The New Year is a time for fresh starts and new beginnings, and for many of us, improving our financial picture is an ideal place to start.
Despite the profound effect our finances have on the quality of our lives, few of us plan in that regard. One Gallup poll found only 32 percent of Americans maintain a basic household budget, and only 30 percent take time to make long-term financial plans that incorporate savings and investment goals.
In many cases, failing to plan is planning to fail, as the saying goes.
“It isn’t good enough to say ‘I want to have my credit card paid down and more money in the bank,’ advises Joshua Kennon on TheBalance.com. “Instead, you should write a financial resolution that is clear and actionable like ‘I have the balance on my credit card paid down to $0, over $5,000 in my savings account, and a fully funded IRA.’”
Consider these 10 suggestions for getting started with this year’s financial resolutions.
- Compile your net worth. It pays to start any financial strategy by understanding your assets and liabilities and pinpointing any areas that may be roadblocks to wealth accumulation. This may also be a good time to review your free annual credit report.
- Reboot your savings goals. After evaluating the big picture, reconsider how much you’d like to be putting away each year, factoring in elements such as children’s education, vacations, gifts, future housing goals, etc. Your credit union or broker can set you up with a number of vehicles that automatically set aside funds from your paycheck into checking or savings accounts before you even think about spending them. Other options allow you to funnel money directly into stocks for investment purchases.
- Reduce your debt. Prioritize the debts you’ll pay off first. This is usually determined by either which ones are incurring the highest interest rate, or which ones have the smallest balance. One method would be to pay down the higher interest rate accounts first, while still paying minimum payments on the lower rate accounts. The other option would be paying off the debt with smaller balances first. The feeling of accomplishment when a debt is paid off will keep you motivated while reducing your debt. The choice is yours.
- Beef up retirement plans. The earlier you discipline yourself to do this, the more secure your future will be. Your best option is probably the 401(k), 403(b) or 457 plan offered by your employer. Max that out when possible, and take advantage of additional catch-up contributions if you’re 50 and older. Otherwise, your credit union or financial planner can point you toward a traditional or Roth IRA that offers optimal tax advantages.
- Think about a side hustle. Many people these days have a second job or occupation that allows them to make extra money doing something they enjoy. Socking money away from a side gig can be a win-win for your financial future.
- Close outdated accounts. They may be draining your money by charging you just to keep them open.
- Pocket your change. Set a policy of paying for all cash purchases with bills throughout the year, collecting the change and regularly adding it to savings or investing it. You’ll be surprised how quickly it accumulates.
- Practice random acts of kindness. Having complete control over your money brings you the added benefit of allowing you more options for giving it away. Lift your own spirits by occasionally buying breakfast for the person in back of you in the fast-food drive-through, picking up the lunch tab for a veteran, passing $20 to a youngster who needs it more than you, etc.
- Employ personal finance tools. Today’s convenient and efficient software products can make a huge difference in your ability to stay financially organized at all times.
- Educate yourself. Choose 12 books about investing or personal finance and vow to read one each month. There are multiple consumer-friendly titles on the market, and you may be surprised at how easy it can be to accumulate wealth when you understand more about how the financial world works.
One other word of advice: While New Year’s optimism is always a good thing, it’s wise to keep adjusting your goals and standards throughout the year as circumstances change.
“Be cautious about setting too many or unrealistic financial goals,” advises Andrew Schwartz on Investopedia. “Otherwise, you may be unable to accomplish any of them. Consider meeting with your financial advisor to review the goals and objectives you have established."