Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension
The middle of the year is a great time to take stock of your financial situation because you still have six more months remaining to take positive action such as preparing a budget, reducing debt, and increasing tax-deferred retirement savings. Below are eight small steps to improve your personal finances during the second half of 2016:
Check Your Cash Flow - Figure out how much money you have coming in each month and how much you pay out for various household expenses. The best way to do this is to write everything down for a full month and total it up. The Rutgers Cooperative Extension Spending Plan Worksheet (Excel File) can be used to identify sources of income and expenses.
Increase Your Emergency Reserves - Set aside at least three months in liquid savings such as a money market fund or bank or credit union savings account. Six months is even better. Emergencies happen where people need fast cash. Examples include car repairs, bouts of unemployment, and last minute plane tickets for a family funeral. Several helpful online emergency fund calculators can be found online by searching the words “emergency fund calculator.”
Pay Yourself First - Make savings a priority as soon as you are paid. The simplest way to save is through direct deposit where money is placed automatically into a bank account, investment product (e.g., mutual fund), or employer retirement savings account (e.g., 401(k) plan) before you have a chance to spend it. Another good automatic savings tool is automatic checking to savings account transfers.
Use Credit Wisely - Ideally, pay credit card bills in full to avoid interest charges. If this is not possible, pay more than the minimum due or it could take years, even decades, to pay off an outstanding balance. For additional credit management tips, take the Rutgers Cooperative Extension Wise Credit Management Quiz.
Shop Carefully - This advice goes for everything from groceries to clothing to a new car. One way to shop wisely is to check product features and prices on websites, newspaper ads, and phone apps, and “liking” retailers on Facebook and/or following them on Twitter to get special sale codes. Another is to negotiate with vendors by suggesting a lower price (e.g., “I’ll give you $10”) or a discount for paying cash. A third strategy is to find good deals via alternative sources including thrift shops, consignment shops, and online auctions.
Check Your Tax Withholding - Income tax refund identity theft cases have increased significantly in recent years. For this reason, it is best not to have a large tax refund that can be delayed if you become a victim. To keep tax withholding in line with this year’s expected tax liability, complete the worksheet attached to the W-4 form that is filed with your employer. Use your best estimate to date of expected income and tax deductions and credits.
Dollar-Cost Average Investment Purchases - Invest the same dollar amount at regular time intervals. For example, $100 in a mutual fund on the first of every month. The price per share (called the net asset value or NAV) will move up and down with financial markets over time. When the price is down, investors buy more shares of an investment (e.g., stock or mutual fund). When the price is up, fewer shares are purchased. For more information, see eXtension's unit on Dollar Cost Averaging.
Invest for Retirement at Work - Depending on the type of employer you work for, sign up to participate in a 401(k), 403(b), 457, or Thrift Savings Plan. Then decide what percentage of your pay to invest and select from among plan investment options. Invest at least the maximum amount (e.g., 6% of pay) that is matched by an employer, if available. If you are getting a raise during the second half of 2016, consider increasing the amount that you save.
The strategies described above can help you take charge of your finances. Every small step is a step in the right direction. For more research-based personal finance information from Rutgers Cooperative Extension, visit our Money and Investing website.