New Year, New You: 8 Tips to start 2017 on the right financial foot

Welcome to 2017!!!

New years eve has come and gone.

As you spent your evening drinking champagne and reminiscing over the past  year, you made a promise to yourself: a promise to hit the gym, eat healthier, spend less money, make more money.

Now it’s time to put these resolutions (at least the make more money part) into action.

It’s time to leave 2016 far, far, far behind us and look to start building smart habits that will help make you wealthy.

8 Tips that will start you off on the right financial foot

Building wealth means playing the long game. Many “experts” and “insiders” will insist that brilliant strategies or unknown tricks can bring about a fast windfall of cash. In reality, the comfort of a financially prosperous life comes to those who take a consistent, self-disciplined and forward thinking approach to money. In this post we’ll look at eight simple concepts that fit these principles.

  1. Pay Yourself First  

Pay yourself before defraying any other expenses. Put the money in a savings account and then worry about other costs. If you wait until all other expenses have been met you will likely never reach a savings goal. By having a set, budgeted savings figure locked down after each pay period you will ensure a steady monthly growth.

  1. Put a Budget in Writingimage00

Set a budget for yourself. Put the numbers on paper. Put the paper in a prominent location that is always visible. This is a simple and effective way to remain cognizant of your spending goals. At the end of each month spend one hour reviewing your spending and keep a record of how well you are fulfilling your goals. Most spend with debit cards and credit cards. This makes budgeting easy; everything can be downloaded to a spreadsheet for quick tabulation.

  1. Focus on Debt

Pay down debt after paying yourself. Make items like credit card debt and student loan debt a major priority. Paying these burdens down at a faster rate reduces their cost. Consider a student loan of $55,000 with a 10-year term at 6.0%. The required monthly payment is $610. The total interest expense over the life of the loan is $18,300. However, if you pay an additional $100 each month you will save $3,558 in interest thereby driving down the real cost of your education.

  1. Open a Roth IRA Today

image02A Roth IRA retirement account is an invaluable tool for maximizing your savings through a powerful tax advantage. All earnings can be withdrawn tax-free. This strategy is most appropriate for younger investors because this group can expect to be in a higher tax bracket upon retirement. The account is designed for retirement savings. Therefore, you must be 59 ½ to withdraw funds tax-free and penalty-free. Account holders are limited to $5,500 in annual contributions.

  1. Get Free Money  

Yes, you can get free money. However, this carries a much less sexy name than “free.” The name is “401K.” Many new-hires ignore enrolling in this employer-sponsored program at their peril. Start early and make automatic, regular contributions that enable you to realize the maximum matching employer contribution. A 2012 survey of nearly 500 respondents discovered that “A majority of companies (52%) reported that fewer than 10% of employees elect to contribute the maximum to their retirement plan.” These people are leaving free money on the table. Don’t be one of them.

  1. Invest Earlyimage03

Regular savings alone will not be sufficient. The average annual inflation rate in the U.S. is 3.22%. This yearly increase gradually erodes the buying power of your dollar. Less risky investments like bonds and CDs will not equip you to outpace this rise. To grow you money and outpace inflation you need to invest in stocks. While equities are a riskier asset class the long-term data clearly shows they offer the greatest return over the long-term. There are no short cuts with investing. Consider making regular contributions to an investment account via dollar cost averaging. Choose an index fund to ensure that you are properly diversified.

  1. Manage Costs

The biggest threat to your investment account is not a market downturn. The greatest detriments to your wealth are costs. Many investors ignore the expenses associated with index funds. Such fees (called expense ratios) have a slow and painful impact on your money. Morningstar has reported “industry fee revenue is at an all-time high, reaching $88 billion in 2014, up from $50 billion 10 years ago.” The financial industry has enough money; they don’t need more of your savings. Choose only the lowest cost index funds when you invest.

  1. Practice the 3-Day Rule

A popular tip for someone who just scored a phone number at the bar is to wait three days before calling. No one wants to look too anxious. Put this in practice when contemplating a larger purchase. Before committing to the cost give yourself three days. In many cases you will be surprised that the desire for the fashionable new coat or leather boots was just a passing infatuation.

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Many have made fortunes convincing others that wealth building is a complex task. The truth is that a consistent, long-term, disciplined approach will help you start 2017 off on the right financial foot.

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