February 1, 2018
With the advent of a new year, many of us commit ourselves to making some improvements in our lives. Many make financial resolutions but quickly become overwhelmed with the abundance of options available. Just typing in ‘saving plans’ to Google elicits 9,160,000 results! How does one begin to determine which goals are realistic and meaningful?
Before setting specific resolutions, do some background work to assess what can realistically be accomplished. Some ideas:
- Assess where you are financially.
- Before you can set goals, you need to have a realistic assessment of where you are financially.
- Include your income, your savings, your assets, debts and investments in your analysis.
- Analyze your debt.
- Not all debt is created equal. Make a list of your liabilities and organize them by interest rates. Those with the highest rates (most likely your credit card debt) should be paid off immediately. It does no good to invest money while you are paying 19 percent or more in interest each year. [i]
- Consult with your financial advisor and determine if he or she recommends that you use existing cash holdings to pay down the balance in full or in part. For example, ‘if you owe $10,000 on your credit card and pay 19 percent interest annually ($1,900 per year), while at the same time, own a $10,000 certificate of deposit at a bank, paying you 4 percent interest ($400 a year), you would actually save yourself $1,500 a year by making a resolution to paid the debt.’[ii]
- Based on your financial analysis, decide what you want to accomplish this year.
- Come up with one or 2 clear, actionable financial goals for the year. Be specific – rather than saying “I want to decrease my credit card debt.”, say “I will have no balance on my credit card and I will fully fund my IRA.” Write your resolution down in an easily accessible location. Refer to it often.
- Develop a realistic budget based on real numbers.
- With a budget, you can compare your monthly income with your expenditures and determine how much is left over after all debts are paid/ or how much is still needed to cover expenses.
- Consider using Personal Finance software to assist you in tracking your expenditures. These systems can offer comprehensive, easily trackable options to manage what can be a rather overwhelming and complex task. Please read the following articles for some options:
- Where to begin.
- Establish an emergency fund. According to a study by the Harris Institute in 2017, 78% of working Americans are living paycheck to paycheck. This is due to a combination of stagnant wages and rising costs. [iii] That is downright scary.
- Plan to have 2-3 months of expenses available. Getting there may take a while, but it is an essential goal. The peace of mind will be worth the effort.
- Think long term.
- Determine exactly how much you will need for your retirement. Fidelity Investments, among others, offers a Retirement calculator that can assist you in determining how much you will need to save.
- Organize your financial and personal information so that it is easy to find and understand.
- Even before you have your budget and overall investment plan in place, it is very helpful to have your information organized. Keep bank account numbers, insurance policy information, investment information, wills and other important information in unique folders within a finance file if you prefer to keep your information on your local system.
- If you prefer to use personal finance software to keep your information easily accessible, the following articles are good resources for finding options:
- Read a Financial Book each month and/ or take Financial Literacy classes. The more you know, the better!
- Next Steps.
- Develop a financial plan with SFSG. There are so many options available that working with a CFP/ CPA will help you to use the tools that are right for you, your specific goals, your levels of risk tolerance and the tax impacts on your finances.
- Give SFSG a call at 732-738-8991 if you need assistance in determining how to best use your extra funds or where to cut back to cover any deficits.
[iii] Vast Number of Americans Live Paycheck to Paycheck; Aimee Picchi; CBS Moneywatch; August 24, 2017 Additional General References: 7 Tips for Setting Financial Goals in the New Year; Phil Town; Five Financial Steps to Start the New Year Off Right; NJCPA;