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By Suze Orman
When it comes to taking care of ourselves, we tend to focus on ways we might improve our diet, exercise routine or sleep habits. I am here to tell you that getting on top of your biggest money worries is an equally important act of kindness to yourself.
Until you feel good about where you are at financially you can’t really feel great. Right? When financial anxieties are swirling, it has a way of clouding so much of your life. You don’t deserve that.
If you are ready to follow my plan for building financial security, I am confident you are going to end the year feeling so much better about money, and, most importantly, about you.
I am not suggesting you will reach every goal in 2022. But when you are moving toward important goals, you are on the path to financial freedom. And that in itself should feel fantastic.
Here are the rules for starting your journey to financial freedom:
In the spirit of helping you refine your short list of goals for 2022, I want to share some financial moves that I have found helpful. In the decades I have dedicated to helping people take control of their money, each person, each household has been unique. Yet the solutions to their issues tend to circle some common themes.
Project 1: Build your emergency savings. Having money set aside to pay for unexpected bills is one of the kindest moves you will ever make. It gives you greater peace of mind knowing that whatever might be around the next curve, you have the means to navigate through it. The best way to build savings is to make it automatic: set a weekly or monthly auto-transfer from a checking account into a savings account.
Ultimately, I want you to aim to have savings that can cover your basic living needs for 12 months. I know that is a lot. Remember what I said earlier: the goal is to be on the path to financial freedom. It may take you many months (or years) to have this much saved up. That’s more than okay. Just stay committed to saving more, consistently.
Project 2: Review your life insurance needs. If anyone is currently dependent on your income, don’t you want to make sure that they would be financially okay if you were to unexpectedly die? Term life insurance is how you protect your loved ones. Please don’t rely on workplace life insurance. The death benefit is usually one or two times your annual salary. That is not enough. Ideally, I want you to aim to have a death benefit of at least 20 times your loved one’s annual income needs. That will enable them to invest the death benefit conservatively and support themselves mostly from the income, rather than eating into the principal.
Project 1: Ask to have your interest rate reduced. If you make timely payments—even if it’s just the minimum each month— that’s a signal you’re a pretty good customer. Call up customer service and ask for your interest rate to be reduced. You’d be surprised how willing credit card issuers are to make a deal, but first, you must ask!
Project 2: See if you qualify for a zero-rate balance transfer. You typically need a good credit score to be eligible for a new credit card that will let you transfer your unpaid balance onto it, and then gives you a chunk of time—sometimes as much as one year—where there is no interest charged on the amount transferred. If you qualify for a balance transfer deal, having many months where you are paying no interest is a fantastic opportunity to make progress on paying down the balance.
Project 3: Follow my credit-card pay-down strategy. I always want you to pay at least the minimum due on each credit card bill (automate the payment so you are never late). But on the card that charges the highest interest rate, I want you to push yourself to pay more than the minimum due. It is your goal to get rid of the highest-rate debt first. Once your highest-rate debt is paid off, I want you to take whatever you were paying on that card each month and add it to the payment you are making on the card with the next highest interest rate. Keep doing this until you have paid off all your credit card debt.
Project 1: Always contribute enough to get the maximum employer match. If you have a workplace retirement plan, and your employer offers a matching contribution, I always want you to contribute enough to earn the maximum match. (H.R. will tell you how to get the max match.)
Project 2: If your plan offers a Roth 401(k) option, aim to save even more in your 401(k). Most employers who offer a workplace retirement plan now offer the option to save in a Roth 401(k). That’s the way to go, in my opinion. With a Roth, you will not owe any tax on withdrawals when you retire. (Any money you withdraw from traditional 401(k) will be taxed as ordinary income.)
If you have a Roth option, aim to save even more than what you need to qualify for the maximum employer match. How much? If you’re starting out in your 20s, I want your total contributions (yours and the match) to be at least 10% of your annual salary. If you’re getting a later start, the goal should be to save at least 15%. Tip: save half of every raise. For instance, when you get a 5% raise, boost your retirement savings rate by 2.5 percentage points.
Project 3: No employer plan? No Roth option? Save in a Roth IRA. If you don’t have a workplace plan, aim to contribute to a Roth Individual Retirement Account (IRA). If you have a workplace plan, but there’s no Roth option, I want you to only contribute enough to the 401(k) to get the maximum match, and then do additional retirement saving in a Roth IRA.
In 2022 an individual with modified gross income below $129,000 and married couples filing a joint federal tax return with income below $204,000 can each contribute $6,000 to a Roth IRA. If you’re at least 50 years old, the maximum is $7,000. *
Project 1: Focus on needs over wants. Always, always, always ask yourself if something you are about to buy is a want, or a need. When you keep your spending to needs, it will free up more money that you can use to work on whatever financial goals you have set for 2022.
Project 2: Always evaluate your spending on needs. When you are spending money on a need, push yourself to spend the least amount possible. Yes, you may need a new car, but are you buying the car you can pay off fastest? Yes, you want to buy a house, but are you focused on a house that meets your needs without being oversized or in a too-costly area?
Focusing on living within your needs but below our means is the secret sauce to having more money to put toward building financial security.
Want to learn more? Check out these other great money tips:
*Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Suze Orman is the author of 10 consecutive New York Times bestsellers, a two-time Emmy award winner, and your go-to for honest answers on everything finance. She is the most recognized personal finance expert in America today and host of the Women & Money (and Everyone Smart Enough to Listen) podcast. Suze is excited to be a contributor for Money Mentor.
Suze and Alliant teamed up to help Alliant members make the most of their life by teaching them to make the most of their money. New Alliant members are also eligible for The Ultimate Opportunity Savings Account.
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