Five Financial Resolution Tips for a Prosperous New Year
One of the top New Year’s resolutions many people make is to get their finances in order. Unfortunately, like so many resolutions, the weeks go by and nothing gets done. Here are a few tips to help jumpstart your resolution and set you on the right path toward achieving your financial goals in 2019.
- Increase contributions to your employer-sponsored retirement plan: There’s good news! Contribution limits will be increasing for many employer-sponsored retirement plans in 2019. The increase will allow you to contribute up to $19,000 (up from $18,500 in 2018), or $25,000 (up from $24,500 in 2018) if you’re 50 or older to your 401(k) or similar employer-sponsored retirement plan. It is usually a good idea to contribute as much as you can afford to your employer’s plan, as your contributions may lower your taxable income, while any earnings growth is tax-deferred. At a minimum, maximize your contributions through your employer’s matching contribution, if one is offered.
- Try to "max out" your IRA: Even if you have a 401(k) or similar plan, you can still invest in an Individual Retirement Account (IRA). In 2019, you can put in up to $6,000 in a traditional or Roth IRA (up from $5,500 in 2018), or $7,000 (up from $6,500 in 2018) if you’re 50 or older. Contributions to a traditional IRA may be tax-deductible, depending on your income, and any earnings growth is tax-deferred. Roth IRA contributions are not deductible, but earnings growth can be withdrawn tax-free (must be 59 ½ and have had a Roth account for at least 5 years to withdraw). You can put most types of investments – stocks, bonds, mutual funds, etc. – into an IRA , so it can expand your options beyond those offered in a 401(k).
- Control your debts: Do what you can to keep your debts managed and under control. Ultimately, the less you have to spend on debt payments, the more you can invest for your future.
- Build an emergency fund: A financial emergency can include job loss, medical bills, a car or home repair, a deep pay cut or any other financial setback. Try to build an emergency fund containing 6 to 12 months worth of living expenses, with the money held in a low-risk, liquid account. If any of these unfortunate situations occur, your emergency fund can provide a financial cushion and several months of support while you get your finances back on track.
- Avoid emotional investing: Many people struggle to separate their emotions from investing. In 2018 - especially the last quarter of the year - we saw considerable market volatility, with huge drops and big gains. What will 2019 bring? It's always difficult to forecast, but in any case, try not to overreact and allow your emotions to make an impact. Markets go up and down. Reacting to current market conditions may lead to making poor investment decisions. Instead, continue pursuing an investment strategy that's suitable for your financial goals.