A new year is a time for a fresh start. Maybe you plan to make more trips to the gym, eat healthier, develop in your career, or learn a new hobby. Or maybe 2022 is the year you plan to buckle down on your personal finances.
Whatever your financial goals for the new year, the first step is simply getting started. Gail Enke, SVP, Private Banking Regional Manager, shares a few common financial resolutions and how to create and sustain healthy habits throughout the year.
1. Create a budget
Creating and following a budget is often one of the first steps to achieving your financial goals. A budget ensures you have enough money to pay for the things you need, in addition to the items that are important to you and your family.
How to get started: Start by tracking your monthly spending habits using an app or spreadsheet. List your after-tax income and living expenses. Fixed expenses will likely include rent/mortgage payments, utilities, and food, while variable expenses may include non-essential subscriptions, entertainment, and recreation. After identifying your needs versus wants, evaluate how you can cut back on any expenses. Then, calculate remaining money to put towards long-term savings goals. If expenses are higher than your income, you need to make some adjustments.
Stay on track: Revisit your budget at least quarterly, preferably monthly as you begin. Digital banking tools like MyFinance Manager in MyJFG make it easy to track your spending habits by category and view the areas of your budget that need attention. Reviewing your finances on a regular basis keeps you accountable to your plan and may help you avoid temptations to stray from your budget.
2. Pay off debt
Debt can be used as a financial tool when managed well. However, debt that is not managed well can be an overwhelming burden that stands in the way between you and your financial goals.
Managing your debt effectively may also help improve your credit score – an important aspect of obtaining a future loan. Lenders review your credit score to determine how likely it is that you will make prompt payments and to determine the interest rate you will pay.
How to get started: List your monthly obligations and the interest rate associated with each category of debt. Pay off debts with the highest interest rates first. Examples of high interest rate debt may include credit cards, payday loans, or even certain medical bills.
If you are overwhelmed by multiple debts, you may consider debt consolidation to easily manage payments and potentially lower the interest rate you pay. If you’re a homeowner, you may be able to use the equity in your home to secure a Home Equity Line of Credit (HELOC). Speak with a trusted financial professional to determine if debt consolidation makes sense for you.
Stay on track: Be thoughtful about the money you borrow. Avoid borrowing for what you do not need or for assets, such as vehicles, which depreciate over time. Regularly review your progress and adjust throughout the year. A financial professional can help you develop a personalized debt management plan.
3. Save for retirement
Planning and saving for retirement now will provide peace of mind for your future, assuring you the freedom and flexibility to maintain your desired standard of living when you stop working.
How to get started: The sooner you start, the better. As a rule of thumb, save at least 10% of your monthly earnings, ideally 10-20%. Take advantage of your employer’s matching contribution to your 401(k) retirement plan if applicable.
Stay on track: Evaluate on an annual basis. The start of a new year is a great time to review your current retirement contributions. Evaluate life changes or unexpected changes in income throughout the year. For example, if you receive an unexpected pay raise, bonus, tax refund, or monetary gift, consider allocating a portion to retirement savings.
4. Create a financial plan
A financial plan defines how your income and assets can provide for a lifetime of happiness and help you build a legacy for future generations.
How to get started: Put pen to paper and list your goals and dreams. Schedule time with a financial advisor to help you create a roadmap for your financial goals. They can help you articulate your objectives while asking questions you may not have considered.
Complete a personal financial statement outlining your net worth – your assets and liabilities, including any real estate or property. Keep it in a visible spot and review it monthly. See how your net worth is growing year over year and take pride in the progress you make.
Stay on track: Meet with a financial advisor to revisit your plan on an annual basis. Consider more frequent meetings depending on the complexity of your plan.
5. Prepare for the unexpected
The truth is most people will face an unexpected event or tragedy in their lifetime. That’s why it’s critical to protect your most important assets and ensure your finances are in order should you face an emergency or the loss of a loved one.
How to get started:
- Assess your current level of coverage. Ask “what if” statements and be realistic about the coverage you need. Consider life, disability, homeowners, renters and auto insurance coverage, depending on your specific situation. Make sure the coverage is based on the true value of your assets.
- Update your will. Meet with a professional estate planning attorney and financial advisor to discuss your estate planning needs.
- Create an emergency fund. The fund should cover 3-6 months of living expenses in case you temporarily lose your source of income.
Stay on track: Review your coverage on an annual basis or at renewal time with a trusted insurance professional.
6. Save for your long-term goals
Saving for long-term expenses may reduce your need to borrow. It’s important to save early for large purchases like buying a home, a wedding, a new vehicle, or a vacation.
How to get started: Project the cost of the goal and determine how much you can realistically save based on the timeline. For example – planning for a $25,000 wedding in two years would require $12,500 in savings annually, or roughly $1,000 monthly. Open a savings account and set up automatic transfers for paydays and bonuses.
Stay on track: Review your progress monthly, and adjust your funds based on positive or negative changes to your income.
- Be realistic. Be realistic about what you’d like to accomplish and define clear actions you can take to get there.
- Start small. Goals are not achieved overnight. Small habits can lead to big changes over time.
- Stay disciplined. Keep in mind, your friends and family may have different goals than you. Don’t be afraid to say “no” if it means sticking to your plan.
- Keep yourself accountable. Meet with a financial professional who will provide guidance and recommendations to align with your goals and desires. They can meet with you at various points throughout the year to ensure you stay on track and help you make adjustments if necessary.
Ready to get started? Contact an advisor today.