You Had Better Make These Investing Moves OR ELSE

Photo credit: Erich Ferdinand, CC BY 2.0.

Today in “hey, everyone’s coming up with these lists of financial advice,” we go to Time’s Money section:

MONEY has put together a checklist of seven important steps to take now before the year ends to set your investment portfolio up for 2018 and beyond.

I am already feeling a little embarrassed because the only investing-related to-do I have for this year is “put $5,500 into my Roth IRA,” but maybe I’ll be able to add one of these seven steps to my list.

Chances are, you got a slight bump in pay this year—perhaps a modest cost-of-living adjustment or a merit raise. Average pay for American workers rose a little over 2% over the past 12 months.

If you can, boost your 401(k) savings rate by that amount in the new year.

Actually, my income went down by $20,000 this year, thanks for asking. (To be fair, not every year can be an $88K freelance year, and I’m still earning more than I was two years ago.)

But let’s do the math on this advice. If your income went up by 2 percent in 2017—say, from $50,000 to $51,000—you’re also supposed to increase your 401(k) savings by 2 percent. MONEY suggests that if you were previously saving 8 percent, increase it to 10 percent, which in this case would mean going from saving $4,000 of your $50K income to $5,100 of your $51K income.

However, that means your leftover income would drop from $46,000 to $45,900. (Pretax.) That in itself isn’t that big of a deal, but the modest cost-of-living raise you just received was supposed to go to the increased cost of living. How are you going to pay for that?

(I know, I know, save your raises. But then you have to keep continually looking for ways to lower your cost of living, and I’m proof that it isn’t that easy.)

Maybe this is why MONEY suggests you put 2017’s raise towards 2018’s 401(k) contributions; they’re assuming you’ll get another 2 percent raise in the new year, which in this example would boost your salary to $52,020 and your pretax income after a $5,100 401(k) contribution to $46,920. I don’t know.

Still, as we all did with that NYT financial to-do list, feel free to peruse MONEY’s list and let us know whether you’ll be putting any of its tips into action.

Support The Billfold

The Billfold continues to exist thanks to support from our readers. Help us continue to do our work by making a monthly pledge on Patreon or a one-time-only contribution through PayPal.