Financial Plan Archives

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.

New Year brings hope. People make New Year resolutions according to their priorities, and the changes they want to bring in their lives. The coming year can also be the start of great financial success for you. Here are five time-tested financial tips to give a new direction to your personal finances in the New Year.

Set Goals

Set realistic, achievable goals. Think about your priorities. Do you need a new car, or are you better of clearing your existing debts which could be higher now because of inflation? Don’t just will to invest more, but think about how much you can afford to invest. If you want to increase your savings, think what you can do without.

Evaluate your priorities: What do you want in the new year; is it important? Can it wait?
Set your goals: Think of what you want to achieve; what you may have to forego.
Assess the time: How long will you be paying for it?

Once you have set measured goals, you can set a monthly budget accordingly. You may have to rework your other priorities, so be clear about the order.

Make a Budget

A budget helps you reduce unnecessary spending, and direct your funds to what’s really important for you and your family. Keep a track of all your expenses, big and small. A record of each dollar spent will show you where your money is really going. It can be an eye-opener – certainly in the age of high gas prices.

Understand your spending patterns, which can fall into a couple of broad categories:

Fixed Expenses: Recurring expenses like rent, EMIs and subscriptions, etc.
Variable Expenses: Expenses that change like food, clothes, gas, recreation

Check your recent bank statements to get specific inputs about where your money goes. This can show you the difference between how much you make and spend. You can allocate the difference towards achieving your goals.

Manage Debt

Loans can be a good way to acquire things you may not be able to buy upfront, like a house. But EMIs can hold you back from achieving your other objectives. The interest amount can really affect your finances. With that said, repaying your debt should be a top priority. There are two ways, in which you can better manage your debts.

Refinancing: This means re-negotiating the terms on your remaining loan amount. You can increase the length of your loan, and reduce the amount of interest you have to pay. But you will be indebted for a longer period of time.

Consolidating: This involves combining all your loans into one. You may become eligible for a lower interest rate. It certainly makes it easy to remember just one EMI per month.

Listing: You can list your debts by balance and interest. When you list by interest, pay the minimum on all but the highest interest loan; try and pay something extra each month. When you list by balance, try and make extra payments on the smallest loan.

Making a plan to manage your debt help you better understand your financial situation, and how the debt affects your life.

Savings vs. Investment

It doesn’t always have to be one or the other. With savings, your money grows with interest, but nothing else. You have something in the bank for a rainy day. Investments can make your money grow faster, but can also make you lose money.

Time is money if you invest in 401K or Roth IRA. Your money earns interest, and after some time, the interest earns interest. This is called compounding interest. Over many years a small fund can grow into a substantial amount.

In accumulation of this, you must always have an emergency fund in the bank. This is may consist of three to six months’ living expenses. This can help you tide over crises without putting you into deeper debt. You may also want to put something away for upcoming events.

Be Flexible

Change is the only constant in our lives. Your circumstances may change; you may get a better job, or get laid off; you may win a lottery; or lose money in the stock market. This means you may need to postpone some goals, or the situation may put you on a new track to achieving the goals faster.

If things are better, you can even add to your current financial wish list for the forthcoming year. Be prepared to monitor your financial plan regularly, and tweak or redo it, if needed. You may not be able to strictly as per your plan. You may stick to your budget in some months, or exceed it. That’s ok as long you stay on course with your New Year financial resolutions for the whole year and beyond.

5 Steps To a Financially Strong New Year