Vested Wealth

While New Year resolutions are common this time of the year, only 8% of people are successful in achieving their goals according to the Statistic Brain Research Institute. For all its worth, it’s interesting to note that one of the top 3 New Year resolutions for most people is to spend less and save more. I guess one shouldn’t be too surprised given that November and December are the biggest spending months across the country. Perhaps buyer’s remorse sets in by January. Although I applaud spending less and saving more as a goal, this is only the first step to financial prosperity. Such goal should be coupled with a few additional action steps. These are illustrated in the list below. I believe these steps would greatly impact your financial well-being. Also, note that these steps are SMART (Specific, Measurable, Achievable, Realistic, and Time-bound)!

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1. Review your 401(k) contribution: While I subscribe to maximizing your 401(k) contribution ($18,000 tax free contribution, I believe), with the limited choices that comes with 401(k) portfolios, I don’t believe it’s the best vehicle for retirement. In 2015, you should consider investing in your 401(k) until you’ve maxed out your employer match to ensure you are not leaving any money on the table.

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After this, the rest of your retirement investing should occur in your IRA (traditional IRA or Roth IRA). Without considering any implied tax advantages, IRAs have more investment options to choose from. For instance, you can invest in individual stocks within an IRA account; you can even actively manage your own money, thereby creating significant wealth long-term. What’s even better is that because Roth IRAs are funded through after-tax earnings, if you are in a lower tax bracket today, you can withdraw from your Roth IRA account after five years without any additional penalty or taxes (regardless of whether your tax bracket has gone up). Of course if you think your tax bracket is likely to go down in the future, then you are better off investing in the IRA (Maximum annual contribution on traditional IRA is $5000). I would suggest doing this within the first quarter of 2015 and make changes to your 401(k) plan based on your employer schedule for enrollment and modification. (Photo credit- pundeffadams.com)

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2. Pay down your credit card debt: I strongly believe we are quickly approaching the end of an era of low interest rates. Whether it’s in the third quarter of 2015 or starting in 2016, the Federal Reserve is expected to increase its federal funds rate as the economic continues to garner more steam. Increase in the federal funds rate will translate into higher interest rates on variable credit card debt. When this happens, you will be prepared for it if you’re paying down your credit card debt now. Better still, you can transfer your variable rate cards to a fixed rate card right now at the current low rates. Make this a priority within the first quarter of 2015.

(Photo credit- www.crazy4rewards.com)

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3. Bi-weekly mortgage payment: We don’t talk about this often but until recently when I came to terms with the power of the bi-weekly payment. This is loan reduction on steroid! Do yourself a favor; consider signing up for bi-weekly mortgage payment with your lender. Alternatively, you can break your monthly payment into two; once on the 15th and 30 of every month. It’s a known fact that you can shave several years off a 30-year mortgage and save thousands of dollars on interest payments by implementing this strategy.

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4. Review your insurance policies: Review all things insurance! From your life insurance to your pet insurance. Make sure you are not just adequately covered but that you are also getting the best rate possible. Until recently, I had a fear of flying. Last year, I got life insurance (term life) and while this does not eliminate the risk of death or disability, it helps to know that my loved ones will be taken care of. (photo credit-- www.goldsmithinsurance.com)

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Review your banking relationships: This is one that I’m guilty of actually! We get into the routine of automated direct deposit from work and paying bills that we never for once stop to think about what value our bank is adding in your financial journey. I encourage you to review your bank activities from monthly service charges to ridiculous charges like fees for using another bank’s ATM, We all need to ask ourselves if we can do better. You should also consider consolidating all your extra funds into one savings account (up to FDIC limit) that offers competitive savings rate, if you must have your money in a savings account. I find that online banks like ING Direct (acquired by Capital One in 2014) or Ally bank offer some of the best rates on savings accounts compared to other traditional banks.**