By: Mahari A. McTier
Every year millions of Americans make New Year’s resolutions. Consistently ranking nationally in the top 10 are to lose weight, quit smoking, fall in love, and get one’s financial life in order. With most New Year’s resolutions they are hard to accomplish alone. To lose weight many people get trainers; to quit smoking, strategies range from chewing nicotine gum to hypnosis; to find love people join dating sites like match.com, but very few people take tangible action steps to get their financial lives in order. Why is that? When I ask people this questions, they usually respond with I don’t know where to go to get help or they think that they can do it alone.
I have worked with hundreds of individuals and families during my tenure as a Financial Advisor and for many of them our engagement began as a New Year’s resolution. As you approach 2015 here are 10 steps to financial success:
1. Pay your tithes – If you are a person of faith this must be your first step. Malachi 3:10 reads, “Bring all the tithes – the whole tenth of your income – into the storehouse, that there may be food in My house, and prove me now by it, says the Lord of host, if I will not open the windows of heaven for you and pour you out a blessing, that there shall not be room enough to receive it.”
2. Take stock of your life – Make a list of everything you own (assets, investments, etc.) and everything you owe. Make sure you include everything on the list. This is very important to the 10 steps to financial success in 2015.
3. Contribute to your 401(k) up to the maximum match – If your company offers a match to your 401(k) contributions contribute the maximum because this is free money. If they are matching you dollar for dollar this is a 100 percent return.
4. Pay off high credit card debt – Take the balance sheet you prepared from step 1 and on a separate sheet of paper rank all of your debt by interest rates you are paying; highest first. Decide how much you can afford to dedicate to debt reduction each month from your regular income. If you are making regular contributions to an investment account outside of your 401(k) match, temporarily stop and add that money to your debt reduction funds. Pay the minimum balance on all the debt except the highest ranked on the list, the card with the highest interest rate. Once the card is paid off, cross it off your list and put it in a drawer. Do not cancel the card.
5. Open and fully fund an IRA or Tax-Free Retirement (Insurance based retirement vehicle) – The contribution limit for 2015 is $5500 and if you are over 55 you can contribute another $1000.
6. Build a six month emergency fund – These funds are described as your household expenses, which include your mortgage, food, etc. If you have lived life long enough you will agree with me that rainy days will come, so be prepared.
7. Purchase a home – Save for your home down payment. Through buying a home you are converting from what used to be an expense to equity which will build your wealth long term. The interest paid on your mortgage is tax-deductible. When you sell the home you can take advantage of the lifetime capital gains tax exemption of $250,000 (single) and $500,000 (married). Real estate is great for diversification.
8. Pursue other investment opportunities – After you have contributed to your 401(k), fully funded your IRA, paid off your credit card debts, and established your emergency fund, only then should you consider other investments.
9. Invest in yourself – Go back to school, get another certification, go get that MBA or JD you’ve been thinking about. This will potentially increase your earning potential, which will create more income to invest.
10. Stay the course – The most difficult part of any plan and New Year’s resolution is having the fortitude and discipline to stay the course. A good idea is to share your resolution with a friend or family member who is responsible for making sure that you are following through with your plan.
Good luck on getting your financial lives in order in 2015!
(Mahari A. McTier is a Financial Advisor with Tier 1 Advisors,LLC and can be reached at maharimctier.tier1@gmail.com.)
