“Tell me and I forget, teach me and I remember, involve me and I learn.” Benjamin Franklin
Last month’s introductory column identified the goal to involve readers by providing actionable items to assist them with gaining financial security. By reducing the complexities of financial choices, readers will learn to make confident short and long-term decisions.
The new year is often a time for reflection and assessing your finances is as healthy as the commitment to exercise more often. While managing finances is stressful in most years, it is especially so today as the world is reeling from a global health crisis. However, please resist the urge to ignore your finances.
The action identified in December was the most important first step to achieving financial security. We recommended that readers simply track their recurring monthly income and expenses. This small first step can be extended later to quarterly budgets and then ultimately to an annual analysis.
The next step is to identify where excess monies should be placed from a practical and tactical standpoint. Consider establishing the following “buckets” and determine a dollar goal for each:
- Emergency savings — Establish a savings account, separate from your checking account, that totals three to six months’ salary. A simple step is to contact your bank or brokerage firm to establish the account and transfer the whole amount today, or set-up an automatic deposit each month or each pay period, until your goal is achieved. The key to protecting you from accessing these emergency savings is to make it functionally difficult to access.
- Debt repayment — Because the interest paid on savings accounts is currently at zero, the next actionable step to gain financial security is to use the monthly excess you have identified to pay down debt.
- Retirement Savings — Once the emergency savings and debt repayment plans are established, excess monies should be allocated each pay period into your employer-sponsored retirement plan, if one is offered.
Many companies offer retirement plans that allow employees to withhold money directly from their paychecks that is placed into accounts that grow tax-free. Such plans include 403(b) and 401(k)s. These companies may also provide contributions based upon your salary on a percentage basis and many will match your contribution up to a defined amount.
The terms of your employer’s plan are available from the company or recordkeeping vendor in the form of a summary plan description. The actionable item for January is to evaluate what you are currently contributing to the plan and whether or not you are receiving the maximum match offered by your employer.
If you do not know the answers, this information should be available upon request to the company or online at the recordkeeper. If you do not know how to access it, ask!
As a final note, Congress recently passed a relief bill that will be hitting the bank account of many readers soon. Take this deposit and use it opportunistically to act on the suggestions outlined above.
Beth Stegner Peabody is CEO of Stegner Investment Associates, Inc., and a graduate of Sacred Heart Academy.