Many people set resolutions to get their finances in order with the new year. It’s a worthy goal, but it can be difficult to know where to start. We’ve identified four ways to tidy up your money in 2017. As long as you save before you spend, the process is simpler than you think!
Beneath each goal is the type of account or financial product you will need to make it happen. All of these products are available with USAA.
1. Build Your Emergency Fund
Emergencies happen. Whether your car breaks down, you lose your job or you come up against unexpected medical bills, having a cushion of money on hand can be the difference between no financial stress and digging yourself into high-interest debt for years.
That’s why you need to build an emergency fund. Experts recommend that you have at least three to six months’ worth of expenses, though some caution that the reserves should last you an entire year.
Financial Product Needed: Savings Account
2. Pay Off Your Debt
If you came into 2017 with debt, make this the year you pay it off. Doing so will give you so much more freedom to save for your future or enjoy today—without relying on credit.
The problem with paying off debt isn’t just the debt itself. The bigger problem is usually interest. If you’re carrying consumer debt, particularly credit card debt, your interest rates are likely sky high, making it difficult to get your overall balance down even when you’re making seemingly large monthly payments.
A great strategy to eliminate that high-interest debt is to transfer it to a 0% interest credit card. You do this through a balance transfer, which usually comes with a fee of 3%-5%. That one-time fee is worth not having to pay any interest on your debt, though. It will allow all of your money to go towards the principal.
Keep in mind that 0% interest rate periods require you to pay the minimum due on time every single month, and are usually only introductory. They end after a certain time period. It may be six months. It may be eighteen months. It may be another timeframe entirely.
Be aware of the timeframe so you can do a balance transfer to a different 0% interest card at the end of that introductory period. If you haven’t already paid it off, that is.
Financial Product Needed: Zero percent interest credit card
3. Save for Retirement
The future always comes faster than we’re expecting. Make sure you’re maxing out your retirement accounts today so you can actually retire in the decades to come.
If you work for someone else as a W-2 employee, you may have a tax-advantaged account through work. You may also have a match from your employer. Make sure you contribute AT LEAST as much as the match! Failing to do so is leaving free money on the table.
If you work for an employer that doesn’t provide a tax-advantaged account, look into an IRA or myRA. IRA’s will give you a higher return, but come with more risk. myRA’s will give you a modest return, but there will be very little opportunity to lose money unless the US government fails as you’re invested in government bonds.
If you work for yourself, you can look into IRA’s, too. But you can also look into SEP IRA’s or Individual 401(k)’s, both of which open up the maximum contributions you can make in a calendar year. The more you can save, the earlier or more comfortably you can retire.
Financial Product Needed: Retirement Account
4. Save for Your Child’s College Education
There’s a reason this one comes after saving for retirement. While paying for your child’s college education is a noble pursuit, and one you should act on if you can afford it, it should not come before your own retirement savings.
Your child can apply for scholarships. Your child can take out student loans.
You cannot take out loans for your retirement. Besides that, as we get older our health deteriorates. You don’t want to become a financial burden on your child.
The worst case scenario if you don’t pay for college is that they’ll have to take out loans. The worst case scenario if you don’t adequately save for retirement is that they’ll have to become your caretaker and income-provider.
If you have maxed out your retirement accounts, a good way to save for your child’s education is through a 529. It invests in the market and allows your money to grow until your child goes off to school. Each state’s 529 program has different stipulations, and you may be able to purchase an out-of-state plan. Do research to find the best one for you.
Financial Product Needed: 529 Account