Many people attempt New Year’s resolutions – at least for a week or two.As time passes, however, many realize it isn’t easy to change eating patterns, exercise routines or spending habits. But any of these have the potential to make your life better and more manageable. So it’s important to keep trying. We’re here to help you stay on track with New Year’s resolutions that extend beyond changing your diet or increasing your exercise routine. Let’s continue looking at ways to improve your financial life, and help you achieve long- and short-term financial goals.
1. Write it down
The essential first step is to assess your overall financial situation. Before we get into resolutions, look at the following areas and give each one an honest letter grade from A to F. The more grades you can give within each category the better. Your goal is to generate a clear picture of areas that need attention this year:
- Areas of debt: mortgage, credit card, student loan, personal loans, etc.
- Monthly income: jobs, Social Security, pension, etc.
- Monthly expenses: food, utilities, entertainment, rent, etc.
- Assets: emergency fund, retirement savings, college savings, bank accounts, taxable investment accounts, etc.
- I will pay off the balance on my highest-interest credit card.
- I want to end this year with a balance of $XX in my savings account.
- I want to increase my 401(k) contributions at work by X%.
These statements will form a foundation for manageable and achievable financial resolutions this year.
Now that you’ve identified areas for improvement, the following money-management ideas could help you in the new year.
2. Calculate your net worth
It’s a good idea to get a reading on your net worth once a year. The process involves two lists: your assets and your liabilities. It would be nice if everyone had a positive net worth, but that may not be practical if you have a new mortgage or other large debts, like student loans. The important number in this calculation is the year-to-year trend. You want your net worth to trend upward each year.
3. Create a budget with software
Budgets don’t have to be complicated, and there are lots of tools – both online at sites such as www.mint.com, www.youneedabudget.com or in a spreadsheet program that may already be on your personal computer – that can help you track the progress and easily see how your money comes and goes. Your budget needs to take into account assets, sources of income, monthly debts and monthly expenses.
A budgeting tool or program will instantly add the totals for the four areas. And if you don’t like the results, this may be a good opportunity to consider trimming some expenses, like your television or cell phone plans.
Writing down your budget can help you identify areas for improvement and eliminate unnecessary spending.
4. Pay yourself first
It may sound a little selfish, but paying yourself first is the best way to build wealth. Once you’ve looked at your income, debts and expenses, you’ll have a good idea of what you have left over at the end of a typical month. Let’s say you have $600 that’s unaccounted for each month. Take $400 and put it in an emergency fund, IRA, Roth IRA, 401(k), taxable mutual fund or savings account.
5. Improve your credit score
According to wallethub.com, less than 1% of people have a credit score of 850, the highest score. And fewer than 1 in 6 people have scores above 800. The average credit score is 679, so most people have an opportunity to improve their score and increase their odds of getting lower interest rates on a mortgage, car loans or other types of debt.
The best way to improve your credit score is to pay every single bill on time. And eliminating or significantly reducing your credit card debt will also help your score.
If you are a member of Truliant Federal Credit Union, you can make an appointment with a Truliant staff member for a No-Cost Credit Review. During the meeting, you’ll be able to see your credit report and look at items that you can improve.
6. Increase financial literacy
It may be a cliché, but knowledge is power, and financial knowledge can lead to greater opportunities to build wealth. A number of websites offer great, useable, free information. Here are a few you may want to consider reading each day, week or month:
7. Emergency fund
According to a January 2017 report from Bankrate.com, almost six in 10 Americans don’t have enough savings for a $500 car repair or a $1,000 medical bill – not to mention the loss of a job. That’s a troubling statistic since unexpected expenses are inevitable.
It’s important to build an emergency fund. The amounts needed in the fund vary by expert. A reasonable opening goal is to save $1,000. After that, you should try to fund the emergency account so that you can cover three to six months of household expenses.
8. Save for retirement
According to Money magazine, one in three Americans don’t have anything saved for retirement and 23% have less than $10,000.
As pensions become extinct, retirees will be more dependent on their own money to support themselves, which could need to last 30 or more years. If you hope to maintain your standard of living in retirement, you need to start saving as early as possible. If your company has a 401(k), consider participating in that, at least at a level where you don’t leave any matching funds on the table.
9. Small celebrations
The last resolution may be the most fun, but it’s not any less important. Making significant changes in how you manage your money isn’t necessarily easy or fun. You are stretching your finances to achieve a goal. So when you hit a milestone – paying off a credit card, opening a retirement account, creating a budget – acknowledge the achievement with a small celebration. It will make the whole process more interesting and fun.
Good luck with your financial goals! To learn more ways to save, give us a call, or make an appointment with a Truliant Financial Advisor.