For most of the 20th century, the personal financial plans of many Americans largely consisted of managing large amounts of debt and praying for their home equity, stock portfolios, or mutual funds to continue growing in value. This dubious strategy proved to be disastrous when the real estate and mortgage markets crashed in 2008. Since then, Americans have learned to follow more sensible financial strategies. When focusing on personal financial planning, San Diego, CA, residents should pay mind to the following six tips.
1. Save Your Spare Change Automatically
If you are an avid user of debit cards, check if your bank offers an option to round off your purchases to the nearest dollar and deposit the spare change into savings. Mobile apps such as Acorn, Chime, and Digit will deposit your spare change into an investment portfolio where your money will have a greater potential for earnings.
2. Review Your Insurance Policies
Make it a point to talk with your insurance agent and evaluate your various insurance policies at least once a year. The option to reduce your monthly premium payments may not always be available. However, you can adjust coverage to ensure your financial needs are being met. If a single car accident wiped out your savings due to a high deductible and rental car expenses, you may want to increase coverage so this does not happen in the future.
3. Keep Your Bonuses
Don’t count on spending your performance bonus payments right away. This extra income should go into an account for two purposes: savings or as a reserve in case you end up owing money to the IRS after filing your annual tax return. Keep in mind bonuses can be taxed at a higher rate in many cases.
4. Invest in TIPS
Savings accounts can help you reach a financial goal, but they do not offer much in terms of making your deposits grow. Treasury Inflation-Protected Securities (TIPS) are conservative investment vehicles that are often more efficient than savings accounts. TIPS follow two financial benchmarks: the projected rate of inflation and the Consumer Price Index (CPI). The principal of a TIPS investment will rise according to the CPI, and interest is paid twice a year based on the inflation rate. Similar to U.S. Treasury Bonds, TIPS are sold in $100 increments and are issued in terms of 5, 10, and 30 years. They are marketable securities that can be sold and turned into liquid assets at any time before maturity.
5. Make “No Spending” Commitments
Look at your calendar and figure out when you would be able to take a week off from spending. For most people, such a week would be feasible after covering major bills such as rent, mortgage, insurance, and car loans. You may have to forgo discretionary spending such as coffee from Starbucks and dinners at restaurants. The idea is to determine if you can extend this commitment to another week.
6. Stick to a Budget
Making a commitment to cut spending for at least a week will be easier if you are looking at your budget. In fact, virtually all recommendations listed herein will be easier to adopt if you incorporate them into a realistic budget.
If you need further advice on smart money habits to pick up, consider speaking with a financial advisor. Jan Gleisner has over 16 years of industry experience and can help you achieve your financial goals. Get in touch today.