With the new year comes new opportunities, new goals, and a fresh start. What a great time to get your finances back on track or do a little adjusting to make sure your financial house is in order. Here are 5 smart money moves you can make right now to kick off this year in a great way.
- Refinance your mortgage if you haven’t already taken advantage of the great interest rates right now. Rates are at all-time lows. My boomer friends remind me all the time about how rates were in the 14% range in the 80’s, and now you can get a mortgage for 3-4%. It still amazes me how many clients or friends I talk with who still haven’t taken advantage of the rate changes that occurred in the last two years. If you’re sitting on a 5-6% mortgage, refinance now to lower it to 3-4%. This will save you tens of thousands of dollars over the course of the loan, lower your monthly payment, and put more money in your pocket.
- Get on a budget and stick to it. This one is difficult even for the best of us. We think that if we earn more, we deserve to spend A LOT more, but you should pay yourself first by putting money in savings, so your wealth can grow.
- Make your money work for you. Any excess funds you have above an emergency fund should be invested. Inflation was 6% on average for everything last year so if you hid money under your mattress, it lost value. If you’re uncomfortable investing yourself, then work with a professional who can help you come up with a good investment strategy that matches your risk tolerance and time horizon.
- Start tracking your net worth. Personally, I’ve been tracking my net worth every quarter for the last 6-7 years. This is helpful because it will show you how well your overall financial health is doing, regardless of each individual piece. This big picture thinking can be a great motivator to help you make wise financial decisions. For instance, many new graduates will have a negative net worth due to student loans. Setting a goal for zeroing out their debt with assets on their net worth statement can be very psychologically rewarding, even while they carry a loan balance. It’s also very rewarding to celebrate the milestones along your net worth journey such as zero, $100,000, becoming a millionaire, etc.
- Contribute to a Roth IRA for last year and this year. Roth IRAs are a great retirement investment vehicle, and if you have an income and made under $125,000 in 2021, you’re eligible to contribute to one. You have up until April 15th to make a $6,000 contribution to your Roth for year 2021, and you can also make a $6,000 contribution for this year anytime this year. You contribute after-tax dollars to your Roth IRA, but everything you take out from it in retirement will be tax-free.
These are just a few positive steps you can take to get your finances on track this year. For more guidance you can read more blogs at www.americanfp.us or consult our professionals for more advice for your specific situation.