Starting fresh: Money habits to adopt in the new year

The new year is here, and many people are looking back and evaluating things they could have done differently in the past.

Some people decide to change physical things about themselves. For others, the new year represents a chance to change their financial landscapes, and make changes in that area.

"We want to start the new year off with a bang," says Timothy R. Domian, financial adviser and accredited asset manager specialist at Edward Jones in Cape Girardeau. "Why not think about finances? It's never too late to start out on the right foot."

Sometimes people are starting over for a different reason, because during the recent economic downturn, many lost some or all the money they had accumulated for retirement.

"More so than ever in our nation's history, post-2008 has sent many pre-retiree individuals back to work after the stock market crash and the Great Recession left its impact on their retirement funds," says JP Thompson, founding partner of Thompson Financial Advisors in Cape Girardeau.

Senior couple working on laptop computer

Those people who have re-entered the workforce should seize the opportunity to save through 401(k) plans offered by employers.

"If you are still working and you have a 401(k) or similar plan, make sure you're taking advantage of it," Domian says. "At least contribute enough to take advantage of a matching program if your employer has one."

Above all, start a savings plan and stick to it.

"Pay yourself first," he says. "Make sure you are disciplined in your approach, having money automatically moved from your checking to savings each month."

Consistency is vital to building a nest egg at any age.

"I believe every household should maintain a discipline of saving money regardless of their stage in life," Thompson says. Many people haven't started saving for retirement soon enough, and are looking to get on the right track in the new year.

"In most cases, people have not saved enough early on in their lives to live off of their monies later on in life," Thompson says. "From my experience, I have seen that most people have more urgent concerns about running out of money than dying in retirement."

It's crucial to think of saving as a long-term goal.

"Envision your retirement income strategy," Thompson says. "First of all, do you have a strategy to receive supplemental retirement income with other forms of income, such as Social Security, other pensions, etc.?"

Domian stresses the importance of keeping focused on the long-term goal.

"It's never a good idea to use short-term investments for long-term goals. We don't plan on being retired for just five years," he says. "This is for your lifetime."

When reviewing financial plans, don't forget about looking at insurance coverage.

"Has your life situation changed? Whether it be your personal life, such as a new marriage or a new child, have you checked your beneficiaries?" Domain asks. "It's an interesting scenario. Last thing you want to do, if it's a previous marriage -- God forbid if something were to happen to you -- your policies paying out to an ex-spouse."

Don't underestimate the power of compounding interest in savings.

"Anyone who has ever been witness to compound interest over many years knows the benefit in the wealth accumulation stage," says Spencer Schoch, junior partner at Thompson Financial Advisors. "'Compounding interest is the Eighth Wonder of the World. He who understands it, earns it. He who doesn't, pays it,'" he adds, quoting Albert Einstein.

Avoid high-risk investments when savings for retirement start later in life.

"Individuals who are 55 years and older should see this as an opportunity to save only principal due to the lack of time, market volatility and low-interest rates," Thompson says.

With information coming at people from all directions, don't believe everything you hear.

"Don't be afraid of the headlines," Domian advises. "Don't be afraid of the talking heads. The talking heads are always out there, whether the talking heads are on TV, the talking heads are your neighbors or family. You're going to have volatility in the market."

Ups and down in the market are to be expected.

"If you look at the downs in the market as an opportunity, rather than cut your losses, you really have the opportunity to buy quality investments at a really good price," he says.

Remember the Golden Rule of investing.

"Buy low and sell high," Domian reminds. "If the market is low and you're thinking sell, you've got it all wrong. You'll kind of rinse and repeat that behavior until you go broke."

Steer clear of "hot stock tips," he adds.

"Typically by the time folks out there hear about a hot tip, it's already probably cooled off by the time you're able to get it, so it won't pay off in the best form," he says.

Individuals can contribute more to savings plans by reducing their debt.

"It's easy to pile up our debts, but it's a lot harder to get rid of them," Domian says. "If you really can reduce that debt load, even moderately, you're going to free up more money that you can use toward your long-term strategy."

Lastly, start an emergency fund. Setting aside six to 12 months of living expenses in an emergency fund is a good idea.

"Some folks say, 'What's the largest check you've ever written for an emergency?' Double or triple that, and move it over into an account earmarked for an emergency," Domian says.