Today is New Year’s Day and I’d like to wish everyone happiness, health, and prosperity for 2016. And how do we get to happiness, health, and prosperity?
Resolutions: every new year we make a list of them and then by February they just seem to disappear in the cold north wind. I know you know what I’m talking about. You’ve pledged to lose some weight or to give up your nasty smoking habit, but it’s so much easier to say it than to do it. You can talk the talk, but can you walk the walk?
Well, when it comes to your financial resolutions, it’s much the same. Making resolutions that can make real changes in your life is something that most of us think, talk about and plan every year. But what becomes of that plan?
About a year ago, I wrote about how to make a better plan, by setting measurable goals, dealing with setbacks, engaging others, and more. This year I’d like to talk about what some of those financial goals might include.
Our—mine and my wife’s—very own financial goals for 2016 are quite focused and simple. We’ve been reviewing our discretionary spending for 2015 and trying hard to shift some of that (actually a nice chunk) towards other things for 2016. That’s very doable for my wife and me because we made several “unplanned expenses” this year that we didn’t allocate any money to in the budget and had to borrow money, some from our savings and some from a credit card currently at 0% interest, to carry out.
We spent several thousands on just a couple of expenses: a brand new hybrid mattress (much needed for our sore backs), the infamous new front door and storm door to keep out winter’s chill (for which we are still waiting on installation!), and the big want/investment that we didn’t have a clue about the previous year, attending FinCon15. Even though we do budget for miscellaneous expenses that aren’t specifically planned, the amount was not that large and just didn’t cover it. Because we were a bit lazy, unfocused, and doing a few wants, we are ending this year in a position that has us concerned. We have consumer debt where none existed before, and our safety net, the emergency fund, needs some replenishing. So that brings me to our primary financial goals for 2016: paying off the debt and rebuilding our emergency fund!
Sometimes, you just need to get back to basics. And for those of you who’d like to get back to basics with me, I’d like to go over some of the important financial steps that can help improve your situation. You probably have heard about them and tried in the past and you failed to achieve your goals. It is my suggestion that this year is the time you start to walk that walk. This time, think about it as your financial life and death, dramatic as it sounds, fear and drama motivates and your determination can be fostered by it. That is exactly what we’re going to do. Here are my suggestions for success in 2016!
Make a Realistic Budget!
I’m really going to need a new soapbox this year from standing on this one for so long (maybe I should start listening to my own advice now and then!). You’ve got to start someplace and that place is realistic budgeting. Set up a list of all your expenses and sources of income to plan on how and where you’re going to use your money. Some things like rent or mortgage payments and utilities are simple. They’re fixed and you probably know what they are for the entire year already. But your discretionary expenses, that’s a different story. You control those and the wants vs. needs debate comes into play big time. Prioritizing your spending is the key. Once you set up your budget plan and track your expenses, it actually becomes easier to project and plan exactly where you are headed. Next week, I will post a line by line budget plan review, but for right now you can find planning tools all over the net or just use a pen and paper and start listing all the categories. Make gradual cuts in the categories you have more control over so you can funnel that savings into your priorities.
Pay Yourself First!
It’s that old adage again. If you work for a company that provides a retirement plan, invest in it. It’s a no-brainer. Especially when you are getting a 401k match. Whether it’s a 401k, 40sb, 457 or any other plan, just do it. If you don’t have that option at work, simply set up an auto withdrawal savings plan yourself and have that money taken out of you pay so you don’t spend it. Then simply budget on the take home pay remainder and you’ll be way ahead of the game.
Pay Down Your Debt!
Debt can sometimes be necessary (like student loans or a mortgage), but consumer debt is a cancer in your financial well-being and health. (Is that dramatic enough for you?) Make your priority to allocate money towards reducing debt as soon as possible. That money will save you interest and make you a smarter consumer the next time you go for the credit card. Rebuild any credit rating deficiencies with prompt timely payments and payoff. An improved credit score will provide advantages all over the place like when buying a home or refinancing with the best interest rates at that time, or even just buying insurance.
Check Your W-4 Withholding!
I have said this over and over again. If you have a steady income, check your withholding documents at work and be sure you not over-withholding and getting that no interest government “refund” next year. Project out the numbers to see what your income tax forecast will be. If you can’t do it yourself, see an accountant or tax service. It will be like getting a pay raise when you adjust any overpayments. Don’t you want money now rather than wait a whole year for it?
Review Your Insurance Policies!
Each year I review every policy from auto to life to homeowners, and don’t forget disability. I check for any adjustments needed, look for competitors’ deals and update particulars like beneficiaries. Insurance companies want you badly and the market is so competitive these days that it is almost a definite savings opportunity but even more so it gives peace of mind that you have all of those policies working to protect you and your family at the most affordable prices.
Get a Financial Checkup!
I don’t say this lightly, but at least one time in your life you should seek out a fee based (not commission based) financial professional and let him look at your financial portfolio and game plan. Paying for a couple of hours of expert advice at least once in your life is well worth it. First, you will learn something that you can carry forward when making future plans. Second, if you’re missing real opportunities and you can be shown ways and suggestions without an obligation to make that advisor rich through commissions.
Educate Yourself This Year!
I try to commit to reading financial advice books regularly to learn some kind of new skill, information, guidance, or just to learn about someone’s success in the world of money. It keeps you ahead of the curve just being aware of the methods and options out there. You don’t have to sit glued to MSNBC or the Bloomberg Network to learn about it. In fact, following day-to-day money and financial trends is not a good idea as patterns and cycles dominate history and any given day is and can be a blip on the screen.
Setting up your resolutions and goals for the year isn’t a science. It is rather a plan that you make and of which you have control. I’ve said it before and I will say it again now, making your goals begins with making a plan and plans are not written in stone. In fact, a great plan is reviewed often and revised, if necessary. The important part is making your plan based on reality. Try living below your means for a while. Don’t create an expense line for lottery tickets and a corresponding one under income for lottery winnings. It’s just not a good idea.
So be resolved that this is the year you will begin the road to financial health and wealth. What are your financial and non-financial goals, and how do you plan to achieve them in 2016?
Image courtesy of noppasinw at freedigitalphotos.net (with changes)