5 Financial Resolutions To Improve Your Fiscal Health
Many people kick off the New Year by cleaning out their closets or starting a new fitness routine. Everyone should also have financial resolutions on their list. One of the best gifts you can give yourself and your family is to put a priority on improving your financial situation this year.
Here are five financial resolutions to make this year.
Save More Than You Spend
It sounds so simple. If your expenses are higher than your income, it will be almost impossible to meet any other financial goals. But the goal remains hard to achieve. Neil Ellington from Consumer Education Services notes that people chronically underestimate the amount of money they spend each month. Therefore, he recommends writing down all expenses for 30 days.
Once you have completed a spending log, review your monthly expenditures to identify and plug your spending leaks. “Everyone has them - those little leaks will let the money flow out without your truly being aware of it, such as eating out, daily coffee or impulse spending,” said Ellington. He then recommends using the information to create a spending plan for monthly expenses.
Have An Emergency Fund
The recent recession has shown that personal financial situations can change quickly. The sudden loss of a job or a major injury can cause substantial financial stress. “Create an emergency fund with enough to cover at least 9 to 12 months’ worth of monthly expenses," said Harrine Freeman author of How to Get Out of Debt: Get an "A" Credit Rating for Free. "This will prevent you from getting into debt.”
Use a spending plan to calculate the exact amount of money you need to have on hand to pay expenses.
Once you know how much you need for your emergency fund, determine how much more you need to save each month or week to reach your goal. Create an automatic transfer to your savings account from either your checking account or direct deposit to help build your fund. If you receive a raise or a gift of cash, save the additional income instead of increasing your spending habits.
Once you have met your emergency fund goal, direct the money you were saving towards retirement or other financial goals instead of increasing your spending.
Evaluate Your Retirement Savings
If you are not currently saving for retirement, your top priority this year should be contributing to a workplace retirement plan or other personal retirement plan. Even contributing a small percentage of each paycheck will have a significant impact in the future because of compounding interest. Your goal should be to increase your contribution over time as your income increases.
Contribute at least the maximum amount that your employer matches so that you are capitalizing on your own contribution.
If you are already saving for your retirement, assess your contribution levels and your projected savings by retirement age to determine if you need to increase your contribution. Maliz Beams, CEO of ING U.S. Retirement, also recommends eliminating any idle or orphaned retirement accounts from previous employers. “Evaluate rollover and IRA consolidation options, which can generally help to lower custodian fees, enhance portfolio management, reduce paperwork and improve beneficiary designation planning,” Beams said in an interview. (For more information, see What You Need To Know About An IRA Investment.)
Make Estate Planning A Priority
Thinking about who will take care of your children or how your assets will be distributed if you die is never pleasant. However, it is important to have a will to provide financial security for your loved ones. If you do not have a will, make it a priority to draw up a will this year. For basic estates, you can use an online website to create a will. However, you should visit an estate planning attorney for more complicated situations. (For more information, see Everything You Need To Know About Wills and Estate Planning.)
If you already have a will, set some time aside to review the will with your spouse to make sure it reflects your current wishes. Evaluate if the people named as guardians of your children are still the best choice. Verify that all beneficiaries of your estate are still the desired recipients and that all are currently living.
Give a copy of your new or updated will to several family members for safekeeping and also keep a copy at your home. Additionally, create a list of all bank accounts, monthly bills, retirement accounts and insurance policies to help your family continue paying your bills and distribute your assets quickly in the event of your death. Keep a copy of the list at your home so you can easily update it. Make sure to tell a family member where it is located.
Talk More About Money
Money can be a hard topic to talk about, but having open conversations about finances with your loved ones can be important to both your future and theirs.
One of the most important gifts you can give the children in your life is a healthy attitude about money and the tools to make sound financial decisions. Teach children living in your home how to manage money on a small scale through weekly allowances, saving for a coveted toy or working on the family budget. Have honest conversations with adult children or grandchildren this year about money mistakes and successes that you have made during your life. Take the time to listen to any concerns or questions that they may have. (To learn more, see Teaching Your Children About Money.)
If your parents are senior citizens or nearing retirement age, talk with them about their financial wishes as they age and get a clear picture of their finances. You should also make sure that you or a close family member has all of their financial account information and a copy of their will to alleviate stress if they pass away.
While it is easy to view financial resolutions as a one-time goal or something to check off your list, spend time throughout the year measuring your progress and making adjustments. Think about any personal financial goals that you have and create additional resolutions that are meaningful to your situation.