3 Financial Goals for the New Year
"For 2017, I’d like to save for a wedding, house down payment and retirement. How do I prioritize?"
Many of us have this dilemma. We have several goals we'd like to achieve, but our paycheck can't seem to meet them all!
Between saving for a car, a wedding, a house, a college fund for your children and retirement, it’s hard to know where to start. But no matter what stage you are in life, you can use these guidelines to prioritize your savings goals.
Even though retirement seems like something you could put off, you’ll thank yourself later for not procrastinating after you’ve migrated down to Florida to join other retired people on the beach. Trust me, the beach is no fun if you’re worried about money. At the very least, contribute to your 401k such that you get the full match of your employer contribution, since that’s free money!
After you’ve got some money going towards a retirement account, you may decide that saving for a wedding may be your next priority. Right now, the average cost of a wedding is $26,000, and it’s only getting higher. If you start planning in advance, you’ll be skipping down the aisle with excitement because your wedding won’t put you in debt. Just like the money you put in a retirement account, you have to make the money you save for a wedding work for you. You can do that by parking cash in a high yield savings account at institutions like Ally or Synchrony Bank.
High yield or high interest accounts basically provide an extra boost to your savings account based on a percentage of what’s already in it. For example, if you had $25,000 in an Ally account, which has a 1% APY (annual percentage yield), you earn $250 in a year by just parking your money there. Who can say no to more free cash? Most banks have an APY close to 0%. Check the rate for your current savings account and see if you can be putting it somewhere that will earn you more in the long run.
Your next priority might be saving for a house down payment. At the very least, you need to put 3.5% down. Ideally, it would be 20% to avoid paying for mortgage insurance, but that’s hard for most people. Regardless, that’s no small chunk of change. Remember that your credit score is directly connected to the interest rate on your mortgage. While socking money away for a house, do everything you can to improve your credit score. You may even have to correct errors on it to bring it up to par, which is why you should check it several months in advance.
For both a wedding and a house, have a savings goal in mind. It will keep you motivated and you’ll be able to plan your budget more effectively instead of scrambling each month to stash extra cash. Without a plan, you’re likely to fall off the savings wagon. The best thing to do to make saving easier is to make it automatic. Set up an automatic transfer to each saving account each month so you don’t even have to think about it.
Once you've saved enough for the wedding, you can decide to increase your 401k contribution, or set up a Roth IRA to help meet your retirement goals.