As the clock ticks down on another year and we look toward new starts and new beginnings for 2019, figured taking a little time to think about New Year’s Financial Resolutions would be worthwhile. 27% of Americans planned to make financial resolutions in 2018[i], if a fourth of the population thinks they should reassess their finances in the new year, then it’s probably a good thing to go over. Unlike a lot of yearly resolutions, we’d like to help you stick to and meet this one.
The first step to creating realistic, attainable Financial Resolutions is to make some goals. Saving more and getting out of debt are the two most common resolutions made and then broken.[ii] So, before you add those back on the yearly list (along with losing those ten pounds) take the time to really review your past few years finances. Look at your bills and expenses. Look at your budget. Look at how many working years are between you and retirement. Once you have a comprehensive idea of the cash in, cash out of your life, now you can start to shape goals for how to improve it. Just having a blanket “Get my finances in order” or “Save for retirement” may be too broad. Better to hone in on specific goals, with checkpoints scattered along the way to track progress and to incentivize.
Make a Budget
Regardless of your income, creating a budget is a good way to curtail out of control spending and ensure that you have funds for emergencies as well as funds going toward future expenses and retirement. An emergency fund should have the funds to support at least 3-6 months of your expenses. Addressing your cash flow and dividing it into necessities, basics, and extras/luxuries can help you create a realistic budget. Once you understand your household expenses, you can better budget around them.
Once a budget is in place, a top priority is going after debts and paying them off or down based on their size and interest rates. Now, debt comes in many forms and not all are created equal. Look to pay down debts with costly interest rates (like credit cards for example) first. Credit card debt is over $800 billion dollars and climbing and if the Fed increases interest rates, it will only get bigger. Student loan debt is near a trillion dollars and nearly half of student loan debt belongs to borrowers in the top quartile income bracket.[iii] This is in part because those who earn more tend to need more schooling and advanced degrees, and then, in turn, owe more. It may be worthwhile to refinance your student loans at a lower interest rate.[iv] Another area worth looking at, as you get closer to retirement, is the benefits of paying off your mortgage before retirement.
Saving and Investing
Now that you have a budget, with money allotted to emergency funds and you’ve also looked over your debts. Let’s look at how much you are investing and saving for retirement or other major life expenses. First off, if you haven’t done it, make sure to take advantage of any 401k or IRA options your work offers. Having an IRA and making contributions to it should be goal one. If you have been saving, making a yearly plan to reassess your portfolio is a prudent idea. As the stock market has its ups and downs and your needs change, making sure your long-term goals are on track is a smart and relatively painless way to do so.
Accounts get compromised, so getting in the habit of a yearly credit check for errors or fraudulent activity is another solid resolution goal. Paying bills on time and not keeping large credit card debts should help improve your credit card score, which can, in turn, get you better rates on large purchases like mortgages and car loans. Educating yourself across the board on how your money is spent and what you can do to improve is invaluable. If you don’t already have one, reaching out to a financial advisor to ensure that your investments are working toward goals and answering any questions you may have along the way is also a smart way to stay on track. Becoming financially literate and an advocate for your long-term financial goals is much bigger than a yearly resolution.
This year, as another December winds down, instead of making the generic resolutions to save more and attack your debt, instead perhaps your resolution is to Educate and Understand your finances and streamline them to better make them reach your ultimate goals. Financial confidence and clarity are wonderful gifts to give yourself that will last well past February, after all.