on January 5, 2021
Happy New Year! You may have made a resolution or two at the beginning of the year…but were any of them financial resolutions? Many people tend to gravitate toward resolutions that have to do with eating better or exercising more often, while forgetting that financial health is just as important. After all, it’s difficult to stay both mentally and physically healthy if you’re constantly worrying about money.
But where to begin? What resolutions might you make this year to help improve your “wealth health?” Here are 6 suggestions:
1. Resolve to Increase Emergency Savings
According to Wallet Hub, nearly half of all Americans do NOT have a rainy-day fund. To a financial advisor like me, this is not only reckless, it’s downright scary. Life is unpredictable, and you don’t know when your car might break down, your health might fail, or you might find yourself out of a job. The typical rule of thumb for emergency savings funds is to strive to tuck away the equivalent of six months’ worth of income. For me, that’s the bare minimum. Life can get expensive quickly, and it’s a good idea to have some extra cushion in your emergency savings account.
How to meet your resolution?
Calculate what percentage of your income you can squirrel away each month and set up an automatic transfer. It’s best to pretend like this money simply doesn’t exist until you absolutely need to access it.
More on creating an emergency savings fund HERE.
2. Resolve to Max Out Your IRA
This year, you have the opportunity to contribute up to $6,000 to either a Traditional or Roth IRA (or both—as long as the combined amount is below $6,000). These retirement accounts come with significant tax advantages. With a Traditional IRA, you can deduct your contributions on your tax return and, in general, defer any tax payments on your account’s earnings. With a Roth IRA, you contribute post-tax dollars, but the money you earn from the account’s growth is, with some excepts, tax-free.
(Talk to me if you’d like more information about the differences between these two accounts)
Contributing to either type of IRA is a smart and safe investing decision.
How to meet your resolution?
Commit to contributing $500 each month this year to an IRA. If possible, set up this contribution to be an automatic deduction.
3. Track Your Spending
By now, you probably know that it’s a good idea to create a monthly budget. However, let’s take one step back and think about how you spend your money, and where. Familiarizing yourself with your spending habits will help you figure out a realistic budget down the road (key word: realistic!). Besides, if you don’t know how much you’re spending AND where you’re spending your dollars, you won’t know where you can tighten the belt a bit.
How to meet your resolution?
One of the easiest ways to start tracking your spending is with a money tracking app. Some of the more popular tracking apps are Mint or Wally. Most credit and debit cards also have money tracking capabilities, organizing your expenses into categories (they’re not perfect, however, and you may need to log in to your spending history and tweak the categories).
4. Resolve to Cut Spending Bloat
If you already have a good idea of how you spend your money, it’s time to sit down, go over your monthly expenses, and decide where to trim the “bloat!” Are you signed up for monthly subscriptions or memberships that you hardly use? Would it make more sense to buy the Microsoft Office Suite than lease it? Are you spending a little too much on take-out, when you could be cooking? Sitting down (with your SO, if applicable) and asking yourself these tough questions is a good habit to get into at the start of every year.
How to meet your resolution?
If you find areas that could be cut, dedicate an afternoon to cutting and/or planning to cut them! You can cancel unused subscriptions or halt unnecessary automatic payments right away, but it will take a little planning to trim other long-term expenses (eating out, clothing expenditures, etc.). Decide which areas you’d like to trim, and come up with a plan to do so. This may be as simple as setting aside a certain amount of money each month for the particular expense.
5. Resolve to Automate!
This resolution is directly tied to many of the other resolutions on this list. Automated bill pay, savings contributions, or investment contributions will help you keep your finances under wraps without much effort on your part (besides setting up the automations). This doesn’t mean you should “set it and forget it.” It’s a good idea to regularly revisit your automatic contributions to see if they are still making sense. Maybe you’re in a position to increase your monthly savings transfer. Or, perhaps you’re struggling and temporarily need to decrease contributions. But, aside from the occasional check-in, automated payments or contributions are enormously helpful.
How to meet your resolution?
Figure out which systems can be automated and set them up!
6. Resolve to Visit Your Advisor
This is probably the easiest resolution on the list, but also one of the most important. If you haven’t paid your financial advisor a visit in a while, do so! If you don’t have a financial advisor, find one. Since everyone’s financial situation is different, it’s helpful to sit down with a trusted expert and get one-on-one advice. Come prepared with a list of questions and some concrete savings goals in mind. If you’re clear about what you want, your financial advisor will be better equipped to get you there.
How to meet your resolution?
Make that phone call or send that email! Get in touch with your financial advisor or, if you don’t have one, do a little research and find one. If you’d like to see if we’re a good fit, feel free to get in touch.