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Four Simple New Year’s Resolutions That Will Stick
Straightforward financial resolutions to aim for in the new year.
There are two kinds of New Year’s resolutions: reasonable goals and pipe dreams. Unfortunately, most people choose the latter.
Save More for Retirement
Recent data shows that Americans estimate they will need to have saved $500,000 by the time they retire, yet current median household retirement savings sit at $63,000.
If this retirement imbalance describes your situation, here are a few ways to start saving:
- Contribute to your 401k. If your employer offers a retirement plan, sign up and instruct your payroll department to start contributing up to the match, at minimum. If you have received a raise, consider increasing your contribution by an equal percentage.
- Max your IRA. The annual IRA max is $5,500 ($6,500 for those over 50). If you didn’t save last year, you have until April 15th to make a prior year contribution. You might use year-end bonus cash, or set up an automatic monthly transfer from your bank to your IRA to reach the max.
- Find a financial planner. A qualified financial planner can help you understand your retirement needs and create an optimal strategy to fit your lifestyle. They can help you simplify your savings plan, and hold you to it.
Find a Last-Minute Tax Deduction
Tax time is less than four months away, but it always seems to come faster than you expect. If you’re nervously awaiting a large tax bill, look into last minute deduction opportunities by opening a SEP IRA or a Health Savings Account (HSA). For those who qualify, each of these accounts provide tax deductions for contributions made up until your tax-filing deadline.
If you have any investment losses from previous years, make sure to give them to your tax advisor to offset any 2016 gains. For capital losses, you are entitled to claim a deduction up to $3,000 each year. Any losses above that limit can be carried over to future years to offset realized gains.
Make the Most of Your Mortgage
If you haven’t refinanced your mortgage in the past 5-7 years, the window to act may be closing now. As interest rates start to rise, refinancing today may be the last opportunity to lock in payments at a low rate. Contact your current mortgage lender to see what they can still offer you.
For the many home owners who took out home equity lines of credit (HELOC) during the last years of the housing bubble in 2006-08, beware of upcoming changes to your loan payments. During the first ten years of a HELOC draw period, a borrow can pay back loans as they wish, often with only a minimum, interest only payment. Once those ten years are up, the line of credit shuts down and the outstanding balance is converted into the payment period, which can result in much higher payments. Make sure you have a financial plan for this adjustment, or consider paying this line off completely.
Pay Off Debt
If debt repayment is your primary concern, the debt snowball method is a sound strategy for people who want to be debt free.
Here’s how it works:
- Make a list of all your debts, from highest interest rate to lowest
- Transfer as much of the high interest rate debt to lower rate as possible
- After making just minimum payments on your debts, allocate all extra money toward the single highest rate balance until it’s paid off
- Add the amount you were paying to your next highest rate balance
- Repeat until all debt is paid off
That’s it. The method may be simple, but the real challenge will come with cutting expenses, earning more money, and doing whatever else you need to speed up the process.
1 17th Annual Transamerica Center for Retirement Studies Annual Survey