Happy New Year! Not only is it a new year, but a new decade. While these milestones are somewhat arbitrary, it’s worth pausing at the threshold of a new year or decade to contemplate how much has changed in the past, and what new beginnings you’d like to make in the year or years to come. Those include financial changes.
Just because January 1 has come and gone doesn’t mean it’s too late to make some financial new year’s resolutions. Take a moment to think about how much has changed for you in the past decade. You may have advanced in your career, or even retired. You may have gotten married and had a child or two, or gotten divorced, or sent a child off to college. Now imagine what the next decade will bring. Where do you want to be when it ends?
In order to make your vision for the next decade a reality, we have ten suggested financial resolutions you might want to consider making.
1. Identify Your Financial Goals.
As the old saying goes, you can’t get what you want until you know what you want. If you were driving somewhere new, you wouldn’t just get in the car without consulting a map or GPS and hope to reach your destination just by driving. By the same token, you need a plan to reach your financial goals, and that starts by clarifying what they are. Do you want to purchase a vacation home? Retire early? Enable your children to go to college without taking on student loans? Before you can map out the steps you need to take, you need to figure out where you hope to go.
2. Track Spending and Create a Budget.
Most people don’t like hearing the word “budget” any better than they do the word “diet.” Both words conjure up the image of limitation and deprivation: a set of rules telling you what you “can’t have.” Just as with a well-planned and balanced diet, however, a good budget gives you much more than it takes away: a sense of confidence about what you can afford and a tool for maximizing your financial health.
Another reason many people dread the idea of a budget is that they have no idea where to start or what would be realistic. Start by tracking your net income, so you know exactly what you have coming in, and by tracking your spending for a month: everything from a pack of gum at the corner store to your mortgage payment. Thirty days should give you enough data to work with so that you can get a feel for your regular expenses, as well as areas where you might be able to cut back without feeling a pinch.
3. Review Your Credit Report.
Some people hesitate to review their credit report because they are afraid of what they will find. If this sounds like you, reviewing your credit report is a good financial resolution for you to make in 2020. Not knowing what is in your credit report doesn’t make it go away. And in this case, what you don’t know can hurt you.
As a consumer, you are entitled to a free credit report each year from Equifax, Experian, and TransUnion, the three credit reporting bureaus. You can claim your free report from annualcreditreport.com. Disputing any mistakes may bring your credit score up. And if you find unfamiliar debts, be aware that they can be a sign of identity theft, which you will want to address immediately.
4. Max Out Retirement Contributions.
If you work for a company that offers you a retirement plan and matches your contributions, failing to take advantage of that by maximizing your own contributions is like leaving money on the table. You’ve no doubt heard that before, but it bears repeating. The sooner you start saving for retirement, and the more you are able to save, the greater financial security you will have. Newly-enacted federal legislation may expand your opportunities to save for retirement (more on that in a future blog post).
5. Shrink Your Debt Faster.
If you have significant debt, the prospect of paying it off may seem insurmountable. Rather than make only minimum payments, commit to paying off a specific additional amount every month. If you can devote $50 per month to debt reduction, you can make it count. It may be wise to throw that extra money at the account with the highest interest rate, to knock that debt down faster. Another option is to wipe out debts on the accounts on which you owe the least; the satisfaction of actually paying off a debt may motivate you to pay off more.
6. Eliminate One Bad Financial Habit.
We all have them. It’s unrealistic to say you will completely overhaul your financial habits, but you can choose one to really focus on. If you are successful with that, pick another.
We all have them. It’s unrealistic to say you will completely overhaul your financial habits, but you can choose one to really focus on. If you are successful with that, pick another. For many people, dining out is a frequent, and costly, indulgence. If you eat lunch out most days, packing your lunch one day a week can save you $50 per month. (Use that $50 on Resolution #5 above.)
7. Take Advantage of Technology.
Committed to making regular payments on your debt, or regular contributions to your savings account? The good news is you don’t need to remember to write a check every month. Set up automatic payments and not only will you not have to remember payments, you may not even feel them. Your company payroll department can take money out of your check and put it right into your retirement account. Your bank can automatically pay a certain amount on your credit card. You never have to decide to do anything beyond setting the automated payment in motion.
8. Check Your Investments.
If you have an investment portfolio, when was the last time you reassessed it? If the answer is “more than a couple of years ago,” take another look with your investment professional. Your goals may have changed since then, and it may be time to rebalance your portfolio. For instance, if you are getting closer to retirement, you may want to invest in more stable, less risky assets. Even if you are not nearing retirement, you may still want to take a close look at whether changes in company structures or fees make your current investments as attractive as they once were.
9. Eliminate Unnecessary Payments.
Automation can be a boon, as discussed in Resolution #7 above. But while “set it and forget it” can benefit you when it comes to paying down debt or saving for retirement, it can hurt you at other times. If you spent thirty days tracking all your expenditures, don’t forget to look at the ones that automatically come out of your bank account or credit card. The streaming services or gym memberships you never use are costing you money, so cut them out.
10. Review Past Financial Mistakes (with Compassion).
The best way to figure out what to do in the future is to take the time to realize what didn’t work in the past. It may be painful to contemplate mistakes that cost you money, but failing to learn from the past endangers your financial future. Don’t beat yourself up; just try to make better choices moving forward. If you have questions about planning for your financial future, contact our office to set up a consultation. Just knowing you’ve made a commitment to improve your financial future will help you feel better about it.