The new year is a great time to evaluate your financial health and to revive your financial plans and goals. Although anytime is a great time to start, everyone should take this time to review the previous year and look for ways to improve. Here are some things that you could implement to improve your financial health and help you finally get on track to reach your goals.
Determine Your Net Worth
A necessary component of starting to work on your financial resolutions is to calculate your net worth. Assets-Liability = Net Worth. Having this calculated is your stepping stone for figuring out realistic resolutions and goals. It can help you figure out how much you are spending and saving and how you can adjust those areas to better reach your goals.
Create or Update Your Financial Plan
If you don’t have goals or a financial plan already in play then now is the time to get started. A solid financial plan can help you reach your goals and minimize potential risk. Generally, it is good to have immediate, medium-term and long-term goals. Having these kinds of goals guides your planning and can make all of this work and saving feel much more worthwhile. If you have previously set up a financial plans or goals then now is a great time to reevaluate them. Take into consideration anything that has changed (income, marital status, children, etc.) and adjust timelines or goals as needed.
Create a Budget
A budget is simply a spending plan that is based on your expenses and income. A written plan helps you stay on track day-to-day/month to month and is great for helping you meet your financial goals. Maintaining a spending plan can’t eliminate debt overnight, but it will help to minimize unnecessary debt while building healthy financial habits.
When creating a budget, it is important to create one that fits your financial goals. This may take a lot of trial and error and adjusting but this way your budget can work with you, your income, and your spending habits. Make sure to update your budget frequently to reflect unexpected expenses and savings opportunities.
After your budget review, evaluate your debt. Student loans, credit card bills, payday loans are all potentials for high interest and high fee debt. Try to minimize or eliminate your highest interest rate loan first to reduce interest payments and save money for your goals.
Start or Increase Your Savings
Make it a habit to put aside money for whatever your financial goal is before monthly expenses or other purchases are made. If you pay yourself before anything else it makes it so the money that is supposed to go towards your savings goal doesn’t end up being spent on other expenses like going out to dinner.
One easy way to do this is to set up a certain percentage of your paycheck to go directly to a retirement account, such as a 401(k) or Individual Retirement Account (IRA). Or for other savings goals, set up an automatic transfer to a savings account so you are guaranteed to pay yourself first even if you forget. In general, it is thought that saving around 20% of your income each month.
Refinance or Consolidate Your Loans
Debt consolidation and refinancing can potentially reduce the cost of your debt by lowering interest rates and/or monthly payments. Then the “extra” money can be applied to reducing debt or to your other financial goals. Debt consolidation combines various smaller debts into one large debt. Consolidation simplifies the repayment process since you’ll have just one loan to manage. Refinancing is the replacement of a single loan with another. Just about any debt can be refinanced, including home mortgages, automotive loans, and even credit card debt. When consolidating or refinancing aim for a lower interest rate, lower total interest cost, and low or little fees.
Review Your Credit Report
You’re entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies. You can order these online at http://www.annualcreditreport.com/. Take advantage of this to review your reports and make sure there are no errors, which are quite common. A poor credit could end up costing you a lot more in higher interest rates on loans or make it harder to get a loan in general.
Review your Insurance Needs
As part of your financial plan it is important to protect what you have worked for, your family, and yourself. Life changes and when it does you may need to increase or add insurance to cover your needs. You may need to increase your life insurance or adjust your disability insurance to make sure it is adequate. Make sure to look at all of your insurance options and evaluate which one would benefit your situation.
Take this time to evaluate how last year went and see how you can adjust your savings and spending to reach your goals and optimize your financial health. Keep track of your progress throughout the year so you can make any necessary adjustments. There are plenty of resources on line but if you feel like you are a little too overwhelmed by it all you could consider getting professional guidance.