New Years’ Resolutions for Your Finances
2016 is almost over, which means if you are like 45% of Americans, you are probably starting to think about what your New Years’ resolutions will be for 2017. If you fall into that category, there’s a pretty decent chance your resolution will be finance-related (spending less and saving more was the third most popular resolution in 2015). Even if you feel financially comfortable already, I think most of us could benefit from setting some goals and exercising some discipline in this area. In case you have trouble thinking of a financial goal to set for yourself, here are a few ideas:
Create a budget. This may sound like a daunting task to a lot of us, but there are ways to start small and work your way up. For example, you can start by setting a budget for certain areas of your spending, such as entertainment and eating out at restaurants. If you don’t know where to start, I would recommend going through your bank and credit card statements for the past few months and tally up where you have been spending your money. Odds are good that looking at your spending habits will help you figure out where you can and should cut your spending. That $5 coffee from Starbucks in the morning may not seem like a big deal when you buy it, but if it becomes a 3 or 4 time-per-week habit, it adds up quick.
Manage your debt. If you have multiple sources of debt that you’re paying (credit cards, student loans, other personal loans, etc.), make sure that you focus on the debt with the highest interest first (usually credit cards). If you have multiple credit cards with outstanding balances, it would probably be a good idea to get your debt consolidated through a company such as National Debt Relief. If credit cards have been a weakness for you in the past, you may even want to consider getting rid of your credit cards entirely and start using cash and debit cards exclusively.
Start saving (or save more) for retirement. If you’re still in your 20s, retirement may feel like it’s a lifetime away, but the sooner you start saving, the better off you will be down the road. Every dollar that you invest now will be worth a great deal more by the time you retire than a dollar invested 10 years from now. For example, if you were to invest $10,000 today and project 5% annual growth for the next 30 years, your investment would grow to about $43,000. If you were to wait 10 years to invest the $10,000, your investment would only be at $26,500 after 20 years of 5% annual growth. If you bump up the annual growth rate to a more aggressive 10% growth rate, your investment jumps to $175,000 in the first scenario and $67,000 in the second. The more time you give your investments to grow, the more exponential growth you will get as you head towards retirement.
As a side note, if you work for a company that offers matching 401k contributions (usually limited to a percentage of your salary), take advantage of it. Those matching contributions are essentially free money for you, and you will be kicking yourself later if you don’t take it when you can.
Start planning your estate. Less than half of American adults have a will or estate plan in place, largely due to the misconception that estate plans are only for the wealthy. Not true. Estate plans are important not only for minimizing estate taxes, but for ensuring that your wishes are honored regarding distribution of your assets, guardianship of your children, and even your own medical care. This is truly an essential step to take (and one of my resolutions for the coming year), especially if you have a family. For more information on how to get started on your estate plan, see this article.
About the Author
Tim Peters is a consultant with Morrison, working primarily in our Business & Accounting Advisory practice. To get in touch with Tim, please find contact information for Morrison here.