No matter what challenges you may be facing in your financial life, it’s never too late to get back on track. The new year is a perfect time to reevaluate your money goals and wipe out obstacles that may be holding you back.
Are you behind on retirement savings and want to catch up? Do you want to buy a home? Maybe you want to get out of debt, put kids through college, or take the vacation of a lifetime. Everyone’s financial priorities are different, so it’s important to identify yours.
Take some time to consider what went well or poorly with your finances this year and make beneficial changes for the year ahead. Use these five tips to create resolutions that will set you up for the best financial future possible.
- Get the big picture of your finances.
An excellent resolution is to understand the current state of your finances. A simple tool that can give you a birds-eye-view of your entire financial life is a personal financial statement or PFS. It’s a document where you record everything you own and owe in one place.
To create your PFS, get out some paper, or open an Excel or Google spreadsheet. Make a list of your assets and their current values, such as your bank accounts, investments, real estate and vehicles. Then enter each of your liabilities, including their outstanding balances and interest rates charged. They may include credit card, mortgage, student loan or auto loan debts.
When you add up your total assets and subtract your total liabilities, you’ve calculated your net worth. For example, if you own $100,000 in assets and have $95,000 in debts, your net worth is $5,000.
Make a habit of updating your PFS every year, so you stay focused on increasing your net worth over time by increasing your assets, shrinking your liabilities, or both. When your net worth increases year over year (even slightly), that’s a positive trend showing you’re growing wealthier.
- Track your spending.
After considering the big picture of your finances and what you truly want to accomplish, turn your attention to spending. Start by looking at how you’ve spent money over the past several months and where you can cut back.
You probably know having a spending plan or budget is a good idea — but creating and sticking to one isn’t always easy. If you tend to overspend or can’t seem to make progress toward your financial goals, choosing the right budgeting tool may improve your success.
Whether you prefer a manual or an electronic system, there are plenty of options to track your expenses. Try one of these tools to manage your money more carefully this year.
- Tiller aggregates your financial transactions into Google Sheets with several free trial templates, such as an expense tracker and a build-your-own spreadsheet. If you want to continue using it after 30 days, it costs $59 per year.
- Mint is one of the original free, web-based personal finance programs. It has a simple dashboard that aggregates your financial transactions so you can categorize them, create a budget and set goals.
- Quicken is a powerful personal finance program with a suite of products. The Quicken Starter version gives you a lot, including automatic expense categorization, limited budget tracking, and a billing dashboard, for $35 per year. Upgrading to Deluxe ($50) or Premier ($75) gives you the Starter features plus customizable budgeting, loan tracking, investment tracking and analysis, bill pay and online backup.
- Max out workplace savings accounts.
Don’t overlook valuable benefits at work that can help you reach your financial goals. Commit to boosting contributions to a workplace retirement plan, such as a 401(k), 403(b), 457, or Thrift Savings Plan, in the new year. If your employer matches some amount of contributions, be sure to save at least that amount.
For 2020, the annual contribution limit for most workplace retirement accounts is going up by $500 to $19,500. For workers over age 50, the additional yearly catch-up limit also goes up by $500 to $6,500. If you don’t have a retirement plan at work, take advantage of other options, such as an IRA or a plan for the self-employed.
You may also have medical savings accounts at work, such as a flexible savings account or a health savings account.
- Automate good habits.
Putting your financial goals on autopilot is one of the best ways to create good habits for success. Here are some ways to automate your finances:
- Participate in a retirement plan at work, where contributions must come from your paycheck before you receive it.
- Set up recurring bank transfers to fund goals, such as building emergency savings, contributing to an IRA, or saving for a down payment on a home.
- Ask your employer to split your paycheck and send a portion into one or more savings accounts you establish for purposes, such as emergency savings or holiday gifts.
- Stay motivated.
Resolve to stay motivated and informed about personal finances. You might make a goal to read a certain number of finance books this year. If you prefer to listen to content on the go, audiobooks or free personal finance podcasts can make household chores or a long commute more enjoyable.
If you want direct advice on matters such as budgeting, investing, taxes, insurance or estate planning, set aside time this year to form relationships with different financial experts. Getting recommendations from family and friends or visiting the National Association of Personal Finance Advisors at napfa.org are great places to find financial pros who can help you create security and reach your dreams.