Common Sense Ways to Improve your Finances in 2019
I’ve been reading a number of articles since the end of the year on how to improve your finances in 2019. Some suggestions are good, but not necessarily realistic. Others suggestions are realistic, but not necessarily achievable. Below is my take on some realistic and achievable suggestions to improve your finances in 2019.
Before I begin, I want to point out that increasing your savings rate is a key factor to build your accumulated savings faster. The key point here is to find a way to increase your saving, and allow compound interest to do the rest. And since I have a tax background, I have to point out that taxes are the single largest expense associated with any investment. If you can reduce the tax drag on your investments, your savings will grow faster than investing in investments that are taxed as ordinary income. Too many people boast about the pre-tax return of their investments, and ignore the after-tax return. But it’s the after-tax return that determines how much money is deposited to your savings account.
1. Save a little out of each paycheck – Start out with as little as 1% if that’s all you can afford, and then gradually increase it over time. Better yet, have money transferred automatically to your savings account every time a paycheck is received.
2. Invest in your 401K – Contributions to a 401K are deductible in the year made, and grow tax-free until withdrawn from the 401K. If your employer matches a percentage of your contribution, the employer’s match is a 100% return on the matched contribution. It’s hard to find a better return than that in the marketplace.
3. When you get a raise, try to put some of it towards savings – Everyone should celebrate some when they get a raise or promotion. But it’s also a good time to put some of the raise into savings, before getting use to spending all of it!
4. Pay down Debt – Especially high interest rate debt such as credit cards. The interest rate on most credit cards exceeds 20%. Better yet, limit what you charge on your credit cards, and pay them off every month.
5. Ignore trendy investment trends – Investments that advertise a rate-of-return substantially above the market rate, are usually too good to be true. Be aware of investments of this type that are advertised by less-than-reputable organizations.
6. Don’t believe everything that you read on the internet – Anybody can look like an expert on the internet. Always use independent third party resources to double-check information that is on the internet.
7. Have reasonable goals – Are you planning to buy a home, have a family, or retire in the next few years? It may take multiple years to save for these life events. You’ll need to start saving for those events as soon as possible.
8. Live within your means – Avoid impulse buying. It’s sometimes hard to do with all of the flashy advertising these days. But ask yourself if you need the latest upgrade to a gadget or fashion. If you wait, last year’s model may be more affordable.
9. Create a budget and stick to it - It’s hard to know where your over-spending, if you don’t keep track of what you are currently spending. A budget can be as simple as putting your income and expenses on an Excel spreadsheet, comparing it to a prior period, and projecting it to a future period. For example, if you’re paid bi-monthly, consider preparing your budget on a bi-monthly basis.
10. Establish an emergency fund – It’s hard to predict when there will be a bump in the road with your finances. But if some money is set aside, It will be easier to weather the emergency when it comes.