Financial Preparation for 2020
It’s a great idea to begin the new year with a plan. A budget is just that-a plan that starts with the income you expect, along with your fixed expenses, such as rent or mortgage costs, homeowners association fees, insurance, utilities and transportation costs. The plan also incorporates your savings goals.
Then, the money remaining is designated for your other expenses. A realistic budget will help you set your financial goals and remind you to stick to them. These last few days in December, as the year draws to a close, is the perfect time to assess last year’s budget or to create a new one if you don’t yet have one in place.
Reviewing where you spent last year’s money will help you make better choices in 2020. If you did not save money for retirement, for example, this can be a new budget item.
While planning for the coming year, make sure to include a method for tracking your spending. You can do this on a spreadsheet or you can simply tag items in your financial account.
Even with a solid strategy in place, there will always be surprises along the way. Losing a job, a leaking roof or an illness can throw off your entire plan. Be sure to build an emergency fund into your budget.
You can also make your financial future more secure by identifying the difference between your needs and wants. Needs are necessary for your survival, and include items like food and shelter. Wants are things that are not necessary but you would like-such as a luxury car or European vacation.
First, tend to your needs. Then, based on what’s left to work with, consider your wants. This might sound obvious, but for many of us, the line between wants and needs is often blurred. This can lead to awfully tight financial situations, even prompting us to “borrow from Peter to pay Paul.” By clearly differentiating between what you want and what you need, you can avoid this outcome in 2020.
Retirement plan contributions can be a valuable source of savings, especially if you have the option of employer-matched funds. If you do, be sure to take advantage of them!
Also, check with your HR contact and your accountant to make sure you are contributing the optimal amount to your 401K and IRA. For the coming year, you can contribute $6,000 to a Roth or traditional IRA, or $7,000 if you are making “catch-up” contributions.