BUFFALO, N.Y. (WIVB) – As we prepare to head into the new year, many of us are making resolutions to get fit, cross items off our bucket lists, or otherwise improve our lives in 2018. Making financial resolutions should be on your agenda, too.
Therese Vita, a wealth advisor with KeyBank, joined News 4’s Katie Alexander on Wake Up Friday to share her top advice for the steps you should be taking to improve your financial situation.
Making the Most of your 401(k)
Vita says, whatever your age, if you’re working and your employer offers a 401(k) or similar plan, you should be contributing to it for your retirement.
- If you are in your 20s, you might want to consider incorporating a 401(k) contribution into your budget as soon as you can.
- Contribute what you can—even a small amount. By investing early, your money has a long time to compound and grow for retirement.
- As your career progresses, you’ll likely be earning more. So, for those of you in your 30s and 40s, try increasing your 401(k) contributions over time until you’re maxing it out each year.
- The salary deferral limit for 401(k) plans is increasing by $500 to $18,500 per year for those under 50 beginning Jan. 1, 2018.
- Individuals ages 50 and older can make catch-up contributions to make up for lost time.
- You can invest an additional $6,000 in your 401(k) plan, which means each individual can invest a total of $24,500 per year into his or her 401(k).
If you have recently changed jobs or are considering doing so, you may be wondering what to do with your 401(k) plans. There are a few options you can consider:
- You can leave the funds where they are. Typically, you need to have a balance of at least $5,000 to consider this, so it may not be an option.
- You might want to cash out your 401K, but this triggers a tax penalty so it’s usually not the right move.
- The best option for many people is to roll the funds over into either the new employer’s 401(k) plan or an individual retirement account, or IRA. There are benefits to both – so you should consider the contribution limits and fees associated with each to make the decision that’s right for you.
Improving your credit score
Vita says at KeyBank, they get a lot of questions about credit scores, which can affect everything from what you pay for auto insurance, to who will rent an apartment to you, to whether a potential employer will hire you, in some cases. If you’re like most people, you may not really think about your credit score until you need to apply for a loan.
But, it takes time to improve credit scores, so you should take some steps now to strengthen your credit.
- For example, setting up automatic payments for bills can help ensure you won’t be penalized by an overdue payment, which can hurt your credit score.
- If you’ve been ignoring your car loan payments to pay off your credit card bill, come up with a plan for how you can make payments on both. Paying off several types of debt demonstrates financial acumen and improves your score.
- Don’t max out your credit card even if you can afford to pay off your bill, as this will catapult your credit utilization ratio to 100 percent and lower your credit score.
What to do if you’re thinking about purchasing your first home
Many first-time home buyers may need help navigating through the process of purchasing a home. Here are a few things to think about:
- Consider setting up an appointment with a licensed mortgage loan officer to discuss the loan pre-qualification process.
- Figure out what monthly payment you’re comfortable with. Based on that, you will have a better idea of what price range you should look in.
- When thinking about your home buying budget, take into account everything from the interest rate and loan terms to the size of your down payment to help determine your price range.
- You might want to look at homes on the lower end of your budget so that you have a buffer for surprise expenses.
- Keep your mortgage or rent payment to no more than 30% of your gross income, even if you have the funds to afford a higher rent or mortgage. Staying at or below 30% will help ensure you have money to devote to other financial goals.
Financial advice for newly engaged couples
This is the season for popping the question for many couples, who get engaged over the holidays, and many have questions about what they should do with their finances as they begin their new lives together. Vita has this advice:
- When it comes to handling finances, there is no one-size-fits-all solution. How you choose to manage your money is a personal choice. Generally, there are a few ways couples go about it.
- Some choose to completely merge their finances by using only joint bank accounts.
- Others choose to keep their bank accounts completely separate and split the costs of any shared expenses or household bills.
- And, some meet in the middle, opening a joint bank account to cover shared expenses, while maintaining separate accounts for personal spending.
- If you do decide to completely merge your bank accounts or open a shared account, figure out a system for who will handle what.
- You may wish to assign one person with the tasks of writing the bills and balancing the checkbook to ensure you always have enough funds in the account to cover expenses and avoid fees.
- Also, discuss major purchases and decide on a spending threshold that you’re comfortable with. For instance, you may decide that neither of you should make a purchase of more than $500, or maybe $1,000, without talking to the other first.
- Above all, the most important thing is to talk. Talk to each other and talk to your banker or financial advisor to make sure you’re taking steps now to preserve and enhance your financial wellness, individually and as a couple.
For more tips from Therese Vita, watch the videos below for our full Wake Up coverage.
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