1. Examine and evaluate your cash holdings
Before you look at your extra cash at the end of the year and assume you have a little extra to invest, take a step back and evaluate the situation. There are three things to do:
- The very first thing to do is to make sure you have your emergency savings fund where it needs to be.
- Make sure you have left enough reserves for taxes, and that means leaving a little extra. It’s better to have more than you need than not enough. You can take the leftover (if any) and invest it past April 15.
- Make sure to put your cash reserves in high-yield savings accounts, a little money earned and interest is better than none at all.
2. Pay down debt
The Money you are paying an interest on your Debt is money that could be paying you interest. Rather than putting more money into investments, take that money and eliminate your debt. Sure, you may not be able to pay off your home, student loan or even a vehicle right away. But definitely focus on credit card debt first, then others. Focus on the highest interest debt first, and work your way down to the others.
3. Be cautious with risky investments
The people who come out to be the biggest winners are generally those who build wealth over time with a diversified portfolio. They only take risks with what they can afford. The older you are and closer to retirement, the less risk you can absorb. At the moment, cryptocurrencies (digital coins) and non-fungible tokens (NFTs) are the flavor of the day. Both are extremely tempting because some are exploding in value. However, both of these have a very limited track record and need to be handled with caution.
4. Automate retirement and savings contributions
There’s an easy way to remove the temptation to spend when you pay yourself first. Make sure to automate payments into retirement accounts (such as 401(k), IRAs) and savings, financial planners recommend. That way, and the take-home income you see will be a truer picture of what you have to spend. Over time, you’ll see your net worth continuing to grow. This is especially true if receiving a raise. If you receive a raise, and you need to take a percentage to Account for inflation, take whatever is left over and add it into your savings and retirement accounts.
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