You’re ready to get your finances organized and begin making your money work harder for you, but knowing where to start is difficult. It doesn’t help that financial planners have traditionally given clients a novel-length report of findings and recommendations complete with complicated charts and graphs. Taking a stack of papers home and trying to remember what you were supposed to do is annoying!
Gen Y Planning used to do this for our clients (I know, right?), but we’ve streamlined our deliverables down to 1-2 pages that summarize where you are now and what tasks you can complete to get closer to meeting your goals. We also try to knock out a few tasks during our meeting together. This makes it so much easier for our clients to actually follow our advice and grow more confident in managing their accounts.
Everyone’s situation is different, but there are some action items we recommend often. Thanks to easy-to-navigate online savings and investment accounts, they would be easy for you to accomplish in the time it takes to order a pizza and have it arrive at your door.
1. Increase Your 401(k) Contributions by 1%
If you’re not already maxing out your 401(k), there’s a way to contribute a bit more that likely won’t create too big of an impact to your paycheck: increase your contributions by 1%. Since you can make changes to your 401(k) contributions and investments any time, this is a task that you can do simply by logging into your account.
How much of a change would you notice? Let’s say you’re on track to contribute $10,000 this year. Assuming you get two paychecks per month, adding another 1% will increase your contributions by just $4.17 per paycheck. That adds up to an extra $100.08 per year.
Take it a step further by setting a calendar reminder to increase your contribution by 1% every six months until you max out your contributions.
2. Automate Contributions to Your IRA
Making a contribution to your traditional or Roth IRA is as simple as paying a credit card bill online. You can make one lump-sum contribution for the year ($6,000 is the max for 2019), or make smaller deposits throughout the year. Either way, contribute! You have until April 15th of the following year to make prior year contributions. It’s a great way to save above and beyond your 401(k).
3. Make Sure the Money in Your Investment Accounts Is Actually Invested
I see new investors get tripped up over this all the time. You deposit money into an investment or retirement account, and that’s it, right? You’re an investor?
Not quite. The default is for that money to sit in an account that’s essentially the equivalent of a savings account (with the low interest rate to match) until you decide where else that money should go. That means you actually have to pick investments! (Unless you’re using a robo-advisor like Betterment, which will automatically invest the assets as soon as the money hits your account).
Don’t forget to take this extra step so you don’t go years thinking your money is invested when it’s actually not. Picking investments doesn’t have to be complicated. I’m a huge fan of low-cost index funds and ETFs, as well as robo-advisors. Make investing easier so you’re more likely to actually do it.
4. Set Up Automatic Money Transfers
Why move money around manually when you can literally save and invest in your sleep? I met with my financial planner recently and was surprised by how much my net worth had grown simply by automating my investing.
Here are some easy automatic money transfers you can set up in minutes:
If your company allows it, you can direct deposit your paycheck into more than one account. That means you can allocate a portion to checking and another portion to a savings account (or even more than one savings account) so your money is whisked into savings without you even seeing it. That makes it much easier to save. Quick Tip: Start by trying to set aside 10% of your paycheck for emergencies and 5% for travel.
For short-term money goals, schedule automatic transfers from your checking to one or more savings accounts. This is a great way to budget for those annual costs that don’t always come up each month but will come up each year, like car and home repairs, holidays/gifts, travel, and more!
For longer-term money goals, set up automatic transfers into your IRA or taxable brokerage accounts. Make sure you automate which investments you’re buying in those accounts as well.
5. Get a Better Interest Rate on Your Savings
Why earn a measly 0.01% APY on your savings account when so many online accounts pay close to 2% or higher? Opening an online savings account takes minutes (try Ally Bank or Betterment), and connecting a funding account so you can transfer money over takes a business day or two. Once that’s done, transfer your cash out of accounts that barely earn interest.