Saving more, spending less, paying for college. These might be some of the financial resolutions you make for 2016.
How you meet these goals will depend on what lies ahead this year. What will you be studying in college? If you're working full time, is your job secure? Does your employer make matching contributions to your 401(k)?
Longtime personal finance writer Jonathan Clements recently explained in a phone interview why these questions matter. What follows is an edited version of the conversation.
If your financial resolution is to build an emergency fund in 2016, how much should you save?
The No. 1 reason for an emergency fund is if you lose your job. So how much money you need depends on how secure your job is. If you work as a teacher or government employee, saving three months' worth of expenses is probably fine. If you work on commission, your job is probably less secure and so you might want to go for six months of expenses.
Building up an emergency fund is one of the least exciting things to do financially, but it should be a high priority during the first few years that you're out of school. Once you have it, you're set for the rest of your working career.
What if you want to buy a home?
Think about how long you plan to stay in a home, because the cost of buying and selling property is exorbitant. Round trip, you will pay roughly 10 percent of the home's value once you figure in closing costs, legal fees, moving fees and, most importantly, the brokerage commission you'll pay when you sell the house. So if you're in a home for less than five years, there is a good chance you won't make any money, even if property prices appreciate at a moderate rate.
What's a good way to squeeze out more savings from your paycheck?
This is a piece of advice I give to people in their 20s all the time: If you can, keep your fixed living costs — including housing, car payments, insurance premiums, groceries and utilities — to 50 percent or less of your pretax income. Do that and you'll have money to save and money to go out on Friday nights.
What if your goal is college this year? How should you decide what school you can afford?
You need to think really hard about how much student loan debt you're going to take on given the earnings you're likely to have over your lifetime. It makes sense to take on debt when you're young because you have decades of paychecks ahead of you to pay back those loans. But you should not be taking on $80,000 in debt if your prospective lifetime earnings are low. To figure that out, use the new CollegeScorecard.ed.gov.
Should saving for retirement be a resolution for 2016?
If you're a freshly minted college graduate, age 22, it's really hard to look ahead four decades and think about retirement. But the fact is, retirement should be a priority from the day you enter the workforce. If you work for an employer that offers some sort of matching contribution to the 401(k) or 403(b) plan, be sure to put in at least enough to get the full match. The matching contribution is free money.