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By David Whitlock

Financial Focus

Have you thought about your New Year’s resolutions for 2020? When many of us make these promises, we focus on ways we can improve some form of our health. We vow to get more physically healthy by going to the gym, or we promise to improve our mental health by learning a new language or instrument. But it’s also important to think about our financial health – so it’s a good idea to develop some appropriate resolutions for this area, too.

What kinds of financial resolutions might you make? Here are a few suggestions:

• Increase your retirement plan contributions. One of the best financial moves you can make is to take full advantage of your 401(k) or similar employer-sponsored retirement plan. If you contribute pre-tax dollars to your plan, the more you put in, the lower your taxable income will be for the year, and your earnings can grow on a tax-deferred basis. So, if your salary goes up in 2020, increase the amount you put into to your plan. Most people don’t come close to reaching the annual contribution limit, which, in 2019, was $19,000, or $25,000 for those 50 or older. You might not reach these levels, either, but it’s certainly worthwhile to invest as much as you can possibly afford.

• Use “found” money wisely. During the course of the next year, you may well receive some money outside your normal paychecks, such as a bonus or a tax refund. It can be tempting to spend this money, but you may help yourself in the long run by investing it. You could use it to help fund your IRA for the year or to fill a gap in another investment account.

• Don’t overreact to market downturns. You’ve probably heard stories about people who lamented not getting in “on the ground floor” of what is now a mega-company. But a far more common investment mistake is overreacting to temporary market downturns by selling investments at the wrong time (when their prices are down) and staying out of the market until things calm down (and possibly missing the next rally). The financial markets always fluctuate, but if you can resolve to stay invested and follow a consistent, long-term strategy, you can avoid making some costly errors.

• Be financially prepared for the unexpected. Even if you’re diligent about saving and investing for your long-term goals, you can encounter obstacles along the way. And one of these roadblocks could come in the form of large, unexpected expenses, such as the sudden need for a new car or some costly medical bills. If you aren’t prepared for these costs, you might have to dip in to your long-term investments to pay for them. To prevent this from happening, you may want to keep sufficient cash, or cash equivalents, in your investment accounts. Or you might want to maintain a completely separate account as an emergency fund, with the money kept in low-risk, liquid vehicles. If possible, try to maintain at least six months’ worth of living expenses in this account.

It will take some effort but following these resolutions could help you move closer to your financial goals in 2020 – and beyond.

This article was written by Edward Jones for use by your local financial advisor, David Whitlock. Member SIPC.