It’s easy to think you’ll get your finances together “next year” or when you finally get the promotion you’ve been after. Unfortunately, time keeps ticking away, making it easy to spend years dreaming of financial security without making progress toward your goals.
Now that 2020 has arrived, it may be the perfect time to stop making excuses and start taking action. After all, it’s not just a new year; we’re in a brand-new decade.
But which moves can have the most impact? We interviewed several financial advisors to discover which steps they believe nearly everyone could benefit from in 2020 and beyond. Here’s what they said.
1. Increase your contributions to tax-advantaged retirement accounts
According to financial advisor Benjamin Brandt, host of the podcast Retirement Starts Today, the beginning of the year is an excellent time to reassess how much you’re saving for retirement. The IRS has increased the maximum contribution limit for a 401(k) account in 2020 to $19,500.
“Could you save a little more for the future version of yourself?” he asks. “Determine what a 1% increase in your savings rate would be, and commit to that increase.”
You might not notice the money missing from your budget if savings are increased gradually, but you’ll never know unless you try. (See also: 5 Money Moves to Make Before You Turn 40)
2. Take stock of life changes over the last year
Financial planner Luis F. Rosa, host of the On My Way to Wealth podcast, advises everyone to sit down and evaluate any significant life changes they’ve experienced over the past year or two, such as marriage, divorce, or the arrival of a new child.
You should also check your beneficiary designations on your 401(k), life insurance, and other accounts to ensure they reflect your current wishes. (See also: 5 Money Moves Every Single Parent Should Make)
3. Learn to live within your means
Many people manage their finances in reverse, purchasing what they want and saving what’s leftover. Financial advisor Christopher Clepp from Strategic Financial Group suggests a shift in mindset if you want to change this trend in your life.
Instead of buying what you desire and treating savings as an afterthought, Clepp advises to “invest for the lifestyle you want and spend what is left.” You don’t need to track every expense if you save adequately; save 20% of your income first, then spend the remaining 80% as you wish, without exceeding that budget or incurring credit card debt.
4. Pay off credit card debt
While credit card debt may not seem overly problematic in the short term, it can be financially detrimental in the long run. With an average APR of over 17%, credit cards are not a wise choice for borrowing money. They can easily lead to a lifestyle you cannot afford.
Clepp encourages everyone to make 2020 the year they eliminate credit card debt. Carrying an average of $5,000 in credit card debt could cost you nearly $20,000 in interest payments by the time you’re 65—an amount that could be spent much more wisely.
5. Assess your insurance needs
Clepp also recommends reviewing your insurance needs annually, even if you think everything is current. “All the careful future planning can be undone by an unexpected accident,” he cautions. Review your home, auto, and umbrella insurance policies each year.
Find someone who can educate you about the policies. “Cheaper isn’t always better, but you might find comparable coverage at a better price,” he adds.
If you are married or have dependents, make sure to review your life insurance coverage, and also evaluate your disability insurance to ensure adequate protection.
6. Start using a budget
Financial planner Brandon Renfro, Ph.D., suggests that everyone should try budgeting their income and take the time to review their budget at the start of the new year—even if everything appears to be working fine.
“You may find small budget items you can eliminate,” he notes. “Often, smaller expenses go unnoticed because they seem insignificant.”
Reviewing your budget might reveal unnecessary splurges that could be reduced to improve savings. If you’re paying for subscriptions you’re not using, consider canceling them and redirecting that money toward savings or debt repayment.
Renfro also emphasizes the importance of monitoring your progress toward financial goals. “This goes beyond confirming that you took planned actions; it verifies that those actions brought you closer to achieving your goals.”
For instance, if you planned to pay an extra $100 monthly on your car loan or credit card, check how much closer you’ve gotten to paying it off. If you achieved your goal, that’s fantastic—stay the course. If not, reflect on why that happened and take steps to get back on track. (See also: 5 Steps to Successful Budgeting)
7. Improve your credit score
Financial planner R.J. Weiss of The Ways to Wealth emphasizes that individuals should also focus on their credit score, even though many neglect this aspect of their financial health.
This goal often becomes a priority in anticipation of a significant purchase, like a home. However, it’s essential to monitor and improve it regularly due to its numerous benefits.
Weiss recommends decreasing your total credit utilization, which is the ratio of used revolving credit to your total available credit. For example, if you have a total credit limit of $10,000 and $5,000 in credit card debt, your utilization is 50%.
Aiming for a utilization ratio below 30% is ideal. You can achieve this either by paying off your debt or by increasing your total credit limits.
