The beginning of the year is notorious for resolutions. Some resolutions you keep and some are easily forgotten. Here are some suggestions for some resolutions that you can’t afford not to make (and keep).
Paying down your debt:
In advising our clients on dealing with debt, the first step to serious debt management is to look at a budget. Since most people don’t have a budget or really know what that means, to create one you must start with taking a real look at what you spend money on. Then set some goals, financial goals and actually write them down on a piece of paper (figure out where you want to be in 6 months to a year). The budget should be a snapshot of what you spend daily (put it in your smart phone or write it down). I always recommend that they do this for 30 days. Understanding where your money goes will help you to achieve your financial goals more easily. If you have no idea what you spend your money on you will not be successful in making this goal a success for this year! It’s no different than a diet. You have to look at the foods you eat, how often you eat and the portion size. This is no different with money and spending. Instead of calorie counting, you are money counting. Knowledge is power and success!
Be prepared to say no:
No one says you should go cold turkey while cutting back on your spending, just like changing your eating habits. Take a look and start trimming the “fat”, make “healthier” substitutions like cooking at home and bringing lunch to work in instead of eating out. Maybe wait for the movie as a rental instead of seeing it in the theaters. You must be prepared to make sacrifices or substitute. It cannot be temporary, must be long-lasting! If you can’t control your spending, leave your credit cards at home and begin living on a cash-based budget. Cash is king!
Starting an emergency fund:
After the devastating Hurricane Sandy, many people and businesses came to the realization that an emergency fund is a necessity and no longer a luxury! Take strides towards making an emergency fund now! For a family, put aside 3 to 6 months of living expenses as cash in a separate bank account. Your goal should be close to a year of living expenses but cash on hand should be no less than 3-6 months.
Saving for children’s education:
One of the biggest expenses you will have in your life (besides your own home) is to fund your child’s education. Whether your child is 2 or 16, it’s never too early or too late to start funding a savings account for your child. Although you never know where you child will end up, having something to help to pay for education and not relying on loans is the way to keep you and your kids out of debt for the future.
Pay down your mortgage:
Resolve to make an extra payment each year. Consider your home as your nest egg and not a cash machine. You want the most out of your home and the best way to do that is to pay down the mortgage faster. Making an extra payment a year can take close to 10 years off the mortgage. Consider how much money you will have once you then go to sell it. It’s one of the best investment vehicles and the first investment you should look to with any extra money.
Consider joining your company’s 401k (if available) to begin saving for retirement. If they do a match, it will help you boost up your retirement funds even quicker! If not, consider opening an IRA or similar savings account. Accounts such as IRAs and CDs offer higher interest rates then traditional savings account but you will pay a penalty if you take the money out before the time frame has expired. If you are designating this money for retirement this shouldn’t be a problem!
Whichever resolutions you choose, resolve to stick to it and keep notes on your progress. Re read your goal each year and see how far you have come.