Next to health and wellness, Financial resolutions are usually the next most common goal for the New Year. In fact, a recent survey by GOBanking Rates noted that over 57 percent of Americans plan to set a finance related resolution for 2016. While finances are not any more important than your health, deciding to focus on your finances in the New Year may help you to feel more empowered, reduce stress and improve your overall quality of life. Consider following the money moves noted below to get off to a great start in 2016.
Set transformative goals
Too often, financial resolutions are established that are too general in nature. For instance, the two most popular financial resolutions in the GoBanking Rates survey were “paying down debt” and “saving more, spending less”. While those are both good places to start, it is important to be more specific when creating your financial goals for the New Year. Consider focusing on transformative goals that are specific, measurable, achievable and congruent with your life. Rather than simply planning to “save more, spend less”, consider a goal of that is more specific such as reducing discretionary expenses such as entertainment and eating out by $500 month while increasing your 401(k) savings rate by 5 percent. Focus on where you want your financial life to be and then establish detailed goals that will get you there.
Eliminate financial waste
For many Americans, a close examination of their budget would reveal a surprising amount of unnecessary expenses. This is particularly true due to an increase in the auto-renewal of various monthly and annual subscription services that may be buried in your credit card statement. Consider reviewing your budget and cancelling any services/subscriptions that you are under-utilizing. Next, consider reviewing your cable, internet and cellular bills to renegotiate/switch service providers to reduce fees. Many providers offer short “teaser rates” that suddenly jump up after the introductory period is over which often go unnoticed.
Auto insurance and homeowner’s insurance is another great place to look to see if there are cheaper alternatives available. However, be careful to make an apple to apples comparison as another carrier may be cheaper simply because they are providing inferior coverage.
Finally, be extra careful with big ticket purchases. From home and auto purchases to home renovations, being a savvy consumer can end up saving you serious money in the long-term. Eliminating unnecessary financial waste is a great way to set the foundation for improving savings rates.
Systematize your savings
Even if you have the funds available, boosting your savings rate is no easy task. Rather than taking a manual approach, consider placing your savings goals on auto-pilot. From automatic monthly transfers to a separate cash reserve account or 529 education plan for your child to monthly deposits in a traditional or Roth 401(k) plan, systematic savings plans can be a great way to ensure you actual save the money. You will be surprised how quickly funds accumulate when you don’t even notice they are being saved.
Refinance, consolidate & pay off high interest debt
The Federal Reserve just increased interest rates by .25 percent. While this is not an immediate game-changer, many analysts believe that we will see further rate hikes in 2016 – which may mean higher financing costs for borrowers in the future. The good news is that there may still be time to make adjustments to your debt structure. Consider re-calibrating your debt to take advantage of low interest rates where available. Locking up long-term debt at today’s rates may be worth considering before rates jump. For example, according to the Primary Mortgage Market Survey from Freddie Mac, 30 year and 15 year mortgage rates are 3.96 and 3.22 percent, respectively. Rates are still low and refinancing may also be worth another look. When structuring a plan to eliminate debt it is often best to target the highest rate debt first. Remember, paying off a liability that is charging you 14.99 percent is the equivalent of earning that return on your money.
Cover your financial risks
Protecting you, your family and your assets from unforeseen financial risks is critical and the New Year can be a great time for a comprehensive review. Do you have sufficient life insurance for your family? Is your home covered in the event of a major catastrophe like a flood or hurricane? Is there coverage in place for long term care needs that could arise in retirement? Assessing your exposure and acquiring proper coverage may help minimize the financial impact of unexpected events on your future plans and the needs of your family.
Address your estate
Developing an estate plan can be one of the most effective ways of reducing estate taxes, while providing for your family and leaving a legacy for the future. Consider working with your attorney to develop you will, power of attorney, living will while also making provisions for guardianship and or special needs circumstances. Prevent Procrastination from getting in the way of you taking action in this important area. legacy for the future.
2016 presents new opportunities for those pursuing their financial goals. Consider beginning the New Year with a plan to address these areas. Since everyone’s situation is unique, consider speaking to your tax, legal and financial adviser to determine the strategies best suited for you.
Kurt J. Rossi, MBA, CFP®, CRPC®, AIF® is a CERTIFIED FINANCIAL PLANNERtm Practitioner & Wealth Advisor. He can be reached for questions at 732-280-7550, kurt.rossi@Independentwm.com, www.bringyourfinancestolife.com & www.Independentwm.com. LPL Financial Member FINRA/SIPC.