Four Quick Financial Wins You Can Do Today
The following guest post is by Jim Wang, who writes about personal finance and other issues at the outstanding personal finance blog Bargaineering.com.
In our current economic times,we’re all looking for a little edge in managing our finances. Whether it’s trying to squeeze a couple tenths of a percent out of our savings or paying off a little more on our existing debts, finding a quick financial win here or there can really make the difference.
There’s also a psychological impact. With all the bad financial news, we all need to see the silver lining among the storm clouds. There’s only so much Recession-talk we can take before we get sick of it and throw our hands up. That’s why I wanted to offer up some quick financial wins that hopefully will help both your finances and your psyche.
1. Start An Emergency Fund
An emergency fund is a must-have for any responsible individual in our economic times. Well known anti-debt advocate Suze Orman has now changed her advice on whether to pay down debt or save an emergency fund. She now advocates that you continue to make minimum payments on debt until you build up a large enough emergency fund reserve. The logic behind this advice is sound. You want to have that cushion in place so that you don’t need to lean on credit to meet any shortfalls.
2. Open A Roth IRA
A Roth IRA is a retirement investment account that grows tax free. That’s right, tax free. The contributions you make are not tax deductible but any investment gains you have will never be subjected to an income tax. The Roth IRA is so good that they limit how much you contribute each year to $5,000 a year (2009). If you have a high income, you may also be subjected to income phaseouts for the Roth IRA.
If you have a Traditional IRA that you’ve been itching to convert to a Roth but were unable to because of the income rules, 2010 will be your year. In 2010, the income restrictions for Roth IRA conversions will be lifted, thus making it possible for you to turn the taxable Traditional IRA into a tax-free Roth IRA (after you pay the taxes).
3. Check Your Credit History & Score
Check your credit history and your credit score. Get a copy of your credit histories through the government website AnnualCreditReport.com to ensure that your credit history doesn’t have any errors or omissions. You can get a copy of your credit score for free from a service like Credit Karma or by signing up for service trials that offer free FICO credit scores. By getting a copy of your reports and a look at your score, you have a better idea of where you stand in the spectrum of consumers. As we discussed yesterday, sometimes it actually makes good sense to buy a free credit report.
4. Ladder Your Emergency Fund
Laddering your savings is a great way to boost your interest rate yields without adding any risk to your life. Laddering refers to the technique of opening CDs with varying maturity dates so that they mature on a monthly schedule. While some of the best CD rates have been fairly low lately, it’s better to lock in the interest rate today before the rates fall. By laddering your CDs, you ensure you get the highest rate possible for your savings.