It’s the first full week of a new year, which serves as an ideal time to take stock of our financial health and, in many cases, make a plan for how to save more money.
Last year, NBC News BETTER consulted experts to learn what steps one could take in 2019 to get on the right track and improve one’s finances. For 2020, we took a similar, big-picture glance, and though you’ll notice some expert advice hasn’t changed (investing in retirement plans, paying down debt and building an emergency fund will likely always make the list of top ways to create financial security), we also highlighted how to reflect on and talk about money in a way that can benefit both your budget and your confidence.
1. Take stock of your 2019 goals and strategies. How’d you do?
“How did you do with your money in 2019? Take some time as one year ends, and the next begins, to reflect on how you’re doing, particularly right after the holiday season, when many of us tend to overspend,” says Leslie H. Tayne, Esq., a financial attorney and author of “Life & Debt: A Fresh Approach to Achieving Financial Wellness”. “Assess where you stand now and if you’re carrying holiday debt (or debt in general) into the New Year. If you had financial New Year’s resolutions at the beginning of 2019, ask yourself if you stuck to them. Think about what went well and what you can improve on. Being honest with yourself can help you figure out what to keep doing and what areas you can make adjustments going forward.”
2. Treat your accounts like a good friend (by visiting them often)
“Start the year by building a relationship with your money the way you would with a friend,” says Elisa Robyn, Ph.D., a wealth relationship expert. “Visit your bank and credit accounts on a regular basis, making sure you know how much money you have, how much you owe, and how much you spend. At this point you are not making choices of plans, you are just treating your money with respect. This might sound silly, but psychologically we know that when we act respectful with our money, we are less judgmental about our situation, and this helps us make different choices. When we are willing to balance our checking account and keep track of our debt we are able to ask for guidance and to plan for the future. Building this type of relationship helps us leave regret and guilt behind us so that we can build a life of financial security.”
3. Check your credit
“If you haven’t been checking your credit report regularly, start this year,” says Tayne. “Each of the three credit bureaus offers a free credit report annually, meaning you can space them out and check your credit for free three times a year. Doing so can help you identify any errors or possible fraud, as well as just to give yourself a good check-in on your finances. If you spot an error, file a dispute with the creditor.”
4. Make an emergency fund (aim for at least one month’s expenses)
“Based on your income, try to save for one month of expenses (in liquid savings),” says Brian Walsh, CFP and Manager of Financial Planning at SoFi. “This should only be used for real emergencies such as issues with your house, medical bills or other true emergency situations. With speculation around a recession, keeping enough cash on hand for those emergencies will help you avoid leaning on credit cards and, ultimately, help you avoid financial disparity. Consider parking this liquid savings in a high yield cash management account that earns higher interest than a typical checking account. This allows the money you’ve saved up to earn even more money over time.”
5. Start (or keep) stockpiling that retirement fund
Now's the time to take a look at what you're socking away for those golden years. “Try to save 15 percent of your income for retirement (based on what you can afford),” advises Walsh. He also stresses to take advantage of any employer 401(k) contribution matching contributions, stating: “That’s free money that can go right into your retirement fund.”
Peter J. Greco, founder and owner of CSI Group adds that though your budget may not allow for maxing out your 401(k), “it is very important to not miss the opportunity of receiving your employer match; even a small employer match can lead to hundreds of thousands of dollars of retirement savings with the power of compounding.”
Now is as good a time as any to heed the reminder of Alicia R. Hudnett Reiss, CFP, and “confirm and update beneficiaries listed on your retirement accounts, as these supersede what you may have in a will or other estate planning document.”
If a 401(k) is not an option for you, or you’d like to bulk up your retirement savings on top of your employer plan, look into opening a Roth IRA.
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6. Tackle debt using the ‘avalanche method’ or the ‘snowball method’
Paying down debt is a must-do for financial wellness, but how can you achieve such a potentially staggering goal? Greg Mahnken, Lead Credit Industry Analyst at Credit Card Insider recommends the avalanche method and the snowball method, respectively.
“The avalanche method of debt payoff is focused on paying down debt with the highest interest rate first, and is usually the fastest way to pay off debt. You’ll save money in the long run by keeping interest charges under control on your highest-APR accounts,” says Mahnken. “To pay down debts with the avalanche method, first, pay the minimum payment on all of your debts. Then, put any additional money towards the account with the highest interest rate. Continue to do this until the high-interest account is paid off. Then, take the minimum payment you were paying on the first debt, as well as any additional cash, and put those towards account with the next-highest interest.”
Mahnken notes that the snowball method isn’t as quick as the avalanche method, but it’s also effective and can be quite motivating from the get-go.
“In the snowball method, you’ll focus on paying down the debts with the smallest balance first. This allows you to see your smallest accounts with a zero balance more quickly than other methods, giving you some motivation to continue onto the next debt,” says Mahnken. “To pay down debt with the snowball method, first, make the minimum payments on all of your accounts. Then, allocate any extra cash to the account with the smallest balance. Once that account is paid in full, allocate the minimum payment from that account and any additional cash to your next-smallest balance. Continue this until all debts are paid off.”
7. Make sure your credit cards are reaping rewards you actually use
“You should only have one or two credit cards, which should be those that give you points or cash back on things you would otherwise pay for, like flights or hotels,” says Ande Frazier, CEO of MyWorth. “If you don’t travel often, consider a card that you can earn points or cash back for on dining out or groceries. If you choose the cash back route, transfer the money directly to a savings account so you’re less likely to spend it. And make sure you’re not signing up for store credit cards — once you use the upfront promotion, they offer little value and high interest rates.”
8. Enroll in an HSA or FSA
"Enrolling in a health savings plan (HSA) is one of the most efficient ways to improve your long-term financial planning,” says Shobin Uralil, co-founder and COO of Lively. “Money in an HSA qualifies for three different tax breaks, many employers offer to contribute to the account, and the savings you put in today gives you an opportunity to take advantage of compounding growth.”
You can learn more about the intricacies and eligibility around HSAs in 2020 here.
“If a health insurance plan does not qualify for an HSA, a flexible spending account, or FSA, is another great way to save on yearly medical expenses,” Uralil says. “To be eligible for an FSA, your employer must offer one with your health plan. Like HSAs, FSAs also offers tax-free spending for qualified medical expenses, but there are a few differences including FSA funds expiring each year and a lower annual contribution limit.”
In 2020, the FSA contribution cap is $2,750. You can get a comprehensive idea of what purchases are FSA-eligible here.
9. Use cash back extensions and price comparison tools
If you’ve read any of our coverage on how to shop Black Friday or Amazon Prime Day without overspending, you know how strongly savings experts recommend cashback browser extensions and price comparison tools. Andrea Woroch, a personal finance and consumer savings expert, is also an advocate for this convenient tech.
“When shopping online, you can save money without wasting time searching for deals by using tech tools that do all the work for you,” she says. “They do all the work of hunting down coupons, testing each one and automatically applying the deal with the biggest discount to your order. Every time you save on a purchase, transfer that to your savings goal or schedule an extra debt payment.”
Here’s our list of must-haves (though bear in mind that you can usually only use one per checkout).
10. Journal why you’re spending and how it makes you feel
“Beyond just tracking what you spend, write down why you are spending in the first place. Is it because you have extra money in your account? Are you bored? Make sure to also reflect on your long term goals — and if your spending habits are matching up with them,” says Frazier.
11. Money talks — so talk about it!
Talking honestly and strategically about money won’t directly pay down your debt or build up your retirement savings, but it can work wonders in helping break down the curious stigma that has long blighted money in our society.
“Money is one of the last remaining taboo topics; in fact, 68 percent of Americans would prefer to talk about their weight than money,” says Linda Davis Taylor, CEO and Chairman of Clifford Swan Investment Counselors who created this Money Talk toolkit to help start conversations about money. “Yet talking about money can not only help you feel less alone as you tackle inevitable financial challenges, it can also help you build a community of friends and family to help you stay accountable to your financial goals."
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