Revise your budget
Creating a budget is a great way to keep spending on track and meet your savings goals for the year. Seeing where your money goes can be an eye-opening experience. A budget calculator Opens in new window can make running your numbers relatively painless. If you already make a budget, adjust it annually to account for changes like health and home insurance costs or income increases.
Compare your various expenses (morning lattes included) to your monthly income. If you find you have excess income, consider meeting with a financial professional to determine the best way to put that money to work.
Review your retirement savings
Review your IRA, 401(k) and other retirement plan contributions. Are you saving enough? Can you save more?
Aim to contribute at least 15% of your paycheck to your retirement funds. If that sounds like a stretch, start smaller—say, at 10% or as much as you can—and increase your rate by one or two percentage points each year.
If you're at least age 50 (or will be by year-end), take advantage of "catch-up" contributions: The IRS allows you to contribute up to $7,000 to traditional and Roth IRAs—$1,000 above the standard limit—and you have until April 15, 2021 to fund yours for 2020.
For workplace retirement plans like 401(k)s, 2021 catch-up limits are $26,000, or $6,500 above the usual $19,500 cap.
Also, as your target retirement date nears, consider paring back on your investment risk by allocating less of your savings to stocks and more to fixed-income investments such as bonds. Talk to a financial advisor to determine whether your portfolio contains an optimal mix of stocks and bonds for your age and goals.
Make a debt-free plan
One silver lining to 2020’s financial clouds is that the average individual’s credit card debt fell for the first time in eight years, to $5,315, according to credit bureau Experian Opens in new window. Yet with interest rates Opens in new window on “drastic plastic” hovering close to 16%, that's still a lot of money wasted on interest payments.
Can you set goals for 2021 to reduce credit card spending and pay down debt? You'll save hundreds to thousands of dollars annually—money you can invest and watch grow.
Review insurance policies
During your annual financial checkup, assess whether you have the right amount of insurance for your life stage and situation.
For example, if you've accumulated considerable assets since you bought your homeowner's or renters policy, you may want to discuss an upgrade with your insurance agent or broker.
If your children have graduated from college or you've paid off your mortgage, you may need less life insurance. If you just had a second child, you may need more.
It's not easy these days to find better health insurance rates, but it's worth the time to review your employer-sponsored plans, individual plans or Medicare Advantage plans, particularly if you can get in before the annual open enrollment period ends. You may find equal or better coverage at a lower rate, giving you that much more to save—or invest in your skinny vanilla latte fix.