Check-point! It’s February, month #2 of the new year. What were your established financial goals for 2017? More importantly, where do they stand? We at GenW hope you're still right on track to a financially prosperous 2017, but we know life gets in the way. In this blog we’ll cover a few personal finance goals that are core to financial wellness that we hope you keep in mind as you continue 2017 or plan for 2018. We also hope to shine light on your greatest obstacle in staying true to your goals: you. Once you have the knowledge, the key is to then apply it, and that takes discipline. Remember that every day is a new day to take a step toward your financial goals and financial security.
2016 IN REVIEW
Before you leap forward, some say it’s helpful to examine the past. As you started down your financial path of 2017, did you take a look at your finances from 2016? Did you spot any trends? Maybe you consistently spent over your budget on food? Or maybe you consistently operated without a budget? That would be a great place to start your financial journey and financial goals!
While we won’t go into extensive detail on creating your budget, as you look back and towards the upcoming months make sure you understand the three shining pieces of a budget: fixed expenses, flexible spending, and savings or financial goals. Fixed expenses should be things like rent, electricity, a car payment, and your cell phone bill. Flexible spending are expenses that vary week to week or month to month, like food, entertainment, shopping, travel and charity donations. Your savings or financial goals include your retirement account, emergency fund, or investment accounts. Now that you have light shining on these areas, have any changed this new year or will be changing in the coming weeks? Maybe you’re moving to a new apartment with a slightly higher monthly rent? Do you know how that increase will affect other areas of your budget? Now is the time to look, understand, and adjust!
“It was the best of times, it was the worst of times” - Charles Dickens
If there is one thing you can count on in this life, it is that a financial emergency will arise at some point, possibly at the most inconvenient of times. These emergencies take a variety of forms: a flat tire, an unanticipated flight, an unexpected layoff, a root canal after you’ve exhausted your dental insurance for the year (double “ouch” -- know your terms and yearly maximums!). The only way to mitigate the hit and the stress is to have a cushion with an emergency fund in the amount of 3-6 months of your monthly expenses.
If you haven’t already started building one in an easily accessible account, make 2017 the year! Ideally, you’d want to prioritize the money you set aside per paycheck for this fund to secure a 3-6 months' coverage, but you can start in any amount that your salary and situation allow.
See the very simple chart to the right. Even if your contributions already started to fluctuate this new year or will change in the coming months, keep the emergency fund growing - nothing is too small!
If you've ventured into the realm of managing credit cards (responsibly!), what's your plan for your credit cards this year? Did you decide to shop for a new credit card in 2017 with rewards more in line with your current values (e.g. restaurant points due to consistent dining out versus airlines miles, given love for travel)?
Maybe you adopted a credit card mantra in 2017? We hope it’s the “pay the entire balance every month” mantra to avoid interest charges! At the very least, make sure this 2017 you are paying the minimum on time every month. Being late on payments is a sure way to hurt your credit score. So, set up automatic payments if necessary. And, if something went awry already this January or occurs at some point throughout the year (because you were dealing with a lost wallet or a car accident), make sure to call your credit card company to get your account in order. Connecting with customer service representatives at your credit card company can be the difference between 1) a late fee penalty and a late fee waived or 2) a “slip-up” month flagged to the credit bureau versus not reported at all. The worst that can happen is they say no. Whatever your credit card goal, make sure you keep working towards it this 2017.
RETIREMENT: A GROOVY OLD-AGE
Where have your retirement plans landed this new year - anywhere? Yes, retirement! Many teens and twenty-somethings think retirement is something you start planning for as an older adult, but if you think about it for a minute, it really wouldn’t make sense to start saving for old-age when you’re pretty much at. that. age. In fact, you can and should start saving for retirement as soon as you start earning taxable income. So, even if you don’t have a full-time position, but have a summer job or part-time job at a restaurant, at a bank or at any other place this 2017 that will hand you a W-2 form, make sure you’re thinking about contributing to a retirement account...or at the very least learning about them.
Gaining knowledge about retirement can be a goal, too. Whatever your retirement goal may already be, learning more about how it works or how you could make an adjustment to get to maximize that goal or get to it sooner is huge. If you’re already contributing to an account, when was the last time you reviewed your account and the benefits your employer offers? Do you know when you officially started contributing and how much you’re contributing? Do you know the maximum you can contribute in a year? Or, maybe an employer match could be the reason you decide to take a new position this new year. Knowledge is power.
Below is a snapshot of the magic of compound interest when placed to work in your favor, specifically in a retirement investment account.
As you’ll note, the individual who started saving at the age of 25 (saving $150,000 over 15 years) ended up with over $1M at the age of 65, while the friend who started saving at 30 (saving $300,000 over 30 years) only saw $838,019 at 65. Retirement could not ring truer to the phrase “it’s not a race, it’s a marathon” with a secret key: starting younger. The earlier you start saving for your later years with a retirement account that accrues compound interest, the better off you’ll be at retirement.
Hopefully this chart alone is motivation for you to keep, reach, or add your retirement goal in 2017. Just stay focused and you will conquer your 2017 financial goals! The GenW team will be cheering you on.