Gano C. from Shreveport, LA asks: Hi Mitch and Happy New Year. I’m trying to form some better financial habits in the new year. Do you have any tips?
Mitch’s Response:
Thanks for writing, Gano, and Happy New Year to you as well! There’s no better time than the new year to instill some new, positive habits in your financial life. I’m glad you’re thinking ahead.
Here are four tips I have for you – and for all readers – to make improvements to your financial life in the new year.
1. Create Manageable, Realistic Goals
One of the biggest problems I see in goal-setting is when people create big, sometimes abstract goals. Having a goal of “financial security in the new year” is wonderful, but I would argue it is too abstract to give you meaningful steps and a blueprint for executing.
My advice to you is to create more manageable, realistic goals. A great place to start is in establishing emergency reserves, i.e., enough cash to last you six months to a year should some unforeseen emergency arise. If you have a goal to save $10,000 in 2021, you could break it down by saving $400 every two weeks – more realistic, more manageable.1
Even if your new goal is simply to set aside $50 a month in a college savings fund or an IRA, remember that these small, incremental savings are meaningful and will contribute to your financial well-being.
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How You Can Handle Volatility in 2021!
As we enter the new year, we face many unknowns and market changes especially as we continue to navigate this pandemic. This may result in emotional decision-making, as many investors question the moves that they should make when approaching this new time in the economy.
The real challenge is not in finding a way to eliminate volatility—it is developing a mental approach to dealing with it. Our guide, “Helping You Manage Market Volatility,” will provide you with insights and tips to do just that. Get answers to questions like:
If you have $500,000 or more to invest and want to get answers to the questions above, click on the link below to download this guide today!
Download Zacks Volatility Guide, “Helping You Manage Market Volatility.”2
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2. Automate (Set and Forget)
One of my favorite tips for creating better financial habits is to use automation. Many banks and/or custodians allow people to automatically move money every week or month from one account to another. You could consider setting up an automatic shuffle of a few hundred dollars each month from your checking into a savings, brokerage, or retirement account, for instance.
Employers that offer retirement accounts also typically allow salary deferrals into 401(k) or other retirement plan accounts. If your is currently set at 10% of pay, for instance, why not bump that number up to 12%, or 15%, or even 20%? Automating your savings means paying your “future self” before you pay your current self, a concept I like a lot.
3. Remember that Small Can Equal Big Over Time
Let’s assume you can earn 6% annually on saved money, which is fairly reasonable given historical long-term equity returns. Did you know that a person who earns $50,000 and simply saves 1% of their earnings per year can generate $19,000 in 20 years and $77,000 in 40 years (again, assuming a 6% annualized return)? Just 1% saved per year! Compound interest is a wonderful thing, and it also means that small amounts can become big over time.
4. Don’t Think of Investing as a Challenging Task. It Can be Easy.
When many people think of investing, they think about complex trading techniques and people shouting on the floor of Wall Street. Navigating the myriad types of investment accounts and retirement accounts can also feel overwhelming.
But in reality, a person can do really well – in my view – by simply opening up simple brokerage or IRA accounts, funding them systematically over time, and investing in a diversified portfolio of stocks. We offer several strategies here at Zacks Investment Management that can give investors just that, and an investor’s job is simply to stay invested, remain patient and even-handed, and focused on the long-term. Investing does not have to be challenging.
In addition to aligning your allocation with your long-term goals, there are other steps you can take to manage these turbulent times. To help give you insight into some ways you can do this, check out our guide, “Helping You Manage Market Volatility.”4 It will provide you with insights and tips to do just that. Get answers to questions like:
If you have $500,000 or more to invest and want to get answers to the questions above, click on the link below to download this guide today!
Disclosure