Four Financial Habits to Start in 2019

2018 marks the worst year for US Stocks since 2008. In fact, of the 15 major asset classes shown below, only cash finished the year better than it began.

After an abysmal 4th quarter of 2018, experts are uncertain how the stock market will hold up in 2019. Regardless of what happens with the market (and broader economy) in 2019, the following four strategies are smart habits to pick up in 2019.

1.    Create a Monthly budget

Most people don’t think they need a personal budget—don’t be one of those people! Your budget will eventually drive your financial decisions. Budgeting is a dynamic process, so don’t worry about trying to map out all of your expenses perfectly on the first try.

Although building a budget on paper or in an Excel Spreadsheet is a worthwhile exercise, it can be easy to fall behind if you’re not constantly checking it. I recommend using software that tracks actual spending patterns-- this way, it’s impossible to “cheat” yourself. There are several effective free budgeting tools out there (I use mint.com for myself).

2.   Maintain an emergency fund

The generic financial planning advice is to have 3-6 months of living expenses in a checking/savings account, but the actual dollar amount is largely dependent on personal preferences. For those more prone to worry about their job status, the stock market, the broader economy, etc., target 6 months in expenses for your emergency fund.

Once again, the budget will help you find this number. Aside from drastic emergencies, this “cushion” fund should prevent the need to use credit cards in the event of a large, unplanned expense.

3.   Fund a Roth IRA

Every year, my first financial priority is to max-fund my Roth IRA as early as possible. Roth IRAs are one of the best investment vehicles that’s offered in the US— no taxes are due on investment growth if taken out after age 59.5, and the account owner can also access basis (the amount contributed) at any age without a penalty. Your Roth IRA should become the "backup" emergency fund for those drastic emergencies.

For those that don’t have $6,000 available to contribute, set up automatic investments of (up to) $500/month directly from your checking account to your Roth IRA.

Another Note: High-income earners (>$122,000 if single, $203,000 if married) aren’t allowed to contribute the maximum $6,000/year to Roth IRAs; however, a backdoor Roth IRA strategy is typically a good idea.

4.   Increase 401(k) Contributions 

If you received a raise in 2019, increase your 401(k) contributions by that same amount. For example, if your salary is going to be 5% higher in 2019, increase your 401k contributions by (at least) 5%.

Of everything on this list, increasing 401(k) contributions should be the lowest priority. Be sure that you’re receiving at least the full company match, then move through the list above before increasing your 401(k) contributions permanently.

Thanks for reading! If you have questions, feel free to send me a message on LinkedIn, or schedule time to meet with me Here.