5 Financial New Year’s Resolutions That Help Get Your Money In Order
With the new year approaching, many people are thinking about resolutions like going to the gym, eating healthier, hitting work metrics and getting their finances in order. Thinking about how to get your finances in order can be a daunting task, so I’ve laid out five manageable New Year’s resolutions to consider.
I Will Budget
During the holidays, I understand that a lot of budgets get thrown out the door in favor of hosting, traveling, gifting and sales. It’s okay to go over budget from time to time; what’s less okay is not having a budget at all. When you don’t track expenses or hold yourself accountable, then you run the risk of always spending as much as you bring in and never reaching your financial goals.
Here are three steps to create a budget you can stick to:
Calculate your net income per month. After taxes and deductions, you will likely need to recalculate because deduction expenses often change in the new year.
Calculate your nondiscretionary expenses, including housing, utilities, groceries, auto expenses and loan servicing.
In a separate column, calculate your discretionary expenses, such as eating out, vacations, entertainment and subscriptions.
You don’t want this to act as a balance sheet where the numbers even out. Your net income per month should exceed your combined nondiscretionary and discretionary expenses. This excess is what gives you the ability to save toward your financial goals. In the new year, you may want to create this budget initially, then review and update it monthly.
I Will Assess Any Major Purchases Before I Act
If you have a major purchase goal, particularly when many people around you are acting on things fast, it’s important to take a step back and assess how moving forward with buying it will impact your budget and other financial goals. I’ve seen too many people fall victim to mindsets like “this deal won’t last” and “act fast.” These high-pressure sales tactics are designed to shove the logical side of your brain aside and make you act in an emotional way.
I Will Utilize Tax-Advantaged Vehicles
Most people I speak with want to minimize the amount of taxes they pay. However, I still see many of them choose investing strategies that generate both income taxes and capital gains taxes annually. If you have a long time to hit your financial goals, you can have the benefits of compounding interest with tax-advantaged vehicles.
The most classic example is a retirement account. If your goal is retirement and you’re choosing not to participate in your employer-sponsored retirement plan because the company does not provide a match, you’re leaving tax savings and some compounding returns on the table.
I Will Diversify
Portfolio diversification is so easy and cost-effective to achieve these days. A 2020 Harvard paper called diversification “the only free lunch available to investors.” I know that investing in single stocks can be a lot of fun. For your financial goals, I urge you to consider a globally diversified portfolio of many securities, with investment strategies set according to the time until you need the funds and your tolerance for risk.
I Will Identify And Invest According To My Financial Goals
All these other resolutions mean nothing if you don’t have clearly defined financial goals. Think about what you want in your life, get very specific, and list your goals in order of priority. They might look something like the following:
Eliminate my $20,000 in credit card debt by 2026.
Retire in 20 years on 80% of my current income.
Purchase a home in 5 years in X neighborhood with a $200,000 down payment.
Let’s say a person has $2,700 excess income per month. Since eliminating debt is the highest priority item, the individual would first plan to pay down any credit cards by 2026. Maybe this involves increasing payments from the minimum up to $1,000 per month. If the person has excess money, the focus can shift to the actions that are needed to retire in 20 years on 80% of the individual’s current income. Let’s say the person ran the numbers and needs to save $1,200 per month in a 401(k). The remaining $500 per month could be saved toward a home purchase goal.
Then, you will want to assess your risk tolerance for each goal that involves investments. Retirement is in 20 years. That would be considered a long-time horizon. If this person is also willing to take on a lot of risk, the answer might be a portfolio of 100% stocks. For the home purchase goal, there are only five years to achieve it. That would be considered an intermediate time horizon. Unless this goal is extremely flexible, the investor’s tolerance for risk would likely be much lower than for the retirement goal. Here, it may make sense for the investor to have a mix of stocks alongside bond funds, money market funds, and other conservative investments.
This new year, consider taking manageable steps toward getting your finances in order by implementing these five resolutions.
This article was originally published by me on Forbes.
This informational and educational article does not offer or constitute, and should not be relied upon as, tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article. Diversification of a portfolio does not guarantee a profit or protection against loss.
Cicely Jones (CA Insurance Lic. #: 0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-6146869.1 (12/23)(exp. 12/25)
