Ideas for Common Sense Financial New Year’s Resolutions
Ben Franklin once said, “Be at war with your vices, at peace with your neighbors, and let each New Year find you a better man.” The beginning of a new year often leads us to examine our lives and find ways to battle vices.
While many of our goals for the New Year may be physical in nature, there are many parallels between our physical and financial well being. When I think of financial goals, I divide them into two categories: trimming the fat in our expenses and strengthening our income muscles.
Trim the fat:
Look at your monthly bills: cell phone, cable, satellite, and utilities. Consider your auto, home, liability, and life insurance premiums. Review your service providers like lawn service, home cleaning, or snow removal. Examine your gym and other club memberships. A good viewpoint to adopt is “zero basing” your expenses: if you could start from the ground up, would you include this expense?
Review interest rates on your loans. Can they be improved? Mortgage rates have begun to rise, but you may still be able to refinance. Consolidating your debt into a home equity line of credit at a lower interest rate can make a big difference (if spending is already under control). Know your credit score: if there are any issues, make sure you understand what they are, and fix where possible.
Look at the costs in your investment portfolio: manager fees, expense ratios, and hidden costs like 12b-1 fees and trading costs. These outlays collectively add up and can seriously compromise your long-term growth.
Strengthen your income:
Credit card debt is usually the result of spending money we do not have. To get out of it, we need to spend less than we earn. If debt is high enough, consider taking on a second job on weekends or evenings for the next six or twelve months.
Over the longer term, working multiple jobs will be tiring and inefficient. Examine your career path, and find ways to grow. Could taking on additional assignments help? Could you learn new skills to become more valuable? Are there certifications you could earn? Ideally, find a mentor to help you do this – someone who understands your field and can guide you in this process.
The best way to strengthen your income may be to let your employer do it for you! Understand the benefits available to you through work to make sure you are utilizing them well. The biggest mistake I often see is not taking full advantage of a retirement plan match. Start small: move your contribution up 1% or 2% per year. If you are given a raise, allocate a portion of it to retirement savings.
If you have children, it might be time to save for college. Start with 529 accounts. The State of Maryland will give you a deduction on your income taxes for the first $2,500 you save each year in a Maryland 529 plan – per child! If you are married, you can double that savings if you structure it correctly.
In your goal making, pick the top one or two things that need your attention. There is nothing worse than making so many goals you don’t know where to start! Make a detailed plan for meeting your resolutions, and show that plan to someone you trust to help keep you on track. Financial resolutions are made and reached every day. You can do this!
Joel Cundick is a Financial Advisor at the McLean, VA office of Savant Capital Management. Joel can be reached at 703.288.0500.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® in the U.S.