At this point we have become very good at setting new year goals or resolutions. However, settingfinancial goalsfor the new year is a very different kind of ambition than working out, losing weight or making our beds every day.
Yes, it may be important to cut down on carbohydrates or increase the number of trips you make to the gym each week (of course, you can still do those things), but harnessing the power of focused financial discipline can provide you with practical habits that can serve you for a lifetime.
Here are seven straightforward and achievable practices for helping to improve your financial future.
Set Up a Budget & Track what you spend
A great first step is taking note of your monthly net income. That would be your take-home pay or any other income you have, after taxes. Next, list all of your expenses, including fixed items such as housing, utilities, transportation, and any regular debt payments, such as loans, credit cards, insurance, etc.
Include and track your average grocery costs, out-of-pocket medical fees, and discretionary personal spending. Hopefully there’s enough room left in the budget for saving and investing. The important idea here is to make abudget that works for youand to stay on track.
Set Up an Emergency Fund
It’s easy to feel confident when everything is going fine, but having a rainy day fund set aside in an accessible account could mean the difference between getting through a difficult stretch or falling into a much more dire situation.Th rule of thumb is to have 3-6 months of living expenses put aside. Some people opt to have a more hefty cushion, like 12 months. If you lose your job, encounter a serious health issue, or are met with any number of other unexpected financial challenges, having anemergency fundcould make all the difference to your financial wellbeing.
Pay Off Credit Cards
Getting a handle oncredit card debtis critical in creating healthy New Year’s resolutions you can actually stick to and follow through on. The credit card companies are very adept at convincing people that spending is easy.Try to pay off the entire credit card balance whenever it is used.
If you’re unable to pay the entire balance and have multiple credit cards considercredit card consolidation. This can allow you to get on a fixed payment schedule with a target payoff date, potentially lower your interest rate, and possibly improve your credit score.
Saving X Amount of Dollars
I am not a big proponent of having money sit in a savings account because the interest rates on average are really low. Unless you’re putting money towards your emergency fund or putting money aside for a big purchase like a downpayment on a car or home, your money is better placed in investments where the returns are much higher.
Saving for Retirement
It is never too early (or late) to put money away for retirement. Opening a 401(k) or an IRA should be a top priority. Hopefully, your employer will offer to match your 401(k) contribution up to a certain percentage. This can be especially beneficial because your contributions aren’t taxed on the way in.
Alternatively, if your job does not offer a 401(k) plan, you canset up your own IRA. If you already have one, you can make it a New Year’s resolution to contribute the maximum amount. Currently,401(k) plansand IRAs have a maximum limit of $20,500 and $6000 for 2022, respectively.
Start Investing
Deciding on what investments to make can be a part of your overall financial strategy. Most likely you have goals spread throughout all the stages of your life plan and your portfolio should reflect those priorities.
For example, your short term goals (fewer than three years) may include an emergency fund, travel plans or buying a car. You may want these funds to be liquid in order to access them more quickly. For medium and longer term investments (saving for a down payment or retirement etc), you may be able to take some risk, thereby increasing the opportunity for greater returns. It’s always helpful to have some guidance as you establish your investment plans.Speak with your financial advisor to see the options that are best for you and your situation.
Here are some Investment topics and strategies to dive into:
Investing 101: Invest In Yourself
Setting Up Your First Investment Account
How To Start Investing In The Stock Market
6 Questions To Ask Before Investing
6 Tips on Getting Into Real Estate Investing
5 Ways To Invest in Real Estate
Investing in Cryptocurrencies
Up Your Investing Game with NFTs
Long Term Financial Planning
While it may seem like you have plenty of time before you need to focus on long-term financial goals, there can be more to it than just saving for retirement. It’s never too early to imagine where your life is headed and what you want to achieve in the future.
This can be anything from owning a home, to raising a family, to starting a business, to becoming debt free, to maximizing your earning power. Envisioning what’s possible can enable you to set practical goals to get you there. Once you’ve outlined a plan it is equally important to revisit your plan regularly and make adjustments as needed.
All of these options provide a practical way to rethink your financial activities so you can begin developing an overall strategy for building wealth. And the earlier in your career that you start—especially in your 20s and 30s—the more power your money can provide you over the long run.
Of course it’s never too late to start adopting practical habits for spending, saving, investing and planning. And if you set your mind to it, there’s no limit to the possibilities you can uncover—while maintaining that resolution to go to the gym regularly, too.
