New Year’s resolutions are often associated with improving one’s health or lifestyle, but financial resolutions are just as important, if not more so. Aside from the obvious goal of becoming debt-free, there are several other important financial goals and financial checklists that everyone should prioritize in the new year.
Unfortunately, many people struggle to stick to their resolutions and end up falling into the same money traps year after year. This is often due to bad habits or a lack of planning in resolutions.
To help you stay on track, here are a few tips on how to make and stick to your financial resolutions:
Create a budget:
If you persist in saving and investing during your working years, your net worth should increase over time, enabling you to accomplish many of life’s most significant objectives. Creating your budget and net worth statements might assist you in developing your road map and staying on track which upkeeps your financial statements positively.
Here are some ideas:
● Self-reward initially
In the new year prioritize yourself. A high-level budget should at the very least include three items: your income after taxes, your monthly spending, and your savings. Track your expenditures for 30 days using a spreadsheet or an online budgeting tool (financial applications) if you’re unsure where your money is going. Find out how much money you’ll need to save for other objectives and how much you’ll need to pay your set monthly costs, such as rent or mortgage and other living expenses.
● Determine your annual personal net worth.
It is not so difficult. Make a list of your assets and deduct your debts (what you owe). To calculate your net worth, subtract your obligations from your assets. If your net worth decreases during challenging market times, don’t get upset. It’s crucial to observe an overall growing tendency throughout your working years. If you’re retired, you should develop an income and distribution strategy to support other realistic goals and ensure that your net worth lasts as long as it should.
● Estimate the price of expensive but necessary things.
Put the money away or boost your savings if you have a significant immediate expenditure, such as some events or personal expenses, and count that money as spent. If you expect to use the money within a few years then keep it reasonably liquid, secure assets such as short-term, savings accounts, or money market funds purchased through a brokerage account.
Manage your debt.
Debt is only a tool, and depending on how you utilize it, it may be either helpful or negative. If you are choosing the debt option you should be very careful about what will be your need, want, and what will be your desire. To spend money wisely you should be clear. For the majority of individuals, having some debt is a practical need, especially when buying a costly long-term asset that would require time to repay, like a home. Problems start, though, when debt starts to act more like a burden than a tool.
● Maintain a moderate level of overall debt.
What you can borrow should not be confused with what you should borrow. Keep your total monthly debt payments in mind whether you require that thing or not or was that thing worth it or not. You have to be very specific about your income and expenses as well.
Optimize your portfolio.
Getting better financial performance is something that we all strive towards. However, evidence indicates that market timing can be challenging and even harmful. Maintain discipline in all types of marketplaces. Stick to your strategy and make any adjustments. Here are some tips to keep you focused on your objectives.
● Prioritize your total investment.
The next most crucial choice you must make is how to invest after deciding on a savings strategy. Have a targeted asset allocation that you are comfortable with, especially in a down market. This refers to the total mix of stocks, bonds, and cash in your portfolio. Verify that it still aligns with your long-term objectives, level of risk tolerance, and schedule. The more time you have to possibly profit from rising or falling markets, the greater your time horizon should be.
● Invest in a variety of asset classes.
Diversification may lower risk and be a key element in assisting you in achieving your objectives. Mutual funds are excellent solutions for acquiring a diversified portfolio of shares in virtually any asset class.
● Taxes are important.
Add investments that are generally tax-efficient, such as municipal bonds and ETFs, to taxable accounts, and investments that are generally tax-inefficient, such as mutual funds and real estate investment trusts. Retirement accounts, such as the standard, are included in tax-advantaged accounts; taxable accounts are for investments that are generally tax-inefficient. If you trade regularly, you can lower your tax burden by doing so in tax-advantaged accounts.
Prepare for the unexpected.
Life involves risk, particularly in the areas of investing and money. Unexpected events like sickness, job loss, disability, death, and litigation can completely change your financial situation. Make a resolution to have your insurance requirements met if you don’t have enough funds to adequately protect yourself against significant hazards. Unexpected incidents, which happen rarely but are expensive to handle on your own when they do, are protected against by insurance.
● Use health insurance to guard against high medical costs.
Choose a health insurance plan that meets your requirements for coverage, deductibles, co-payments, and medical provider options. If you’re in good health and rarely visit a doctor, consider high-deductible coverage to protect yourself from the possibility of a major illness or other unexpected medical expenses. Having insurance with you is like carrying your backup with you all the time. Currently, there are many great insurance cum investment plans such as a United Linked Insurance Plan (ULIP) in which some amount is invested in the market and some amount is invested to cover your family financially in case of unfortunate events.
● Think about the benefits and drawbacks of long-term care insurance.
If you’re thinking about purchasing a long-term care policy, seek one that offers the appropriate level of care, is guaranteed renewable, and has fixed premium costs. Starting at about age 40, long-term care is usually the most cost-effective, but around age 60, it usually gets more expensive or more difficult to acquire. Your state’s insurance commissioner is a good place to get unbiased sources of information. Another method to prepare in advance for long-term care expenses is to develop a strong retirement savings plan.
As you make it a habit to keep track of your finances, you’ll notice even trivial expenditures that may not be necessary and you won’t repeat them.
We wanted to provide you with a list of significant financial resolutions for the next golden year so you may get your new year’s resolutions off to a good financial start.
Don’t forget to think about the suggestions gathered here if you’re planning your finances for the new year. Commit to using at least one of the best strategies to improve your financial statement. You’ll soon be appreciating your decision to take charge of your money and say goodbye to debt forever!
