Financial Pathways: Financial New Year’s resolutions for 2017 (column)
It is hard to believe that 2016 is almost over and a new year is about to begin. With the new year comes the sense of fresh beginnings. Perhaps you have already started thinking about your resolutions whether it be losing that extra weight, getting to the gym more often, spending more time with family, or getting your financial house in order. Unfortunately, I cannot help with the losing weight resolution, but I can recommend some ways for successful management of your finances.
Here are five important resolutions for managing your money:
1. Reduce debt
You know you would not feel as stressed if you had less debt, particularly credit card debt. Create a columned list of all your credit card bills and other bills, the amount you owe or will owe after the holidays, how much your monthly payments are, the interest rate and the payoff date, depending on what kind of bill it is. Total it and absorb what you owe. This may be a wake-up call for you. Resolve to pay off your credit cards and then to only charge what you can pay off each month. Determine how long it would take to pay them all off considering your disposable income. Develop a plan to pay extra on your cards each month starting with the card with the highest interest rate. Pay it off and move to the next card. You will feel exhilarated when you pay off a card.
2. Save more money
This may be difficult if you are trying to substantially reduce debt, but it is important to do at least some savings in plans such as your employer’s 401k or an IRA. Try to have 5 percent automatically taken from each paycheck. If debt is not an issue for you, maximize the amount you can save in retirement accounts and after-tax accounts. If you are unable to do the maximum amount, increase the percentage you put in for 2016 and increase it every year until you do reach the maximum amount. Most of your disposable income should go to debt reduction until resolved because the interest is most likely higher than the interest you make on savings.
3. Live within your means
This does not sound like much fun, does it? But if you are making $60,000 a year, it would not make sense to buy a $50,000 truck. Likewise, it is not logical to spend $1,000 a month on restaurants and happy hour. Putting it on a credit card does not make the expense go away. Being realistic about what you can afford at this point in your life and acting accordingly will help protect your financial future.
4. Monitor your expenses
It is important that you keep up with all of your expenses, whether they are paid by cash, credit card, debit card or the occasional check. If you will get in the habit of doing it on a daily basis, it will be infinitely easier. “Mine” is a great free mobile app that will provide a multiple account overview as well as detail on credit and debit card expenses.
“Quicken 2017” is my favorite software because it allows you to keep up with expenses and develop a flexible budget for now and planning for the future. There is also a mobile app.
5. Create a workable and realistic budget
Take the time to look at all of your fixed expenses (ex. mortgage) and flexible expenses (ex. entertainment) as well as your income. Do not forget to include things like utilities, cellphone, Starbucks, gasoline and insurance. Every single expense must be estimated and included to truly understand your finances and to determine what your disposable or leftover income is. If there is none left over or there is a deficit, you will need to rethink it and lower some of the flexible expenses to bring your budget in line. Once you come up with a workable budget, incorporate it into your daily life. Remember what you allotted to a flexible expense and if you go over, you will need to take the overage from another flexible expense for that month. After a few months you may decide that your budget needs a little tweaking and that is normal. It is important that it works for you or you will not follow it.
If you will make the above resolutions and stick with them, you will take control of your financial future.
Nancy Gardner is a Certified Financial Planner. She and her husband Bill split their time between Summit County and Montgomery, Texas. Send your questions to Nancy at email@example.com.
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