This Should Be Your Number One Financial Goal This Year

financial goal this year

Your #1 goal this year should be to contribute to your *Roth IRA.  Or *401k or  *Traditional IRA, if that’s what you have set up at the moment.  Ultimately, you should set a goal of contributing a part of your salary to your individual retirement account.

Which retirement account is right for you?

Employer-Sponsored 401k

If you’re lucky enough to have a job that offers a 401k option, on top of 401k matching, then this is likely the way to go.  Think of those matched contributions as free money.  And be sure to verify your automatic contributions are invested wisely.

Roth IRA vs. Traditional IRA

Please note that I focus on having a Roth IRA, but that doesn’t mean that it is the only or best retirement fund out there.  I’ve actually had both at some point in my life, as well as a 401k.

I started out with a 401k at one of my jobs and rolled it over into a Traditional IRA, after a recommendation from my banks broker.  Is wasn’t until I got married that my husband suggested I roll that over to a Roth IRA.

To be honest, I haven’t done the math to figure out if this is truly the best decision for me.  At the same time, I realize there are a lot of unknowns for the future.  It also requires a lot of speculation to determine just what tax bracket I’ll be in during my retirement years.

So I’m just hopeful that I’ve made the right decision to pay taxes upfront rather than later.  The only real argument that I can think of is that if you pay taxes now you have a smaller portion that grows with a Roth IRA compared to a larger portion growing now with a Traditional IRA.  Though, with a Roth IRA that smaller amount grows tax free, while the larger amount with a Traditional IRA is taxed at whatever tax bracket you are at during your retirement.

It can be a toss up deciding between a Traditional IRA and Roth IRA, but I guess I’m an optimist regarding my golden years.  Do your own research and figure out which retirement account is right for you.  I’m just a fan of Roth IRAs.

Now just how much money should you contribute?

That all depends on how much you bring in for the year.  The safest answer is 15% of your annual income.  An even better response is 15% of your monthly check, since split monthly contributions are better than a lump sum at the end of the year.  The best way to contribute though would be to contribute the maximum allowed.

There is a $5,500 maximum contribution cap for 2018.  So, the wisest thing to do this year would be to contribute that maximum amount to your own retirement account.  Check the current tax laws to make sure this maximum matches your tax bracket, along with your specific retirement account.

Of course this suggestion might make more or less sense to individuals based on their age, financial situation, or financial goals.

The importance of starting now

For a debt free 18 – 29 year old this would make the most sense.  It still makes a lot of sense for those 30 and above to contribute, at least the maximum amount according to the calendar year.  The thing I’m trying to point out is the importance of contributing to a retirement fund early on.  The sooner the better, really.

That’s because concerning retirement funds time is on your side, assuming you’re young enough to benefit.  Compound interest works a lot harder for the young than it does the old.  This is why it is so important for young men & women to open and start saving for their retirement as soon as possible.

Don’t allow the existence of the government backed social security program to stop or delay your saving your own money for your retirement.  If you ask me, I’m not sure it will be around or can be relied on as sufficient funds for future retirees.

Take some responsibility and control of your own future and start building a healthy retirement account of your own.  Why wait another year, when this year could mean that much more money in your pocket down the road!

*401k: workplace retirement plans; often include employer matched contributions & are pre-taxed contributions from your paycheck.

*Roth IRA: contributions are taxed beforehand; pay taxes now on contributions & not later.

*Traditional IRA: pre-taxed contributions; no taxes until you retire & actually withdraw money.

Leave a comment: Are you contributing to your Roth IRA or other retirement account?  What’s your other big financial goal this year?

Tawnya is the founder of The Dancing Dollar, a blog about frugality & personal finance.  She writes about how frugal living can help other individuals & families live [happily] below their means.  She & her husband are on the path to pay off their home in less than half the time.  Click here to learn more.