Connor in Bridgetown: My big goal for 2024 is to really take charge of my finances. I’m 44 and have a little bit of credit card debt, a mortgage, and some savings. Any suggestions for how to get started?
A: We’re thrilled to hear you’re making your money a top priority in the New Year! This is a fantastic time to wipe the slate clean and begin creating new financial habits. Our complete list of suggestions is a long one, but here are a few with which you can get started.
Build up (or start) your emergency fund: Life is unpredictable. Surprise expenses pop up all the time. So, to help ensure you don’t have to resort to using a credit card or tapping into retirement funds early, we recommend having an emergency fund in place to cover these kinds of costs.
Ideally, you should have enough to cover three to six months’ worth of your most vital living expenses. Additionally, it should be “liquid” (meaning easily accessible), and you should also be able to access it at any time without penalty. A plain old savings account will work fine; high-yield online savings accounts are still paying around 5%.
Pay attention to your 401(k): Have you taken a look at your 401(k) contributions lately? (Or, if you work in the public sector or for a non-profit, your 403(b)?) Make sure to contribute at least enough to receive the full match your employer offers.
You may also want to contribute to a Roth 401(k)(or Roth 403(b)) if that’s available. Although there are no tax savings on your contributions as there are on traditional 401(k) contributions, the potential for tax-free distributions (if certain criteria are met) can be a great advantage in retirement.
Self-employed? Don’t forget that a SEP IRA or Solo 401(k) are options as well.
Vow to pay off debt: If you’re trying to build a successful financial future, high-interest rate debt, such as credit card debt, can be debilitating. Debt costs money, hurts your credit, causes stress, and limits your freedom. Worst of all, as of the first few weeks of 2024, the average credit card interest rate now stands around 27% according to Forbes.
Pay off the debt ASAP. The two most common methods are the ‘snowball’ and ‘avalanche.’ The snowball method entails paying off the cards with the smallest balances first; the avalanche focuses on paying off the cards with the highest interest rates first.
Plus, this is key: Don’t forget to change your habits to ensure you start paying off your credit cards in full every month.
Plan now to retire mortgage-free: A retirement budget can be much more flexible if you don’t have to deal with a monthly house payment. Once you’re about 10 years from retirement, talk with your lender to figure out how to adjust your mortgage so it’s paid off by the day you retire. (However, like with anything, there are exceptions to every rule. Retiring with mortgage debt can actually make sense for some folks. A fiduciary financial advisor can help run the numbers to see what’s the best course of action for your situation.)
Here’s the Allworth Advice: Getting a handle on your personal finances starts with taking just a few small steps – and the fact you’re making this a goal is a great first step. Good luck!
We’re excited to announce a new addition to our Allworth Advice column! Allworth financial advisor Steve Hruby, CFP®, will now be joining Amy Wagner every week to answer your questions as Steve Sprovach says goodbye to enjoy retirement! If you, a friend, or someone in your family has a money issue or problem, feel free to send those questions to[email protected].
Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or attorney. Retirement planning services offered throughAllworth Financial a SEC Registered Investment Advisor. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Visitallworthfinancial.com or call (513) 469-7500
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