Let’s look at some new year’s resolutions that can help set you on the right path.
Financial Resolutions to Practice in the New Year
Look to the Future: Identify Financial Goals
It may sound trite, if you know where you want to go, you have a much better shot at getting there! What do you hope to accomplish? Pay off your auto or student loan? Buy a home? Retire? Travel? To achieve these goals, get specific. A resolution to “save more” or “spend less” or “improve my finances” is unlikely to be successful because it does not hold you accountable.
Instead, try: “save $100 from each paycheck to build to an emergency fund”; “cook at home six nights a week”; or “make an appointment to speak with a financial advisor by the end of this week.”
Don’t cut yourself any slack, either! Instead of giving yourself reasons to slide on your resolutions, give yourself reasons to stick with them.
Look at the Past: Identify Financial Mistakes
The goal here is not to beat yourself up for mistakes you made last year - it’s to learn from them. Did you spend too much? Did you borrow too much? Did you break the budget on wants instead of focusing on needs? Did you put little or nothing in an emergency fund or savings vehicle? How could you have avoided these outcomes? What strategies would have been helpful?
Take the lessons you learned and change habits and behaviors so they do not carry over into this year.
Track Your Spending
It’s important to spot any spending leaks and see how they’re impacting your budget. Take, for example, your regular morning latte (maybe two). $5 - $10 every day… that money could be added to a credit card payment or stashed away in a savings fund. This is just a simple example, but you may have larger, more significant spending leaks. Think of them as opportunities. Look through your bank and credit card statements: focus on leaks and categories on which you tend to spend too much (e.g. entertainment, meals, etc.).
This doesn’t mean you can never have a latte, go out to eat, or splurge on a purchase. But it does mean that you need to recognize spending behaviors and take steps to ensure they’re healthy.
Schedule a No-Spend Day
One day a month (or one weekend a month) plan a no-spend day. You won’t spend money from your wallet or bank account. You’ll prepare food at home, find free entertainment, and enjoy life without spending a dime. In winter, for example, you can snuggle up with a good book or movie and hot cocoa, play with the kids, take a brisk walk. Local community centers and libraries also have free activities, so take advantage.
Increase Your Retirement Contributions
If your employer offers a match and you don’t contribute to your retirement plan, you’re literally turning down free money. You should make the minimum contribution at least (typically between 3% - 5%). If you can, however, kick it up. Talk to your employer or the payroll people, and this will be deducted from your paycheck automatically. There’s no effort on your part - which definitely makes it a goal that you can easily achieve!
Create a Smart Debt Payoff Plan
As we mentioned, nonspecific goals are not helpful. “I’m going to pay off debt this year” is a worthy resolution, but it can be difficult. Refine it: “I’m going to use the snowball approach” or “I’m going to use the avalanche approach.” Let’s look at these two debt repayment methods:
- Snowball. With this method, you start by focusing on the smallest debts first. You put an extra $50, $100, or whatever you can reasonably afford towards that debt. Say you pay $150 minimum on Credit Card A. You boost it to $200. When you pay that off, it’s time to attack Credit Card B. Take the $200 you were spending on Credit Card A and add it to your normal payment for B (don’t let it get absorbed into your budget - you’ll slack on paying other debts!). This allows you to pay B faster. Once you pay that off, start on the next one. The idea is that this “snowballs” the amount you can pay on debts and builds motivation as you see them being paid off.
- Avalanche. Here, you attack the debt with the highest interest rate first. Mathematically, it is a more sound approach - but if the motivation you achieve from the snowball method works for you, by all means, do that.
Take A Fresh Look at Your Investment Portfolio
Your investment needs and goals change over time - and volatility in the market and other factors can impact the performance of your portfolio. Take a look and see if your current investments are delivering for you. This is a complex area, so it’s worth sitting down with a financial advisor to walk you through your investment statements, determine if your portfolio is aligned with your goals, and, if necessary, make strategic changes.
Remember That You Don’t Have to Do This Alone
Finances are complicated, and there is often great emotion (and stress) tied to them. Sitting down with an experienced, and objective, financial advisor can help you look at your goals, spending habits, investments, etc., with fresh eyes. You will identify areas for improvement and create a plan that leads you towards that new house, that college education, that post-retirement cruise… or whatever else you want in your future.
Your resolutions will be different, depending on your needs and goals. Take the first step and contact Faw & Associates. Wherever you are starting from - and wherever you would like to go - we can help.