The Scenario: New year, new you.
The Question: What should I focus on for 2020 when it comes to my finances?
As the calendar rolled over to 2020, millions of Americans likely resolved to do something different with their lives. I’ll let you deal with your goals around diet and exercise, and instead will focus on three ways to get your financial act together in 2020.
Goal #1: Track cash flow
The most common financial resolutions that I come across are to save more, spend less and pay down outstanding debt. I’m lumping them into one category, because each requires that you understand how much money is coming into and out of your household.
I know it may sound simple, but if you don’t get this core concept right, it’s hard to make informed decisions about your financial life.
For example, how much money is really available for you to pay down your outstanding debt? Can you afford to put a little bit more toward your emergency fund so that you have 6 to 12 months of living expenses socked away? Can you afford to nudge up your retirement plan contributions?
Goal #2: Put your money on auto pilot
With your trusted cash flow in hand, make your life easier by using technology to manage due dates on bills and to establish auto pay on available accounts. The idea is to synchronize payments for recurring bills – like mortgage/rent, insurance, utilities, credit cards and cell phones – with when you receive income. If you are paying down debt, establish automatic payments, even for a small amount, so that your most important expenses get paid and you can avoid, or at least minimize, penalties and fees.
If you are saving on your own, you can automatically transfer money from your checking or savings account to a Roth or Traditional IRA. If you are using an employer-based retirement plan, many allow you to automatically increase your contribution levels and also rebalance the account periodically.