CHICAGO, May 7, 2019 – As we move from winter into spring, now may be a good opportunity to take a fresh look at your personal finances. To get your financial house in order, the Illinois CPA Society suggests the following ideas to consider for your “spring cleaning.”
Set aside an emergency fund – It’s wise to have an adequate amount of money available in the event of a job loss or other financial disruption. Having six-to-nine months of living expenses is a good rule of thumb. It’s also important to base an emergency fund on your current employment situation. For example, if you were laid off or terminated by your employer, how many months would it take for you to find a new job? Multiply that number by your average monthly expense amount and you’ll have a pretty good estimate of your emergency fund needs.
Pay down and pay off debt – Once you’ve set aside your emergency fund, it’s a good idea to tackle debt, such as credit card balances, student loans, car loans, mortgages, and other consumer debt. Try paying off the smallest debts first to gain momentum. You also may consider tackling the debts with the highest interest rates first.
Get adequately insured – Insurance coverage (medical, life, long-term disability, long-term care, auto, homeowner’s, renter’s) serves to provide you with the financial resources to pay for major damages which you cannot easily cover on your own. Take a look at your current policies to make sure you are adequately covered.
Save for retirement – The best way to build your retirement savings is to automate it by having a portion of your salary directly deposited into your employer-sponsored 401(k), 403(b), or 457 plan account. If your employer doesn’t offer retirement savings plans, then looking into an individual retirement account (IRA), such as a traditional IRA or a Roth IRA, is likely the next best bet.
Give to your favorite charities – Consider making financial and other gifts to well-run charitable organizations. In addition to supporting causes you care about, all or a portion of your charitable donations may qualify as tax deductions.
Set aside savings for a goal – If there’s something important to you that’s going to require a large sum of money, start setting aside funds specifically to meet your goal.
Invest appropriately – The general concept is that the sooner you need your money, the less risk you can take with it. Stocks should be used to largely fund goals that are five or more years into the future. Investment-grade bonds can be used to fund goals that are one-to-five years into the future. Cash and short-term government bonds should be used for goals with less than a one-year time frame.