1. Review your budget.
Look for areas you can cut back on, and divert that extra cash into savings or toward paying down any short-term debt (e.g., credit cards and auto loans). Make sure you have three to six months' worth of expenses in savings -- either in cash or investments that can be easily converted into cash -- in case something unexpected happens.
If you don't have a formal budget in place, consider putting one together. Use this budgeting worksheet (PDF) to help you get started.
2. Reduce debt.
If you have credit card debt, focus on paying that down, especially if you have high interest rates. If you have balances on more than one credit card, try to consolidate those balances on to a low-interest credit card. However, you should carefully read the fine print of low-interest-rate credit card offers. A low interest rate offered for a short period of time can rise dramatically after the stated time period.
3. Increase your monthly savings.
Whether you're saving for a short- or long-term goal, consider periodically increasing the amount you save every month.
4. Save more (or start saving) for retirement.
If you're already saving for retirement by participating in your employer-sponsored plan, consider increasing your contributions by 1% every year. To maximize the tax benefits, your ideal target for savings in your company retirement plan should be 10% of your income. By increasing your contributions ever year, you will eventually reach your target without feeling a dramatic decrease in take-home pay.
If you're already maximizing your contributions in your company plan or if your company doesn't offer a plan, consider putting aside some retirement savings in an IRA, which also offers certain tax benefits.
Friday, July 07, 2006
I took the Nest Egg Ranking quiz at A.G. Edwards (originally posted at Next Income Bracket) and now I am sad. I got a score of only 648 (admittedly better than America's score of 631) but basically it told me that I am a whiner and I should budget and save more. This is true, but I feel like I should get some credit since I am young. (They do have an age bracket question, but the first one is 18 to 35.) And they don't actually ask you for many concrete numbers - just ranges. The advice they gave me is sound but they seem to not have programmed it very well - I suspect everybody with a Fair score got the same advice, because they put in advice about refinancing mortgages (there is a question about owning a home), opening retirement accounts (I stated I was already saving), and children's education (I stated I have no dependents.) Here's what they told me that actually applied.
Posted by Kira at 9:57 AM