Seven Steps to Smarter Saving

Retirement

Seven Steps to Smarter Saving

Important ways to save in 2016 and beyond.

January 3, 2016

Americans, as a rule, don’t always save as much as we should. As the new year kicks off, now is a good time to revisit your own personal savings plan and commit to making changes that will benefit you for years to come. If you want to save more in 2016, here is an order of priority to help you decide where to allocate savings to get the most bang for your buck, literally:

Take advantage of your company’s 401(k) match.
Who’s going to say no to free money? And that’s essentially what this is. Your company likely chips in a certain percentage or dollar amount on top of any retirement savings contributions you already make in the company-sponsored plan. This is an easy and profitable way to save each year. By putting in enough to take full advantage of the match, you’ll boost your coffers with “free” money that has the potential to compound and grow until you’re ready to retire. Plus your contributions will reduce your taxable income. Win-win.

Pay off short-term, high-interest, non-tax-deductible debt.
We’re talking things like credit cards and other personal debt. Paying even a little more each month can help you avoid the ever-growing interest that compiles on your balance over time. Plus, it just feels good to get high-interest debt off your balance sheet. An added bonus? Paying off this debt can positively impact your credit score and ability to borrow for future purchases, like a home.

Establish an emergency fund.
Most experts advise stocking your emergency fund with enough money to cover six months of living expenses. Hitting this mark is a good idea, especially if you’re single, have a less stable career or work in an industry with fewer job prospects.

Maximize your Roth IRA contributions.
The major advantage of a Roth IRA is tax-free withdrawals. Many of us expect to be in a higher tax bracket as we get older, and the money that you invest in a Roth isn’t subject to taxes when you take the income in retirement (as long as the distributions are made after you’re 59 ½ and have held the Roth for five years, with some exceptions). This year you can contribute up to $5,500, and those over 50 can put in an extra $1,000.

Put the maximum allowable amount in your company 401(k) plan.
Once you’ve accomplished these goals, it’s a good idea to revisit your 401(k) contribution. After getting the company match, consider investing up to the highest allowable amount. Taking advantage of this opportunity to invest in your future is crucial not only this year, but every year that you’re working. 

Invest in taxable accounts.
These types of accounts (brokerage accounts and the like) can help you reach many of the milestones life has to offer. Whether you’re saving for a wedding, a new home or to send your children off to college, investing can help you achieve your short-, mid- and long-term goals.

Pay down tax-deductible debt (e.g., home mortgage).
Next, take a look at other large loans you may still have, like your mortgage. Once you’ve got all your savings priorities taken care of, you can deploy any extra money toward paying down larger loans, if you like.

While you’re thinking about big changes to make to your saving strategy, keep in mind that the little things can add up, too. You can stockpile your change until the pennies turn into dollars, trade your venti latte habit for the at-home version, or set up automatic deductions from your paychecks to fund other savings priorities. Every little bit helps put you on the road to a secure financial future.



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