Smart Girls Know: Setting Money Goals For 2013

It’s been a little while since we talked about money here.  Let me preface this by stating the obvious.  I am not saying any of this in an advisory capacity nor, am I giving you tax advice.  Like all those drug ads on TV say, consult a professional before starting any new regimen.

I thought I’d make up a list of popular money-related goals that I’ve seen in the news lately in case any of you were mulling your finances and thinking about how to get on track in the new year.  It’s a great time to look back, figure out what worked, what didn’t, and set a plan for the upcoming year.

Don’t be overwhelmed!  I know thinking about money scares a lot of people but let’s face it…ignoring a problem doesn’t make it go away.  Once you tackle an issue, you always end up wondering what took you so long in the first place.

Is this picture condescending?

1. Increase your 401k contribution rate: Even if you didn’t get a salary raise, you should consider raising your 401k contribution rate by at least a percentage point.  One percent won’t affect your take home pay too drastically but, will help your retirement balance a great deal in the long run.  It will also reduce your taxable income.  More money for you, less for Uncle Sam.  A popular savings benchmark is to have the equivalent of one year’s salary in retirement savings by the time you’re 35.  The earlier you start, the better off you’ll be.

2. Make IRA or Roth IRA contributions for 2012: You have up until the tax filing deadline (April 15th) to make a 2012 IRA contribution.  Traditional IRA contributions are tax-deductible.  Roth IRA contributions aren’t but they are tax-free when you withdraw your funds later in life.  Both have their own trade-offs and rules but, you should consider putting some money to work if you have some left over from a bonus, extra holiday shifts, or a very generous Santa Claus.

3. Adjust your W-4 tax withholding: If you got a big refund on your taxes last year, that’s money you gave to the government, interest-free, for a whole year instead of making it work for you.  Those are funds that you could be putting towards retirement, paying down debt with, or using towards building a rainy day fund.  Talk to your HR coordinator or payroll person at work to see about adjusting how much is withheld from your paycheck for taxes.  If you’re a freelancer, talk to an accountant about how to adjust your quarterly payments.

4. Look at any bank fees you’re paying: Speaking of entities taking your money, take a look at the bank fees you paid last year.  If you use a tool like Mint, this is pretty easy to do.  If not, you’ll have to go to your statements. Are you getting charged a fee every month?  One option is to explore how to get around those fees.  Even if you don’t meet their minimum balance requirements, some banks waive fees for direct depositing your paycheck, paying a certain number of bills through online banking, or even using their ATMs a certain number of times a month.  If none of those are an option, maybe it’s time to explore a different kind of checking account or, another bank entirely.

5. Go paperless in your billing: If you haven’t already, set up your utilities, cable, phone, car insurance, credit cards etc. to bill you electronically.  If you have the discipline and means to pay your credit card off each month, see which monthly bills will accept credit card payments.  That way, you get your bills paid on time and you can get points from those credit card purchases.

If not, at least set up online bill pay with your bank account so you can avoid monthly fees, save money on postage, and get reminders of when your bills are due.  It also consolidates your payment records in one place so it’s easier to find discrepancies.

6. Set up an automatic savings account:  If you’re already saving enough for retirement, it’s time to set up automatic deposits to a taxable savings account too.  Everyone needs a rainy day fund to guard against unemployment, unexpected expenses, and that trip to Italy you keep saying you’re going to save for.

Set it up to either debit from your paycheck directly into savings (payroll direct deposit should allow you to designate more that one account) or set up an automatic transfer from your checking to savings on the days your paycheck arrives.  It’s ok to start small here.  See what you can afford for now and build up from there.

7. Don’t hide from your debt: An important part of effectively managing your finances is deciding what you’re the most concerned about.  I’m all for a balanced approach but, if you’re not able to sleep at night thinking about your debts, then perhaps that’s where you should focus your attention.  Take a look at what your highest interest rate is and try to pay that down first without disrupting the required payments on any other debts.  Your student loans might have the biggest balance but if they’re at a 2.4% and your credit card is at 13%, your credit card, that debt is costing you more. Pay down the expensive debt first before you go after cheap money.

While we’re thinking about interest, if you’re going to put some extra money towards high-interest debt, think about setting a goal to double up your monthly payments a couple of times a year.  Many installment loans, like those for your car or mortgage, split your payments into a set amount that goes towards interest and principal.  Once you’ve paid off the accrued interest for the month, any additional payments go towards paying down your principal.  A smaller principal amount means less interest that accrues over the life of the loan. There are plenty of calculators online that can show you how extra payments will affect your loan over time.

I’m oversimplifying this a bit but, like I keep saying, you’ve got to start somewhere.  If you feel like you’re drowning in debt, it may be helpful to seek out a non-profit credit counselor to talk through your situation.

8. Delay impulse buys and divert to savings instead: You know how some banks have those “Keep the Change” programs that round-up your purchases to the nearest dollar and put the difference in your savings account?  I’ve heard of people taking a similar approach with impulse shopping.  If you find yourself debating if you really need that fill-in-the-blank from Target, try transferring the cost of the item to your savings account instead and leaving the store.

Take a couple of days and decide if you’d rather have the money in your bank balance or the item taking up space in your house.  Granted, this takes lots of willpower but it’s kind of a cool idea.  Having a mobile banking app on your phone to transfer funds would make this even easier.  Make sure you password protect that beast though!

9. Achieve one short-term goal and work on one long-term: Nothing feels better than paying yourself.  I know that sounds like one of those annoying dieting quotes…”Nothing tastes as good as thin feels.”  Those people have obviously never had spaghetti carbonara.  But I digress.

Achieving a financial goal, whether it’s setting up a budget, reducing your monthly bills, or doing something huge like saving up a down payment or paying off a loan, feels really great.  It also makes you feel like you’ve got your sh*t together.  Try to identify one thing you can accomplish in the next three months and establish another goal that you know you’ll be working on for a few years.  This will get you in the right frame of mind to be in control of your money and make other financial decisions less scary.

What goals are you pursuing this year?  Any techniques that really worked for you in the past?