Your finances are probably one of the last places you want to experience fireworks—unless they are celebratory. With new year's resolutions firmly in the rearview mirror, the summer months allow you to revisit your financial goals and evaluate your progress. This July may be a good time to take stock of your path toward financial independence with the help of these five tips.
If you do not already have a plan for where you would like to be in five years or more, now is the time to create one. If you are renting, do you want to own a home? Are you hoping to advance in your career or have more children? Having broad goals may give you something to work toward—and working backward from these goals may give you options for the direction you prefer.
Pay Off "Bad" Debt
Not all debt is created equal—and abiding by a strict debt-free lifestyle could leave you unable to purchase a home, go to college, or make other major expenses.
However, some debt—including most credit card debt and paycheck advance loans—comes with high-interest rates and strict repayment terms. The more you waste on interest, the less you have to pay the principal. Decreasing your interest payments may help you get ahead of this "bad" debt for good. For example, you may accelerate the payoff or transfer a balance from a high-interest card to a lower-interest card.
Automate Your Savings
One of the most solid pieces of financial advice is to "pay yourself first." By having 401(k) or Health Savings Account funds automatically withdrawn from your paycheck before it even hits your bank account—or setting up an auto-transfer from checking to savings—you may adopt an "out of sight, out of mind" approach to your savings. Over time, you may be surprised at how quickly these funds accumulate when they are unavailable to spend in your checking account.
Balance Your Investment Portfolio
If it has been a while since you looked at your investments in detail, now may be a good time to evaluate them. As some investments increase in price while others may remain stable or even fall, your overall asset allocation may shift to favor those higher-priced assets.
Consider a sample portfolio of 50% U.S. large-cap stocks, 30% international, and 20% bonds. If international stocks have a particularly good year, they may make up 40 or 45% of your portfolio, allocating lower percentages to the other two components. For this example, selling some international stocks and buying more bonds or large-cap stocks may help rebalance your portfolio.
Financial practices, rules, and regulations are always changing—from individual retirement accounts (IRA) and 401(k) limits to your ability to deduct certain expenses. No one knows everything there is to know about personal finance. However, keeping abreast of major changes may give you the necessary insights.
Being informed may help you decide when to change your savings rate, rebalance your investments, take a risk on a rental property, or invest in your small business.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Asset allocation does not ensure a profit or protect against a loss.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
This article was prepared by WriterAccess.
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