January is the month of resolutions, and if you are like me, you indulged quite a bit over the holidays. There are many temptations in December from delicious food to seemingly unlimited online shopping for gifts. I will be tightening my own belt and wallet this month. I am vowing to eat healthier and ensure I strictly follow my budget, and I am not alone. 53 percent of Americans said their number one resolution in 2018 was to save money.
However, research shows that 92 percent of Americans never achieve their goals. This does not need to apply to you, especially when you set financial goals for this year. Research also shows that making specific and achievable goals can help us achieve our objectives.
Plan to save for retirement
Have you been talking about putting money in your employer-sponsored 401(k) or setting up an IRA, but haven’t committed to doing so yet? Or maybe you keep meaning to increase your contribution but have not gotten around it either. This January, set a realistic goal to put a little away for retirement each month. Making savings a habit is key. Start with putting away 10 percent each month. Once that becomes a habit, and you no longer miss that spending money, up your monthly contribution to a more significant percentage. If you are already in the habit of saving each month, increase your monthly contribution by 5 percent. Set realistic, but specific goals about retirement savings. Consult your employer’s plan administrator for the specifics of your 401(k) or talk with a financial advisor about setting up a 401(k).
Save for the Unexpected
Life happens - cars have mechanical problems, children get sick, accidents occur, jobs get displaced. Plan for greater financial security by planning today for the unexpected. As with retirement savings, start small and manageable. Do not get overwhelmed by the idea of starting to save. Any contribution to an emergency fund is better than nothing. Ultimately aim to have three to six months savings put away in case of an emergency. That number is different from person-to-person. For example, if you are married with children, you may need to save more than if you are single. Again, making savings a habit is a smart approach to financial security.
If you have children and have not established college accounts for their education, this January may be the right time for you to begin. Look at your overall financial health and see where you can make sacrifices to put money aside for your children’s college years. As with retirement and emergency savings, start small where you are able and build upon that over time. A 529 college savings account is a smart vehicle to protect college-designated dollars.
This new year establish the financial resolutions you need to kick start smart savings for your future. Whether it be for retirement, the unexpected, or your child’s college education, make saving a habit. Vow to achieve realistic, specific goals and it may help you be on the right path for a financially secure future.
Claudia Mollerup-Madsen is Vice President and Financial Advisor with the Wealth Management Division of Morgan Stanley in Houston.