Start Strong in 2019 with These 12 Personal Finance Exercises
The New Year is typically filled with aspirations for future success. While losing weight is still the most popular New Year’s resolution, getting into better fiscal shape appears on most people’s lists, too. Like physical fitness, true financial fitness takes ongoing effort in all seasons, but getting off on the right foot feels good.
1. Define financial success. It’s much easier to stick to a budget and feel good about financial decisions when concrete goals are involved. Spend some time defining financial strength with the result of a clear vision that enables specific goals along the way. That is goals that confirm measurable progress.
2. Create a spending plan. Everyone knows budgeting is a key to fiscal fitness, but it’s surprising how many people choose not to take the time to create an annual plan. People who create annual budgets—instead of budgeting on a month-to-month basis—are better at predicting their spending. Evaluating annual income and expenditures before establishing parameters for the entire year may boost awareness and create control that leads to increased financial strength.
3. Spend less than you make. Review the numbers and figure out what’s possible. Then, if necessary, employ creative ideas for making the total outflow less than income, which might mean taking a second job or turning a hobby into an income-generating activity. Alternatively, it may be easiest to focus on trimming expenses from the budget (e.g. cable, transportation) or evaluating current providers for necessary services (e.g. credit cards, insurance, gym memberships).
4. Build an emergency fund. Regardless of how fit a person’s financial position, unexpected twists and turns can temporarily take someone out of the game. An emergency fund that covers 6 to 8 months of expenses will go a long way toward keeping those inevitable surprises from derailing long-term financial health. This money should be separated from retirement funds and the month-to-month budget, where it’s accessible if required but not so convenient that it’ll likely be spent when it’s not truly needed. Specifically, short term CDs can often provide the right balance for keeping these funds handy without being overly available.
5. Reduce debt. This statement can seem overwhelming—especially considering that the average American household carries $15,000 in credit card debt. But disciplined pay-down exercises will get the job done. Start with a realistic budget that prioritizes the debt with smallest balance first. This will quickly reduce the number of loans and as each debt is paid off, apply that monthly payment toward the next targeted loan. Pay careful attention to due dates because late payments not only negatively impact credit scores, but they are also likely to generate costly penalties and trigger higher interest rates. Even if the progress seems slow, avoiding new borrowing helps move toward the debt-free goal. As smaller debts drop away, the increased payments help the remaining debt payoff pick up speed.
6. Take advantage of employer-sponsored retirement plans. Contribute to any employer-sponsored retirement plan. The more that can be put away, the better. Employees should contribute enough to maximize any matching funds. After all, what could be more financially savvy than accepting free money now to fund the future?
7. Automate a savings plan. Set up automatic contributions to savings and retirement accounts from electronic paycheck deposits each pay period ensure successful completion of this exercise. Most people don’t miss the money they “don’t see”, but their net worth will certainly feel the impact.
8. Review insurance coverage. Prepare for those unlikely events and keep finances on track if and when the unthinkable should occur. Verify that you are prepared with enough insurance to care for yourself and your family. Life, disability, and liability or personal umbrella policies are sufficient for most people, but it could be time to increase coverage depending upon family needs and changes.
9. Get serious about saving for education. As higher education gets more expensive and more necessary for young people entering the job market, strengthening the ability to pay for college becomes more important for parents and grandparents. Take advantage of 529 plans or other tax-advantaged savings strategies that will help launch the next generation toward their own financial success.
10. Plan an estate. Take the time to create a detailed estate plan and ensure that the desired legacy is left to those chosen, rather than the state deciding who receives assets and in what proportion.
11. Remember tax planning. Take the time to consider tax impacts as the year begins often pays off around April 15th. Many options require advance planning and specific documentation, so consult now with Ellen Anne Adesso, CPA to examine strategies to minimize the total liability, as well as to prevent surprises closer to the tax deadline.
12. Maintain good records. Consider organizing existing records and creating a system for storing new receipts, expenditures, and bills. Having this information accessible supports more accurate budgeting and also saves time and worry if and when documentation is required for the IRS or other purposes.
These 12 exercises are a great place to begin the year, but they’re certainly not the only options. Consult with Ellen Anne Adesso, CPA to discuss other exercises and what combination forms the right 2019 fiscal fitness plan for you. And finally, don’t be intimidated by how far you may have to go to get into the financial shape you envision. The more you work at it, the more rewarding it just may be when you are able to flex your financial muscle.