Let old acquaintance be forgot, as a new year is upon us.
It’s time to do what many of us do at this point on the calendar – set goals and resolutions to make the new year as great as we hope it will be.
Maybe you want to quit a vice, make new friends, or get in shape. For many, this is also a great time to evaluate your personal finances and set new goals. And what better opportunity than right now?
To help you get started, we’ve listed 5 strategies to consider…
1) Do some financial housekeeping
Compile a list of all the financial assets and debts you have so you can get a clear, birds-eye view of your current financial situation. It can be easy to lose track of all the accounts, credit cards, brokerage accounts, and other financial products. With all your accounts in front of you at once, you can better understand, track, and analyze your current habits and resources.
2) Be specific
Determine specific financial goals with desired numerical ranges. It is easy to broadly say you want to “spend less” or “invest more.” However, by creating numerical metrics and goalposts, you make it much easier to reach those hopes and understand their impact on your overall financial situation.
Beyond the numbers, also pay attention to timelines. Saying that you want to “invest $20,000” is much more actionable if you create a timeframe for doing so. For example, “I will invest $1,000 from each paycheck directly into my retirement account”.
3) Create a budget
For many people a budget is scary. It requires confronting the reality of your financial situation and seems to limit your options and freedom.
But creating a budget can, in fact, be liberating, as well as materially beneficial. No matter whether you make $80,000 a year or $1,000,000 a year, a budget can give you a sense of control and order over your financial inflows and outflows.
4) Improve your financial acumen
Whether you’re a financial planning prodigy or just learning the ropes, increasing your overall knowledge of personal finance is something that everyone should strive to do. For beginners, it may help to read online encyclopedias such as Investopedia to gain a basic grounding in financial terms and topics. For some additional reading, check out our Resource Center for breakdowns and guides on a number of different financial topics.
For those seeking more advanced guidance, it is worth considering working with a professional. While it is important to do your own research, working with a professional can be beneficial especially for important financial decisions like buying a house, how to diversify your restricted stock, setting up a trust, how to go about investing for your children’s education, or having a proper retirement plan in place.
5) Embrace good financial practices
– Get rid of any remaining bad debts.
We’ve discussed the difference between good debts and bad debts before. Good debts could be a business loan or your mortgage (if they have historically low interest rates). Bad debts are typically consumer debts like credit cards or car loans, which tend to have higher interest rates and are tied to a depreciating asset. If you have any remaining bad debts, make a plan to knock off as much as you can this year.
– Ramp up on retirement contributions.
Set auto contributions if you haven’t already. If you have, increase your contributions by 2% of your income and set it up so that it will automatically increase the same amount next year
– Monitor your credit score.
Your credit score is a financial report card that affects everything from your ability to get loans to your interest rate on those loans. Keeping a watch on your credit score will also let you know if your identity is ever stolen, the damage from which can be reduced significantly with early detection.
– Get into shape (or stay that way if you already are).
Not only does physical fitness feel great, but it can save you significantly on medical expenses.
– Plan how to best utilize your bonus.
Put the majority of your bonus towards your goals (home, retirement, debt, etc.) and then take some and go have fun! Remember to spend some of it on the experiences that bring happiness and purpose. I’d personally prefer to buy tickets to a great play with my parents rather than buy my mom a nice purse (but to each his own).
It’s a new year and a fresh start on many fronts, including financially. By following some of these tips, you can better your chances of getting your personal finances together and achieving your financial goals.
If you enjoyed this post, check out Financial Planning Dos and Don’ts: Making Your Money Work For You.