Financial Resolutions for the New Year

Very few things in life are as important as getting your financial house in order. While many New Year’s resolutions dissipate rather quickly, consider making some financial resolutions a priority and you will be one step closer to getting your financial house in order.

1. Write down your most important financial goals:

This can be an important starting point by compiling a list of what you want to accomplish in life, whether it be to retire early, buy a vacation home, travel, start a business, etc. By committing these goals to paper, this provides concrete objectives for which to strive and attain.

2. Develop or revisit your financial plan:

Consider working with an advisor on a financial plan or, if you have done so already, revisit that plan to make sure it is still viable. Financial plans create a foundation for your long-term financial well-being. By having a financial plan in place, you have visibility into your current financial situation and an evolving working model to help you realize your future financial goals.

3. Review current investments and your risk tolerance:

This should be done at least annually, if not more often, especially when life situations or circumstances change. Compare the performance against a benchmark to measure success and make sure your current asset allocation is still appropriate for your situation and does not exceed your tolerance for risk.

4. Create a budget and track spending:

This does not have to be complicated, but try to develop a plan of how your income will be distributed between spending and savings. Tracking your spending is a great way to create awareness of what you are spending and where. The most common way to track spending is to use either financial accounting software or create a Microsoft Excel spreadsheet and list all expenses each month by retailer or provider.

5. Review and properly manage your debt load:

Not all debt is bad, but it is important to have a good grasp on the most effective methods of paying down debt.

a. Credit card debt:

Try your best to pay this off as soon as possible since these usually carry extremely high interest rates. If you have debt on multiple credit cards, try to consolidate it on your lowest-rate card and always pay more than the minimum each month. Once the debt is paid off, do not close the account right away as this will have an adverse effect on your credit score. Going forward, only charge items to the card that you can pay off in total at the end of each month as this will help keep you out of debt.

b. Mortgage:

If it makes sense to do so, consider refinancing your mortgage to a lower interest rate if available. Be aware that this will likely cause closing costs. Try not to extend the life of the mortgage beyond the length you currently have.

6. Save more money:

If you are able, maximize contributions into tax-deferred retirement accounts. Retirement experts often suggest saving 10-15% of current income into retirement accounts and when within 6-8 years of retirement, increasing to 15-20% or more. However, if you lacked savings discipline earlier in your career, these figures may need to be higher.