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By Claire Hegstrom
Whether you’re fresh out of college or preparing to retire in ten years, thinking about the future can sometimes feel overwhelming. Most of us have many financial aspects we’re trying to juggle: Student loan debt, mortgage payments, medical bills, and let’s not forget retirement goals! If we try and tackle everything at once, it’s easy to feel defeated and just give up altogether. So how do we break down these big tasks into an easily digestible action plan?
Recently I’ve been reading about the art of Kaizen, a Japanese philosophy where constant change is rewarded, no matter how small. The Kaizen approach focuses on tiny, incremental changes that propel you forward, without the daunting fear of failure from trying to “achieve it all” in one fell swoop.
When you visualize making minuscule changes to how you spend and save money, suddenly the task of preparing for your future becomes a lot easier to grasp. Let’s talk about some easy changes you can make in the new year to prepare for a brighter future tomorrow.
Preparing for your future isn’t just about putting money in an emergency savings account. It requires thoughtful action toward retirement goals, preserving your health, and making the most beneficial financial choices.
If you are lucky enough to receive retirement benefits from your employer, this step could be the single most important one you take in preparing for your life down the road. At the start of the new year, or immediately after your employee annual review, increase your 401(k) contribution by just 1%.
If you’re not already maxing out your employer contribution match, this 1% will get you that much closer! Increasing contributions during review season is a great little trick to make a big impact without feeling the difference in take-home pay. Let’s say you received a 3% merit increase. You’ll still get the 2% raise to your paycheck, leaving a little more cash for savings goals, or fun money, but that 1% increased contribution you made could turn into a 2% contribution increase when matched by your employer!
If your employer doesn’t offer retirement benefits or you’re already maxing out your employer match, consider opening your own Traditional, Roth, or SEP (Simplified Employee Pension) IRA. You can start small by sending an automatic transfer of 1% of your paycheck, and ramp up your contribution each year.
Let’s clear the air about something: Medical bills are inescapable. No matter how many vitamins you take, or how many veggies you stuff into your smoothie, eventually you will need to go to the doctor. Your health is an investment, just like your emergency savings, your retirement accounts and your home.
Health savings accounts are the smart way to prepare for future unexpected bills with pre-tax dollars. The great thing about an HSA is that—unlike Flexible Spending Accounts (FSA)—your funds roll over from year to year and never expire. Your HSA balance is yours, even if you change health insurance plans, retire, or leave your employer!
HSAs offered through employers might have great employer match perks, but if this isn’t an option for you, you can also often open your own HSA through your bank or credit union. Check to see if you have an HSA-qualified health plan. The account works the same way, just without the added perk of a balance boost from your company.
If you’re getting charged anything to keep your money in savings, find a new account ASAP. The funds you’ve worked so hard to make should be earning you great interest, not racking up minimum balance or monthly service fees.
For example, an Alliant High-Rate Savings account is a safe place to park your money, and it doesn’t have tricky earning tiers or sneaky fees to worry about. Plus, if you need to pull your money out during an emergency, you don’t get charged with pesky early withdrawal fees.
Start by contributing just $50 a paycheck to your savings account if you’ve never had an emergency savings before. You may need to shift your spending in other categories to pull this off, but it’ll pay off the next time you slice your hand playing master chef in the kitchen.
Looking to make any big purchases in the future? Before you start shopping for a new car or home, you’ll want to familiarize yourself with your credit report. If you haven’t downloaded the Experian Credit Report app yet, I highly recommend it. The free version is full of information specific to your credit report, and they’ll even send you emails when your habits negatively or positively impact your credit score!
Make boosting your credit score a little friendly competition with yourself. The Experian app is full of information that can help you make better financial choices in the new year. For instance, it will tell you if your credit card balances are too high for a healthy score, and they’ll list all your open credit lines and loans, as well as any recent credit inquiries.
Set small goals for yourself like, “Increase my credit score ten points by the end of July” or, “Keep my credit utilization under 30% for a full quarter.” You’ll be surprised how satisfying it can be to see your score go up, and you’ll be making strides toward getting a better interest rate on future loans.
Most people know that refinancing a mortgage can help dramatically decrease your home loan payment every month, but did you know that refinancing your auto loan could do the same? The average auto loan term is 63 months, or a little over 5 years. That’s a lot of time and your credit score may have improved since you got the loan, making it possible to lower your auto loan interest rate.
Most auto loan refinancing can be completed online, with same-day approvals. Once you refinance your loan at a lower rate, send any savings straight to your high-rate savings account. Every dollar counts!
Building a better financial future is all about doing little things now that can make a large impact on your savings goals. Just like the Kaizen method says, even 1% change can help. One percent more toward your retirement fund, 1% off your auto loan, it all adds up to a brighter future of endless possibilities.
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Claire Hegstrom is an advocate of the credit union movement through and through. Passionate about financial education, she approaches money conversations from a candid and inclusive space focused on growth and awareness. As our credit union founding father, Ed Filene, once said, “Progress is the constant replacing of the best there is with something still better.” Claire hopes reading Money Mentor will help transform your life from the best to even better.
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