With a new year approaching, now may be a good time to make sure that everything is up to snuff with your personal finances. Here are four areas you might look at:
You want to make sure you are maximizing your earnings on excess cash. You can garner 5% or more in a money-market fund and as much as 4.6% in a bank savings account. If you have a lot of money in a checking account that earns zero or close to it, you should think about closing or substantially reducing that account. If you have an investment account with a brokerage firm, you can often write checks on a money-market fund there.
Review Your Budget
Make sure your spending isn’t out of line with your income. Ideally, you want to be able to save money every month. Put some of your spending habits under the microscope. Do you really need a fancy coffee every day? Are you buying more clothes than you’re wearing regularly? Are you paying for entertainment subscriptions, such as streaming services, that you don’t even use? Are you eating out more than once a week?
A rule of thumb has it that you should stash away at least six months’ worth of spending, in case you face an emergency such as a job loss or illness. A job loss, of course, means less income. And an illness likely means more spending – and perhaps less income too, if being sick keeps you out of work. You can stick the money in a money-market fund or a high-yield savings account. That way you can earn something on the reserve while having instant access.
Make sure you are maximizing here. You can save for retirement tax-free, with an Individual Retirement Account (IRA) that you establish for yourself and/or a 401(k) account that many companies offer their workers. There are two kinds of IRAs – traditional and Roth. You can research the differences in detail on the Internet. The maximum IRA contribution for 2024 is $7,000 for those under age 50 and $8,000 for the rest of us. Companies often match some of their employees’ 401(k) contributions. That’s free money, so try to take advantage of it.