Winter is a good time to improve your financial life and make good moves for the rest of the year. Here is a trio of things to get done:
Investigate 401(k) matching contributions from your employer. Most 401(k) plans provide for employer matching contributions, often around 5% of your pay, though percentages can vary.
The match consists of your employer contributing a certain dollar amount to your 401(k) account based on the sum you contribute. Let’s say your plan has a dollar-for-dollar employer match up to $1,500. For every dollar you contribute to your account, your employer will also kick in the same amount. Once you contribute the whole $1,500, your employer stops contributing.
Think about it: You and your employer both put in $1,500 and now your 401(k) account is worth $3,000 more — half of it free money from your employer. Plans differ widely; check with your human resources department or supervisor to determine your company’s matches.
Start a savings account. Problems putting money aside? One good solution: Have a set amount automatically taken from your paycheck and deposited into a separate account, such as a savings, money market (MMA) or mutual fund account. MMAs and mutual fund accounts often require higher opening balances but pay more interest.
Start slow, stocking away $25, $50, or $100 each month. Double the amount after about six months. If you deposit $25 a month and double it in half a year to $50 a month, by this time next year, you will have $450 extra.
Put away $50 a month, double it to $100 in half a year, and after 12 months you sock away $900. Start with $100 a month and double in six months, and in a year you save $1,800. You get the idea.
Another option might be an online savings account, easy to establish and link to your checking account for movement back and forth. Some carry no fees or minimum balance, and they also tend to pay slightly more interest than the types of accounts above.
Track expenses. Not sure what you and your family spend? Having trouble staying on those day-to-day budgets? Try this over four days:
Taking no more than 30 minutes, write down all your monthly fixed expenses such as mortgage or rent, Internet access fees, and car payments. Include what dollar amount you spent on each. Do this first step from your memory and put your list aside for a day.
On the second day, again in no more than 30 minutes, look through your checkbook and see what monthly expenses you forgot to write down and correct any amounts you misquoted. Add in monthly variable expenses, such as clothing, groceries, car maintenance and fuel, as well as utilities such as electricity, gas, oil, and water.
Once again in just half an hour, pull out your credit card bills on the third day and come to terms with what and how much you charge and still owe. Note all finance charges and late fees. Finally, on the last day, pull all your expenses together.
Any revelations? At this point, you have good information and the perfect chance to improve your spending habits.
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Kimberly J. Howard, CFP, CRPC, ADPA, is a certified financial planner and the owner of KJH Financial Services, a fee-only practice located in Newton, Mass., and Denver (781-413-4879).
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