Summer is often a time of letting go and enjoying. Tasks that can wait are put aside for later. Instead of work, work, work, we plan vacations, visit with family and friends, and indulge in our favorite outdoor activities, like hiking, biking, or swimming. Now, as the days get longer and we turn our thoughts to the last part of 2017, here are five simple year-end financial strategies to help you finish strong!
Build Your Emergency Fund
Knowing that 3 to 6 months of living expenses are tucked away for the next time the car needs a timing belt or the refrigerator dies, can go a long way toward helping you through the inevitable rough patches in your financial life. To build an emergency fund, open a savings account exclusively for this purpose. This is money you aren’t going to touch unless life sends you a curveball. This is money to be held as “insurance” so that when an unexpected need comes up, you have the resources to deal with it without resorting to an expensive loan or a costly credit card. Once the account is open, set up an automatic transfer from your checking to your savings so that the account builds without action on your part. Start with transferring as much as you can afford. As you are able, increase the amount that goes into the savings account until you reach 6 months of living expenses (6 times your net monthly pay). Once you reach 6 months, you can divert that same monthly amount to your retirement savings or to savings for another goal.
Contribute to Charity
There’s financial incentive to give generously to charity. When you donate to a 501(c)(3) public charity you are able to take an income tax charitable deduction (assuming you itemize your deductions). Charitable tax deductions reduce your taxable income and your tax bill – and help improve the world. Make sure the non-profit organization is a 501(c)(3) public charity or private foundation. Keep a record of the contribution (usually the tax receipt from the charity).
Open or Fund a College Savings Plan
Saving for college can be daunting, but good tools exist to make it easier, one of which is the 529 plan. 529 plans are state-sponsored accounts that help families save money specifically for higher education purposes. Colorado residents get to deduct contributions to the State’s 529 plan from their Colorado state income tax return for that year. Earnings in the account grow federal and Colorado state tax deferred. Withdrawals for qualified higher education expenses (such as tuition, fees, books, room and board, computers, etc.) are exempt from federal and Colorado state taxes. Many 529 plans can be opened with a minimum amount of money as low as $25.
Pay off Credit Card Debt
The 2016 Nerd Wallet annual survey of household debt found that the average American household has a credit card balance of $16,425 and spends about $1,300 a year on credit card interest payments. I’m sure we can all think of better ways to spend $1,300!
Pay off your credit card in full each month if you can. If you’re carrying a balance month-to-month, pay more than the minimum payment each month. Pay as much as you can toward eliminating your credit card debt.
If you have more than one credit card, pay as much as you can on the card with the highest interest rate, and then pay the minimum payment on the rest. As soon as the card with the highest interest rate is paid off, apply that same amount of money to pay off the card with the next highest-interest rate. Be your own best advocate and negotiate with each credit card company over the interest rate it charges you. If you can’t get a good rate from your credit card company, explore other options, including moving your balance to a new credit card with more favorable terms.
Build Retirement Savings
One rule of thumb for retirement savings is that you need 10-12 times your annual salary in your nest egg when you retire. So if you make $50,000 a year, you will need $500,000 to $600,000 in savings to supplement Social Security and other assets when you retire. To accumulate such a large sum, it’s best to start saving for retirement as soon as possible. One way to build your retirement savings is to automate it. If your employer offers a retirement plan (401k, 403b, Thrift Savings Plan, etc.), use it. Any amount you save is better than nothing. Contribute at least enough to get the employer match – that’s free money! The next time you get a salary increase, consider increasing your contribution percent by the same amount. You can contribute up to $18,000 per year to your retirement plan ($24,000 per year if you are 50 years old or older). If your employer doesn’t have a retirement plan, open an IRA or Roth IRA. You can contribute up to $5,500 annually to your IRA ($6,500 if you are 50 years old or older) if you satisfy the income limitations.
Make a commitment to finish the year with your best financial foot forward by making a few smart changes now.