributing to an HSA, make it a priority to start saving into these accounts this year.
10.) Stop Paying for Unused Subscriptions
I know you love wine and watching Seinfeld, but if you haven’t opened Hulu in months and have enough wine-club Cabernet to get you through the next year, then perhaps it’s time to get rid of a few monthly subscriptions. Whatever your vice may be: gym memberships, video streaming services, audio book clubs, Blue Apron subscriptions, or Clemson recruiting site subscriptions (yep, that’s my weakness); if you’re not using it consistently then stop paying for it! The small outflows from each individual subscription can add up to a decent amount of money that could be better used elsewhere.
11.) Learn More About Your Money
Invest in yourself in 2019! Set a reading goal to read a certain number of personal finance-related books this year. If you don’t know where to start, I’ll give you some of my favorites to help get you started:
-The Richest Man in Babylon by George Clason
-A Random Walk Down Wall Street by Burton Malkiel
-The Millionaire Next Door by Thomas Stanley
-The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money by Carl Richards
-The Investment Answer by Gordon Murray
12.) Invest Regularly with Dollar-Cost Averaging
You’ve probably heard the old saying “buy low and sell high.” While it sounds simple enough, most investors don’t do this very well. Fear and greed are strong forces that work in tandem to make investors sell when an asset is undervalued (because everyone else is freaking out and selling, not buying), and buy when an asset is overpriced (because everyone is buying and there’s a FOMO effect). Dollar-cost averaging (DCA) helps to correct some of this investor behavior.
The DCA strategy is pretty simple, pick a dollar amount that you want to save this year, divide by twelve (or four if you want to do it quarterly), and systematically invest the same amount each month regardless if the market is going up or down. What will happen over time is that you will buy more shares when the market is low and purchase less shares when the market is overvalued. For a more in-depth analysis of the effects of using DCA over time, I’d encourage readers to check out Michael Batnick’s recent blog on the subject.
13.) Don’t Micro-Manage Your Investments
Do yourself a favor this year and don’t micro-manage your investments. Avoid day trading and tune out the chatter from the talking heads on CNBC. Instead, invest your money in solid mutual funds with low expenses and hold for the long-run (with periodic rebalancing). Studies show that investors that employ this type of “buy and hold” strategy will generally end up with a higher rate of return than investors that try to overmanage and chase return.
14.) Diversify
You’ve heard the old adage, “don’t put all of your eggs in one basket.” Well, for some of you, it’s time to put that into practice with your investment portfolios. It’s great to have a strong belief in the company that you work for, but if you have a large portion of your net worth tied up in your employer’s stock, then it’s time to diversify. Throughout modern history, there are plenty of examples of seemingly solid companies, such as Enron, who, due to fraud or other market factors, see the value of their stock (along with the wealth of their employees) virtually evaporate overnight. Selling off some of your company’s stock in order to diversify doesn’t make you Benedict Arnold, it makes you prudent. If your company suddenly goes down like the Titanic, you don’t want your financial future to sink with the ship.
Likewise, it is also unwise to be invested in solely one asset class. Over the past decade, the U.S. stock market has vastly outperformed its international counterparts. However, long-term market data shows that you will be much better off in the long run by having exposure to not just U.S. markets, but to markets around the world.
15.) Start a 529 Plan for Your Kids’ Education
529 plans provide an efficient way for parents to save for their children’s education. Money invested in a 529 account grows tax-deferred and can be withdrawn tax-free for a qualified education expense. While you don’t get a federal tax deduction for 529 contributions, many states, including South Carolina, give a state tax deduction (provided you use the sponsored plan(s) of that state) for 529 contributions.
16.) Protect Your Accounts from Fraud
If you’ve ever had a scammer compromise your credit card or bank account information, then you probably know how much of a pain it can be to get that situation corrected. Fortunately, there are a few things that you can do to reduce the risk of your account information being hacked.
First, always use strong, unique passwords for logging into all of your online accounts. If you’re like me and have a ton of different passwords that you need to remember for all of the various accounts and services that you use, utilize a password manager, such as LastPass. LastPass will will help you create strong, unique passwords, safely store them in the cloud, and then auto-fill them into the various websites that you use. The only password that you will have to remember is your master password (which you enter at the beginning of each online session).
Another way to protect yourself from fraud is to utilize two-factor authentication when logging into your bank and credit card accounts. As it sounds, two-factor authentication is an additional security measure that requires the person logging in to provide additional information to confirm they are who they say they are. Practically all financial institutions provide two-factor authentication for those that want to use it.
17.) Check your Credit Report and Credit Score Regularly
You’re allowed to request one free copy of your credit report per year. To request the report, go to https://www.annualcreditreport.com/. Once you have the report, look it over to ensure that all the information is correct. If there are discrepancies in the report, contact the credit bureaus to dispute the wrong information.
In a similar fashion, you can also see your FICO score for free and track to see if your score is going up or down by getting an account with Credit Karma. Credit Karma also does a good job of breaking down the individual parts that contribute to your credit score, so that you can see what you need to address in order to make your score higher.
18.) Take Time to Celebrate Hitting Your Goals
Did you hit your savings goal that you had set for yourself for this month? Did you pay down that credit card whose interest had been sucking the life out of you? Take time to celebrate! Take your spouse out to that new restaurant that you’ve been wanting to try for a while or pop open a bottle of your favorite beverage. It’s important to take time and celebrate the small victories along the way.
19.) Meet with a Financial Planner
If you feel like you need some guidance with any of the aforementioned tips in this article, then I’d recommend consulting with your financial planner. If you do not currently have a financial planner, check out my article on the 5 questions that you should ask any prospective advisor or planner.
If you want to have a more detailed discussion regarding any of the above money tips or want to have a more in-depth discussion with me regarding your particular financial situation, feel free to email me at daniel@sweetgrassfp.com or schedule a free introductory consultation.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Daniel Patterson, and all rights are reserved. Read the full disclaimer here.
