The new year is a great time to get your finances in order. If you have struggled in years past to get started with your financial planning, don't let this year be more of the same. Now is the time to act before life gets in the way. Here to help are my top 5 financial resolutions for the new year:
Resolution #1: Automate and Save More Money Each Month
There are many ways to increase your savings, and one of my favorites is to automate your savings. You can have your bank transfer a portion of your paycheck into a savings account for retirement or college. This is one of the best ways to build savings, as contributing automatically means there is no second guessing involved, it gets done. If there is not much cash flow available to save, try starting small then increasing over time. For more on this topic see my article "The Best Investment Advice -- in One Word" and be sure to pass this along to every young person getting going or everyone you know who is starting a first job, they will thank you down the road.
Resolution #2: Reduce Monthly Spending
Reviewing the past month's expenditures is a great way to get a handle on where the money is going. There are many opportunities to save money. With interest rates so low, it may be a good time to refinance debt. For instance, I recently refinanced my used car loan into a new cheaper loan, that knocked 2 car payments off. Subscription services are another leak. Many of us, myself included, are paying for unused or unnecessary apps, delivery, or streaming services. It may pay to do a sanity check on those.
There may be opportunities to save on car or home insurance too. Now is a good time to review insurance deductibles and see if it makes sense to increase, especially if you never use the coverage, there may be some savings there. The new year is a great time to take stock of cash inflow and outflow. Money saved should be redirected to paying off debt or used for Resolution #1. Every penny helps!
Resolution #3: Get a Will or Update Current Documents
There are many good reasons to have the proper estate documents. A Will spells out the disposition of your estate and names important people to help. For instance, if you have young children, a Will can name guardians for the kids. Also, a power of attorney is an extremely important estate document. This allows you to name an individual who can act on your behalf to make financial decisions, like signing checks if you are incapacitated. Without these documents in place, a court may have to intervene, which can be costly and time consuming.
Finally, with the recent passing of the SECURE Act, those with existing estate plans should reach out to their drafting attorney and financial planner to see if changes are warranted to account beneficiaries or estate documents. For more information on the SECURE Act, see my blog post "The SECURE Act Has Passed: What does it mean for your retirement?"
Resolution #4: Build an Emergency Fund
Do you have enough money to cover an unexpected emergency? AARP reports that 53% of Americans don’t have an emergency fund at all, including most people over 50.1 The typical recommendation is to have at least three to six months of necessary living expenses saved in case of an emergency.2 But that depends on your job security. For those in short-term contracting work, a larger emergency reserve may be necessary than those in government employment.
If saving up an emergency fund is unlikely given month-to-month cash flow restraints, be sure to have other means to access funds if an emergency pops up, such as a home equity line of credit or a personal line of credit. Banks are usually unwilling to lend you money in a difficult time, such as if unemployed, but are more receptive when you have income.
Resolution #5: Have enough life insurance
If there is one lesson we learned from Kobe Bryant's tragic accident, it is life is uncertain. We may never envision anything happening to us while we are young, healthy, and active, but we all know friends, colleagues, and high school classmates whose life ended too short. Having enough life insurance starts with a needs analysis which analyzes the financial loss to your family if you die prematurely.
Be aware that company provided life insurance may not be portable or is portable at high prices, so owning your own life insurance may be a better option. Finally, it's a good idea to have some life insurance on both spouses, to give the surviving spouse flexibility. If you have term life insurance, you many want to consider adding some permanent insurance. For more information on permanent life insurance, see my article in Kiplinger, "Why I Love My Whole Life Insurance Policy."
Ask for Help
Finally, if you are unable to find the time or don't know where to start when it comes to tackling financial resolutions, that's a sign you could benefit from the help of a professional. Part of my job is to gently nudge clients along towards fulfilling their financial goals, which include these resolutions here. Personal trainers at the gym are valuable because they educate us on the best techniques for exercising and they also hold us accountable - this is similar to the role a financial planner plays, but on the financial side. If you'd like to learn more, please feel free to email me. I hope you have a great year!
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This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.