The new year is the time when many individuals start making resolutions to live a healthier lifestyle. And while resolving to eat better and exercise more is a good thing, you should be sure to make resolutions that pertain to the overall health of your personal finances as well.
Develop a budget and stick with it
A good way to start the year on the right track financially is to make sure that you have a budgeting system in place. Start by identifying your income and expenses. Next, add them up and compare the two totals to make sure you are spending less than you earn. If you find that your expenses outweigh your income, you’ll need to make some adjustments to your budget plan (e.g., reduce discretionary spending).
Once you have a budget, it’s important to stick with it. And while straying from your budget from time to time is to be expected, there are some ways to help make working within your budget a bit easier:
• Make budgeting a part of your daily routine
• Be sure to build occasional rewards into your budget
• Evaluate your budget regularly and make changes if necessary
• Use budgeting software/smart phone applications
Set financial goals or reprioritize current ones
The new year is also a good time to set new financial goals and reprioritize your current ones. Take a look back at the financial goals you set for yourself last year–both short- and long-term. Perhaps you wanted to increase your cash reserve or save money for a down payment on a home. Maybe you wanted to invest more money towards your retirement. Did you accomplish any of your goals? If so, do you have any new goals that you would now like to achieve?
Finally, have your personal or financial circumstances changed during the past year (e.g., marriage, a child, job promotion)? If so, would any of these changes warrant a reprioritization of some of your goals?
Make sure your investment portfolio is still on target.
You’ll also want to be sure to review your investment portfolio to ensure that it is still on target to help you achieve your financial goals for the upcoming year. To determine whether your investments are suitable for reaching your financial goals, you’ll want to ask yourself the following questions:
• Do I still have the same time horizon for investing as I did last year?
• Has my tolerance for risk changed?
• Do I have an increased need for liquidity?
• Does any investment now represent too large (or too small) a part of my portfolio?
Make it a priority to reduce debt.
Any healthy financial plan is one that makes reducing debt a priority. Whether it is debt from student loans, a mortgage, or credit cards, it is important to have a plan in place to pay down your debt load as quickly as possible. The following are some tips to help you manage your debt:
• Keep track of all of your credit card balances and be aware of interest rates and hidden fees
• Develop a plan to manage your payments so that you avoid late fees
• Optimize your repayments by paying off high
interest debt first or consider taking advantage of
debt consolidation/refinancing programs
• Avoid charging more than you can pay off at the
end of each billing cycle
Review/take steps to improve your credit history
Having good credit is an important part of any sound financial plan, and the new year is as good a time as any to check on your credit history. Your credit report contains information about your past and present credit transactions and is used by potential lenders to evaluate your creditworthiness. A positive credit history is important since it allows you to obtain credit when you need it and at a lower interest rate. Good credit is even sometimes viewed by employers as a prerequisite for employment.
Review your credit report and check it for any inaccuracies. You’ll also want to find out whether or not you need to take steps to improve your credit history. To establish a good track record with creditors, make sure that you always make your monthly bill payments on time. In addition, you should try to avoid having too many credit inquiries on your report (these are made every time you apply for a new credit card). You’re entitled to a free copy of your credit report once a year from each of the three major credit reporting agencies.
Fewer Americans — less than a third — are making financial resolutions for the new year, compared to last year, according to the annual Fidelity New year financial resolutions study. But for a little effort now, financial resolutions — which were also found to be easier to achieve than losing weight or quitting smoking — can pay off eventually.
Home Buyers Marketing II, Inc.
DeAnn Kamp – Broker/Realtor® GRI, CSMS