Three Resolutions to Save More Money in 2020
It’s that time of year when many people are making New Year’s Resolutions to hit the gym, eat healthier, or be more mindful. As you’re setting your own goals for this year, don’t forget about your financial wellness, particularly when it comes to saving for long-term goals like retirement. After all, your fiscal health is just as important as your physical and mental health.
Need some inspiration? Here are three New Year’s resolutions to help you create a solid game plan to improve your financial well-being in 2020.
Resolution #1: Start or build upon your emergency fund.
As its name implies, an emergency fund is a “safety net” to help you cover financial mishaps or unexpected expenses, such as a large medical bill, surprise car repair, or a sudden job loss. Having an emergency fund can give you peace of mind because it provides a financial buffer against having to borrow money to pay for an unanticipated expense.
How much should you save in your emergency fund? The “right” amount is different for everyone. We recommend setting aside enough to cover three to six months of essential living expenses. You may want to save even more if you have a family and children, or if you have less stable employment or earn a variable income.
Having a fully-funded emergency fund helps you manage otherwise stressful situations so you can focus on solving the problem at hand instead of worrying about how you’re going to pay your bills. Emergency funds provide another benefit, too: they keep you from dipping into your other savings, such as your retirement accounts. As such, you can stay on track with a long-term goal of saving for post-career years — even when faced with the unexpected. The sooner you build up your emergency fund, the sooner you can start enjoying these benefits. Now is the perfect time to get started.
Resolution #2: Establish good saving and spending habits.
One of the best ways to start saving consistently in your emergency fund is by setting up a monthly automatic deposit from your checking account. It’s easy — you can set it up online through your bank. Start small at first and gradually work toward your long-term savings goal of three to six months of expenses.
In addition, you should have quick and easy access to your money. For example, consider saving at least three months’ worth of expenses in a high-interest savings account and parking the rest in a low-risk, highly liquid option like a money market account. Doing so will allow you to grow your savings over time — albeit slowly — but with less risk than, say, investing in the stock market.
Another way to improve your financial habits is to pay off any outstanding credit card or student loan debt. Now, that doesn’t mean you have to knock it out all at once! Just like building your emergency fund, start with baby steps. If you can, make more than the minimum monthly payments on your student loans and credit cards. Pay off smaller balances first, then apply those payments toward the larger balances, and so on, until all of your debt is paid off. And put every pay raise, bonus and tax refund you receive toward repaying those debts until they’re gone.
While you’re at it, look for ways to reduce unnecessary spending. Do you have subscription services you don’t use? Are you getting mileage out of that gym membership? Cancel anything you’re paying for but not using and put the extra money toward your emergency fund or paying off debt.
And if you aren’t saving for retirement yet, make it a priority to get started this year. The best thing you can do for your future self is to sign up for your retirement plan at work, even if you’re able to contribute only 1%-2% of your salary at first. Again, start small and increase your contributions gradually — 1% every year is an excellent guideline to follow. If you get a raise at work, consider putting a portion of it towards your retirement savings. Increasing your retirement plan contributions by just 1% can make a dramatic impact on your future financial stability.
Resolution #3: Understand that saving for your long-term goals is a marathon, not a sprint.
A well-known Chinese proverb says, “A journey of a thousand miles begins with a single step.” Reaching milestones such as paying off all of your debt and creating a fully-funded emergency fund won’t happen overnight. But, if you establish good savings habits, you will get there! Also, it’s essential to break down your larger goals into smaller, shorter-term goals, so they’re less overwhelming and more manageable.
Here are some traditional rules of thumb to help you set those interim goals:
- By age 30, you should have half of your salary set aside in a combination of your emergency and retirement savings.
- By age 40, you should have twice your salary saved for emergencies and retirement.
Given that the retirement age is 67 for most Americans, and people are living longer thanks to advances in technology and modern medicine, your retirement savings need to last a lot longer, too. Setting interim milestones can help you see your progress and keep the momentum going so you can stay on track to achieve your long-term savings goals.
Have questions about how to get started on your 2020 savings goals?
We can help. Give us a call, and we’ll walk you through how to set your financial goals, establish a savings plan, and track your progress along the way. By utilizing our sophisticated software and tools, we can create a comprehensive financial plan to help you manage your money and achieve your financial goals, one resolution at a time.