It’s not big news that 2009 and 2010 were tough economic years, but here’s the real news: you have it in your power to take back the reigns over your financial future. And the even better news is that with a few spending, saving and investing strategies, 2011 can be the year that starts to happen.
Look ahead. Way ahead.
No matter what happened in 2009 and 2010, you’re still going to retire. Truly, you are, and you can. So while it might seem like a good idea to hold off on your IRA contributions or investments while the economy is uncertain, resist that temptation. When you’ve put your money in a good place, it will earn more money for you in the long run, and that’s what you want. You’re probably saying to yourself, Okay, fine, what “a good place”? Great question, and that’s one for your financial advisor. A well-informed financial advisor is the best-qualified person to help you put your money in a place where it can get to work. So that one day you can stop going to work.
It’s a tough truth, but while the economy is possibly nearing a bounce-back, it will still be many months before the positive effects of a turnaround will trickle into our bank accounts. So you should definitely be looking for ways to reign in your cash outlay. It sounds obvious, but there are ways to trim spending that you might be missing. Sit down with your bank and credit card statements with a red pen. Look for things you truly could have done without, or at the very least put off buying until you saved for it. And don’t just do it once. Check in with those statements regularly to keep an eye on spending you’ve missed.
Plan for rainy months, not days.
All that money you saved with conscious spending—and as much additional savings as you can manage— should be padding your reserve fund. A three-month reserve fund is often safe, but in a volatile economic climate, I recommend planning for six months. Layoffs and emergency situations often cause families to accumulate plaguing debt because they end up paying big interest above and beyond the cash they need to cover monthly expenses. Obviously, this reserve account won’t appear all in one day, but it’s important to set a goal for the reserve amount you need, create a plan to start building it and then get started right away.
Love student loans.
It’s been your dream since they day they were born to watch them cross the stage and accept that diploma, and you don’t have to give up that dream. But you risk far more than your kids’ education if you risk your own financial future to pay for college. Resist the urge to defer contributions to your retirement account—or worse, to cash in your IRA—in order to pay tuition. Here’s the thing: your kids can get loans with great interest rates in order to pay for college. No one will give you a loan to retire or to pay for healthcare in your advanced years. That burden will fall on your children if you don’t plan for it. Retirement accounts depend on having many decades to accrue interest in order to mature at an amount you can live on, so the golden rule of retirement is to put the money in on time, all the time.
Once you’ve curbed spending and ramped up on saving, start thinking, and talking to your financial advisor, about creative ways to make the money you’ve saved multiply. A wealth of great deals have flooded the market, making real estate one possible—and lucrative—way to go. Find a real estate agent who understands investment properties, particularly exit strategies, and then find some sweet deals—some exist as below 50 cents on the dollar. With an experienced agent and some creativity, you can start watching your bank account grow. Whatever strategy you choose, the most critical way to get ahead in 2011 is to do something. Make a plan and take some action, and you really can reap the rewards in any economy.