Do you remember those New Year's resolutions you made to save more money and spend less? For many of us, those good intentions got shifted to the back burner when reality set in and bills started piling up. But it's not too late to reexamine your financial affairs and turn things around for the rest of the year. Here are seven smart money moves that could help you in 2017:
1. Build a better budget. One fundamental of money management is to create a monthly budget that makes sense for you, and then stick to it. You may have gone through the process before, but if it's not working you have to go back to the drawing board.
Start with the essentials—mortgage or rent, utilities, your car or other commuting expenses, and anything else that you can't do without—and take it from there. Think about cutting back on or eliminating expensive dinners, exotic getaways, and other luxuries you can live without. In particular, zero in on small, routine expenses—that daily cappuccino, for example—that may add up to a substantial cost.
2. Pay down your debts. If there's one thing that can wreck a budget, it's the payments you make on what you owe. Maybe you're saddled with credit card charges subject to high interest rates. Even the minimum monthly payment can be painful, and interest charges just keep mounting.
Try to make debt reduction a top priority. Start by resolving not to borrow any more until you pay down what you owe. If it makes sense and you can obtain a favorable interest rate, consider consolidating your debts into a single account.
3. Increase retirement savings. Now is a good time to boost your retirement savings as well. If you participate in a 401(k) plan at work, you might increase the amount that's subtracted from your paycheck. The maximum deferral for 2017 is $18,000 ($24,000 if you're age 50 or over). Plus, your employer may provide "matching" contributions of part of your savings.
In addition, you could supplement a 401(k) or other work plan with contributions to a traditional or Roth IRA (or a combination of the two). For 2017, the maximum total IRA contribution is $5,500 ($6,500 if you're age 50 or over).
4. Reinvest investment earnings. It may be easier to manage your finances if you have investment earnings from securities such as stocks, bonds, and mutual funds. However, when possible, instead of spending your profits, funnel those amounts back into other investments.
If you own investments that pay out regular dividends, you could use an automatic dividend plan to reinvest the money without having to lift a finger.
5. Diversify your investments. Spreading your portfolio over several different kinds of investments could help reduce some of the inherent risks of investing and relieve some of the pressure associated with volatility in the markets. (Of course diversification doesn't ensure a profit or guarantee protection against a loss, especially in a declining market.)
The idea behind this strategy is relatively simple. If you put all your eggs in one investment basket, or into just a couple of baskets, a severe loss could have devastating effects. But if, for example, you added international stocks to an investment mix tilted heavily toward domestic stocks and bonds, you might be less likely to be hurt by a drop in one type of holding. Just keep in mind that foreign investments involve special risks relating to political, economic, currency fluctuation and other events.
6. Improve your credit score. Even if you need to cut down on spending, you're likely to borrow at least occasionally—for a home mortgage, say, or for a car that you use for your daily commute.
But you still may be able to reduce the interest you pay on loans by improving your credit score. Paying off existing debt on time is a crucial first step, and there are other moves that also could help. Check your current score online and consider tips for pushing it higher.
7. Keep an eye on taxes. Being aware of the tax implications of your money moves could help reduce another big expense. Deferring more of your salary for your 401(k) could reduce your tax liability, and there also are ways to minimize taxes on your investment earnings. For instance, long-term capital gains are taxed at a maximum rate of only 15% (20% if you're in the top tax bracket)—much better than the top rate of 39.6% on regular income.
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