5 Top Money Tips for 2015
How to Position Yourself for Financial Success This Year
Finally, we seem to have a rebound from the 2008-2009 recession. When markets are high and investors are giddy, there’s a tendency to get carried away. Our minds sometimes get the best of us and cause us to become overly optimistic or enthusiastic about the stock market.
Now is the perfect time to go back to basics and set up your money and investing plan for future success. Practice these top money tips for 2015 and you may be surprised at how wealthy you feel now and later.
Top Money Tips for 2015
1. Don’t Go ‘All In’ to the Market Now
I cringe when I hear the media talking about the throngs of investors pouring into stocks after the run up in value of the last several years. This “herd mentality” of following the crowd leads to long term investing underperformance. Because today’s PE or stock market valuation is higher than average. That means in the near term returns will likely be lower than average. Investors who pile in now, at or near a market peak are likely to underperform the long term averages.
The best approach, dollar cost average or commit a certain amount of money to regular investing. When share prices are higher (like they are now), you’ll buy fewer shares. When share prices fall, you’ll buy more shares.
2. Strive to Increase Your Retirement Savings This Year
Times are better now in both the economy and job market than they’ve been for awhile.
Restrain yourself from blowing your annual raises on more “stuff”. Shoot for investing 15 percent of your gross income into a retirement account.
I wrote about this topic in a recent Investopedia article and showed how a 30 year old making $40,000 per year who invests 5 percent of her salary will have about $424,000 in retirement. Yet, if this same investor pumps up her savings to 15 percent, she’ll have approximately $1.3 million at age 67. (Assumes a 6 percent annual return along with 3.8 percent raises annually).
With increases in longevity and uncertainties about the future of Social Security, diverting more of todays earnings for use tomorrow will boost your lifetime wealth.Sign up now to get a discount copy of my new book; Invest and Beat the Pros-Create and Manage a Successful Investment Portfolio (and get a free Investing Cheat Sheet now).
3. Rebalance to Your Preferred Asset Allocation
The investing research clearly recommends rebalancing your investments back to your original asset allocation percentage. Why is this important?
If your preferred asset allocation is 60 percent stocks and 40 percent bonds, after this years run up in stock prices, you likely have a much greater percentage invested in stocks than bonds. In January either sell some stock investments and reinvest the proceeds into bonds for direct future investments to more greatly weight the bond section of your portfolio.
This simple act will add to your overall returns by up to 1 percent annually. As talked about earlier, stocks are overvalued now, if you sell some of your stock assets you’ll be taking some profits, and selling high. Bonds have underperformed recently. By buying more bond assets in the near term, you’re buying low.
This discipline will boost your overall investing returns.
4. Choose One Smart Money Habit to Practice
If really doesn’t matter what habit you choose. Wealth building is about inches and not miles. By boosting your income or investing a bit, the change will lead to more lifelong wealth. In the same way, so will cutting expenses.
There are many ways to change a money habit. You might commit to bringing snacks from home instead of buying them at work. This simple change can lead to up to $70,000 over a lifetime. I talk about this strategy in How to Get Rich Without Winning the Lottery.
Or just save your change. We have a glass jar where we throw all of our change. Every few months we convert it into bills to deposit in our savings account. This stash equals hundreds of dollars a year. You could try this strategy and earmark the money for a vacation or holiday gifts.
5. Give to the Less Fortunate-You’ll Become Wealthier
Who would consider ‘giving’ a top money tip? You’ll be surprised how much you get when you give (please pardon the cliche). I volunteer every month at a homeless shelter. I also automate quarterly giving with Network for Good. I know its a platitude to talk about how this behavior helps me more than others-but it’s true.
If you get outside your own little worries and anxieties and think about someone else, I guarantee, you’ll feel wealthier. Part of being wealthy is being content with what you have. It’s an amazing strategy to consider what you have as “enough”. You’ll end up being much more satisfied with your life ‘as is’, and less consumed with having more and more.
Is this attitude inconsistent with the previous top money tips? Not at all. You can practice smart money habits to create financial security for you and your family, and you can be happy with what you have right now. It could be compared with having your cake and eating it too.
What are your top money tips for 2015?