Are you thinking of making some financial resolutions for next year? One place to start is how you answer these 5 ?financial health? questions? since a recent study showed them to have a high correlation with net worth. If you don?t like your current answers to these questions, here are some ways to improve your answers for this same time next year
) Did you save any money last year?
It doesn?t matter how high your income is if you spend it all. Whether you?re trying to pay off debt or save for the future, saving money is the first step to increasing your net worth. The simplest and most effective way to make sure you save money is to set some savings aside before you even have a chance to spend it. If you contribute to a retirement plan and maybe a health savings account (HSA) or flexible spending account (FSA) at work, you?re already doing this.
You can save even more by gradually increasing your contribution rate each year. Your retirement plan may even allow you to do this automatically until you reach your target contribution rate. For example, if you?re currently contributing 6%, you can have that increase 1% a year until it reaches 15%. You probably won?t even notice that 1% reduction in your income (especially if it?s less than your cost of living adjustment) but after a few years, you could be saving more than you ever thought you could.
Don?t limit this to work though. You can also set up automatic transfers from your checking account to a savings or investment account. For example, you can contribute up to $5,500 ($458.33 per month) plus an additional $1k per year if you?re age 50 or older to a Roth IRA, which grows to be tax-free after age 59 1/2 as long as you?ve had the account for at least 5 years. In the meantime, you can withdraw the sum of your contributions (but not any earnings) at any time and for any reason without tax or penalty so the money will also be available for emergencies as well. Other tax-advantaged places to save money include a health savings account, which is tax-free for health care expenses, as well as Coverdell Education Savings Accounts and 529 savings plans, which grow tax-free for education expenses.
2) Did you miss any payments on obligations in the past year?
In addition to annoying late payment fees and interest charges, making on-time payments is the biggest factor in determining your credit score. Poor credit can mean higher interest rates on loans for things like a home or a car (or not even qualifying for a loan at all), having to put down a deposit for cell phone and cable service, higher insurance premiums, and even lost job opportunities.
Of course, life can sometimes get in the way of even important things like paying bills. One solution is to have your payments automatically deducted from your checking account or billed to your credit card. If that?s not possible and if the amount is the same each period (like a rent or mortgage payment), see if you can have your bank automatically send a payment for that amount each period.
Finally, you may owe some back debt. The newer the debt is, the more important it is to get caught up on since it?s having a bigger impact on your credit score. If you can?t pay it off in full, try to negotiate the payments or work with a non-profit credit counseling agency to negotiate the payments for you and perhaps consolidate multiple debts into one payment. This can have a short term negative impact on your credit but can improve your credit if it eventually leads to you paying the debt off.
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