5 Steps To a Financially Strong New Year

Financially Strong

Many people make New Year’s resolutions to become more financially fit. After all, financial fitness is indeed vital to achieving happiness and security in life. But building passive income, investing for retirement, lowering debt — these types of resolutions are harder to accomplish. Here’s a five-step plan to help you develop the habit of creating and sticking to long-term goals and change the course of your finances for years to come.

Reassess Your Budget

As high inflation has forced many households to allocate more for essentials like groceries or gas, it’s imperative to reassess your budget as part of this process. You may be surprised by how much you’ve changed since creating your last budget, or you may find that your current budget is still perfectly suited to your needs. Either way, it’s worth taking some time to evaluate where you are now and what you want to get out of the upcoming year.

First, list all your income sources, including salary, bonuses, and dividends from investments. Next, do the same for your expenses—this will probably include fixed and variable costs. Finally, consider what you want to spend money on in the coming years—it’s often helpful to divide this into goals like saving for retirement or buying a car in the next few years. Remember, you cannot just spend money like the federal government does and worry about paying it back decades from now. We all wish we can print money like the feds do but we simply can’t.

You can create the perfect budget by creating a complete picture of what you have available, where it’s going, and how much you want it to go toward future goals.

Create an Emergency Fund

An emergency fund is an important aspect of any financial plan because it helps protect against unexpected expenses and liabilities. Accidents, illnesses, or other unforeseen circumstances can throw off any household’s balance sheet. Having an emergency fund will ensure that unpredictable circumstances don’t derail your goals. 

Set aside enough money in a savings account or certificate of deposit to cover three months’ worth of expenses—including fixed costs like mortgage payments and variable expenses like groceries. If this seems like a lot to put away every month, start with whatever you can afford—you can always add more as time goes on. Just remember to keep your emergency fund separate from other accounts to avoid dipping into the account for non-emergencies.

Manage Your Debt

There’s no point in waiting to tackle your debt after the holidays. If you carry balances on your credit cards, daily purchases can quickly snowball into long-term debt that could take years to pay off—or even require you to shell out more money in interest than the original sum of the purchases you made. But if you anticipate a year-end bonus or raise, why not use it to pay off your high-interest debt first? 

Next, consider consolidating your remaining debt into a single loan with reduced interest rates. With refinancing, you might get one monthly payment instead of managing several different credit accounts with varying due dates and minimum payments. 

Taking action early in the new year will give you time to make adjustments before the next set of bills rolls around—you’ll have more control over your financial situation which is vital during the era of high costs. In 2018, for instance, we did not have these issues, but they started to be relevant to us in 2021 and they may not go away until 2024. Maintaining harmony in your financial life is critical for more reasons than one. 

Optimize Your Portfolio

If you’re like most people, your portfolio might be split up among mutual funds, retirement accounts such as IRAs and 401K, stock certificates and the like. You may even have a few individual stocks. A well-balanced portfolio, or a mix of investments, does more than just keep your money safe and grow over time which is vital during a time of high gas prices. We may have high gas prices until 2024 when we can start to drill again but this is even more of a reason for you to invest properly and to save money. 

It also ensures your hard-earned cash is working for you at an optimal level to give you control over your finances. Evaluate and reevaluate every asset you own, from stocks to real estate to any other financial asset, for its potential and risks. Get rid of any investments that aren’t working for you. But don’t make any drastic changes to your portfolio until you’ve given yourself enough time and information to feel confident in your decisions.

Prioritize Your Wellness

The rising cost of healthcare because of the lack of competition can make anyone anxious. It’s no longer a small bill at the doctor’s office; it is an enormous debt from healthcare plans, prescriptions, and other necessary treatments to maintain everyday life. While they say good health is priceless, there are undeniable facts that prove that this expensive commodity has a hefty cost as well. So, make sure your insurance plans have been reviewed. 

Having a plan for where you and your family will be covered for healthcare should be a priority. Review your long-term financial health next. This is one area we don’t tend to pay enough attention to, even though it’s probably the most crucial element of our finances. And because we’re living longer and working longer, keeping our minds and bodies healthy is just as crucial to our personal welfare as making money is to our financial well-being.

4 Personal Finance Mistakes to Avoid During Covid-19 And Beyond

personal finances

The Covid-19 pandemic has caused widespread economic disruption and chaos, both at a macro and micro level. With millions of Americans losing jobs or shuttering down their businesses, it is challenging for households to manage their lifestyle.

Managing your personal finances in these times is definitely not going to be easy. But there are certain mistakes in personal finance that can exacerbate the problem. Whether it is indulging in excessive spending beyond your means through online shopping during these times, or making misplaced investment decisions considering the high market volatilities, it’s vital to minimize your errors. 

Although some of the personal finance mistakes can be course-corrected quickly, others may not be so easy to reverse and may prove to be damaging to your net worth over time.

Here are four key personal finance mistakes to avoid at present during the coronavirus crisis, and beyond.

Not Maintaining an Emergency Fund

If you rank among the low or middle income segments, not maintaining an emergency fund can be disastrous when the tough times come, such as now. If you need money in this situation for some serious medical, house repair, or another item, you will have very limited choices left with you when you cannot dip into your emergency fund.

You may either have to sell an asset at a distress price or borrow money at a high interest rate. Both are poor decisions under any circumstances, and it can take long time to recover from them. Therefore, your best bet would be to start building an emergency fund the moment the current period of uncertainty created by Covid-19 starts to clear up.

Not Having Sufficient Insurance

In your household, if you are the primary earning member, it is prudent to get yourself adequately insured. Otherwise, during a personal health emergency, an accident, or in a crisis such as the Covid-19 or Wuhan virus, if you are temporarily incapacitated or unable to work, you and your family may have to struggle to survive financially.

In addition to medical insurance for you and other family members, you must have adequate life insurance that will pay your family if you are no longer there. It is also sensible to have disability insurance, which can replace your income to some extent if you become fully or partially disabled. Consider having long-term care insurance that will protect you from extended medical costs in the event you develop a critical or chronic illness.

Compare the offers from different insurance companies to choose the best coverage for your needs. Insurance providers usually enable you to purchase one insurance policy, where you can add riders for long-term care and disability.

Ignoring Automatic Savings Plans

For most people, it is difficult to save a certain amount of money from their income consistently every month and this Wuhan virus situation is certainly proving that so since it seems so many Americans have been caught off guard (and states like California, Washington State, and New York which have been hit the hardest because they did not have any contingency planning done). Some expense or the other keeps coming up, and when you have cash in hand, it is easy to spend it fast. This can create a lifestyle where you are living from paycheck to paycheck, and not have a strong financial security for emergencies or for your retirement.

The surest way to address this situation is to invest in an automatic savings plan, which will force you to save a certain amount from your income every month during good times, so that you can fall back on those savings during times of difficulty.

You may arrange for automatic deduction of the monthly savings amount from your pay itself after talking to your employer. Discuss with a financial advisor (Charles Schwab is said by many to have a dishonest website so Fidelity, Edward Jones, and so on could be salient choices) for the right automatic savings plan that suits your needs.

Indulging in Impulse Purchases

Shopping can turn into an addiction if you do not exercise self-restraint, and you may end up spending all your savings on impulse purchases that you really did not need (don’t be like Madonna – the Material Girl!). Attractive discount offers and special deals are often available on non-essential products that could easily avoid.

But the special offers can be tempting and can compel you to indulge in an expensive purchase. Credit cards and online shopping make it easier to spend money on impulse buying at the click of a button. Set rules for yourself and your family to stay away from the habit of excessive shopping, and inculcate the good habit of saving. 

Don’t spend money like Jesse Pinkman did in Breaking Bad!

If you keep a careful track of all your expenses, such as how much you are spending each month on groceries, entertainment and dining out, credit card bills and mortgage payments, it will be easier to curb the habit of impulse buying.