Kick-start the new year with a financial plan

Debt comes in many forms—mortgages, college loans, credit cards, and auto loans, to name a few. But one thing remains the same: The interest on debt can add up quickly, so it’s important to plan to pay it off as soon as possible. There are many strategies for paying off debt, but here are two common approaches to consider:

• The avalanche method prioritizes paying off the highest-rate debt first while making minimum payments on other debts. Once the debt with the highest rate is paid off, transfer your payments to the second-highest-rate debt until that too is paid off. Then continue this until all prioritized debts are paid off. 

• The snowball method involves paying off the lowest balance first while making minimum payments on the remaining debts. After the lowest balance is paid off, allocate payments to the next lowest balance. Continue this until all balances are paid off.

The key is for each investor to find what works for them and stick with it.

It’s important to have an emergency fund in place to cover unexpected financial hardships, including a job loss, a medical emergency, home repairs, or car troubles. Putting aside at least three to six months of living expenses is a good rule of thumb. But of course, the more an investor can save, the better. When it’s difficult to get started, begin with a small amount and build up the savings over time. Remember that allotting as little as $50 a month provides $600 in annual savings.

On the topic of investments, here are some resources for investors to consider as they assess their financial planning checklist:

• Diversifying assets: We don’t just mean asset types. Consider getting a handle on uncertain tax rates and longevity risk by spreading investments across different tax-structured accounts and setting up a balanced spending strategy.

• Planning for job changes: Contributing to a 401(k) plan shouldn’t pause when you switch to a new employer. It’s optimal if the new employer provides autoenrollment for contributions to its 401(k), but if not, consider enrolling right away to ensure you’re not missing out on the opportunity to maximize contributions.

• Making your money work for you: Invest the cash that you contribute to, or roll over into, your IRA. When contributions or rollovers arrive at an IRA, consider investing in stocks or bonds, which may offer greater opportunity for long-term growth than cash.