The New Year is the perfect time to analyze and re-assess your financial status and establish your financial goals for the year ahead. You’re likely familiar with New Year’s resolutions. However, did you know that creating habits is more effective than setting goals? With that in mind, here are some questions you can ask yourself to start building better habits and securing your financial future.
Financial habit for the New Year #1: take time to check your budget.
To get started, you’ll need to build your initial budget. Establishing a good understanding of your income and expenses is the first step. Don’t stop there. Various tools make budgeting easier—but budgeting only works well when you’re diligent about reviewing your budget consistently. How often do you take a detailed look at your income and expenses? Are you creating a spending plan and following it?
If the answer to these questions is “too little” or even “not at all,” it may be time to set or revisit your budget. The difference between living paycheck to paycheck and having financial security can come down to income. Still, there’s almost always an opportunity to make incremental improvements with budgeting.
Next steps: if you’re new to budgeting, pull your recent 3-6 months of bank statements and categorize your income and expenses. You can use digital budgeting tools, an excel sheet, or a good old-fashioned pen and paper. Whatever works best for you is the right approach.
Once you have an understanding of your spending habits, attempt to make a plan for how to spend moving forward. If you already have a budget, use this time to check in and see how well your plan is working for you. Look for opportunities to adjust your budget according to new or changing life goals.
Financial habit for the New Year #2: Track your income.
Understanding your income is critical to evaluating your budget and a foundational element for your financial planning. During this process, you may consider various types of income, including:
- Wages and salaries
- Tips, commission, and bonuses
- Business income
- Rent, capital gains, and sale of property
- Dividends and interest
- Pension
- Social Security, disability, unemployment, and other government assistance
- Alimony and child support
- Gifts, trusts, and an inheritance
Besides income, you might factor in fixed assets that you can convert into cash. Also, is your income consistent, or does it vary from week to week, month to month, or year to year? How and when you receive your income will impact what budgeting method is right for you.
Next steps: Set a schedule for checking in on your income amount and sources that fit your situation. Intentionally tracking your income will help you uncover changes and put you in a stronger position to adjust your budget or uncover income opportunities. If your income is insufficient to support your goals, consider finding ways to increase your income.
Financial habit for the New Year #3: identify your financial worries and prioritize.
If you have financial worries, you’re not alone, as 42% of Americans say that finances negatively affect their mental health. Addressing financial concerns can feel insurmountable. The key is to take a bite-sized approach to make progress without becoming overwhelmed. It’s common to try and ignore financial stressors and hope for the situation to solve itself or go away. However, it’s always in your best interest to take whatever actions you can. For example, here are some leading causes of financial stress:
- Paying basic expenses—rent, mortgage, and utilities
- Covering unexpected expenses—medical, home or auto repairs, etc.
- Managing or reducing debt—credit cards, student loans, and payday loans
- Achieving savings goals—retirement, mortgage down payment, emergency fund, and more
- Improving lifestyle—funding a vacation, purchasing a new vehicle, finding a higher paying job, and more
There are many sources of financial stress. Most people can only hope to tackle them all at once. To keep things manageable, focus on one stressor at a time. No matter what your concern is, beginning, revising, or revisiting your financial plan can be a crucial step to addressing financial concerns.
Next steps: Make a list of any financial stressors in your life. Take that list and determine whether you would like to prioritize them by how much stress they’re causing you or by how much time and effort they’ll take to achieve. Set your priority and get started. Need help gauging the impact of financial stress in your life? Try the financial stress assessment from Enrich for free.
Financial habit for the New Year #4: set short-term and long-term goals and check in to revise at least once a year.
Setting your goals starts with exploring where you’re now vs. where you want to be in the coming years. To get started, ask yourself some questions and take notes:
- What will you be doing?
- What is your target lifestyle?
- Where will you live?
- What job will you have?
- What are your income goals?
- What are your health goals?
- Do you want to buy a home?
- Do you want to start or grow a family?
- Do you expect to travel?
While no one can predict the future, documenting your life goals will help you focus your efforts in the years to come. As you consider these and other life questions, be specific and make them SMART goals—specific, measurable, achievable, realistic, and timely. Using the SMART goal framework will help you establish specific actions and keep you on track.
Reflecting on what your situation will be in five, 10, or even 20 years can give you the direction you need to stay financially secure for a lifetime.
Next steps: take stock of what you want to achieve in the short and long term by answering key financial and lifestyle questions and using the SMART goals framework to create an actionable plan.
Financial habit for the New Year #5: start planning for the unexpected.
As the Greek philosopher Heraclitus said, “The only constant in life is change.” Sometimes it’s for the better. Other times, it’s for the worse. Even still, at the moment, it might be tough to know if a change is bad or good. If you’ve been laid off, that’s not great in the short term. However, it may be the motivator that motivates you to pursue a passion or find a better job. Regardless of how things turn out when the unexpected hits, it’s critical to be prepared.
The simplest step to securing your finances is to evaluate your insurance. Most people are familiar with required insurance, whether for your home, auto, or medical. Yet, have you taken a look at your insurance to see if it meets your needs? Are there policies available that could help you overcome an unexpected expense? Here are the kinds of insurance available that you might consider:
- Auto insurance: liability coverage, uninsured/underinsured motorist (UM) coverage, personal injury protection (PIP), medical payment coverage, comprehensive and collision coverage, roadside assistance, and mechanical breakdown coverage.
- Home insurance: dwelling coverage, personal property damage, coverage for other structures on the property (sheds, fences, non-home buildings), liability coverage, and coverage for displaced living expenses.
- Renters insurance: personal property coverage, liability coverage, coverage for displaced living expenses (your home is uninhabitable during essential repairs).
- Umbrella insurance: if you’re ever liable for expenses beyond what other insurance covers, then umbrella insurance can cover the difference.
- Health insurance: medical bills, prescriptions, doctor’s visits, emergency or urgent care, extended hospital stays.
- Disability insurance: through work or purchased on your own.
- Life insurance: term life insurance or whole life insurance.
Hope for the best and plan for the worst. Most of us are good at the first part, and insurance can help with the rest. After evaluating your insurance coverage, consider starting or growing your emergency fund. Consistently saving for emergencies or unexpected costs will help protect your long-term finances.
Next step: review your current insurance policies. Is the coverage sufficient for your needs? Are you missing critical coverage? If you don’t have 3-6 months of income as emergency savings, bolstering your insurance coverage could help protect you from some of life’s unexpected expenses.
Financial habit for the New Year #6: Use credit cards to your advantage.
Once you have a solid history of managing your spending and staying on budget, start using a credit card for all or most of your spending. There’s no denying that for savvy credit card users, the benefits and rewards programs available through credit cards make them well worth using over debit cards and cash. With credit cards, you’ll find various benefits:
- Cash back spending
- Rewards points
- Airline miles
- Enhanced security
- Advanced tools for tracking spending
The key to maximizing your benefit is to use your card for everyday spending and pay off your balance every month before it accrues interest. If you’re already sticking to your budget, it should be relatively simple to use your credit card instead of your debit card. If you also plan to use a credit card to make larger purchases to pay off over time, consider getting a different card for your large purchase than the one you use for everyday spending.
Giving each card in your wallet a clear purpose is essential to maximize the value of using the cards. Your goal with your everyday spending credit card is to maximize your benefits. In contrast, your goal with a credit card that will carry a balance month-over-month is to pay the least interest. By separating these two uses, you’ll be in a better position to find a credit card that fits each goal.
Are you maximizing your opportunity for cash back and rewards? What kinds of rewards are you missing out on by making everyday purchases from your checking account? These are the kinds of questions that will help you determine if you have the right credit card for your needs.
Next step: evaluate the credit cards in your wallet. A credit card is more than extra funds when you need them. Take the time to establish how you want to use the cards at your disposal to maximize your benefits. If you’re carrying a balance on your current card, consider a balance transfer offer to provide immediate impact.
Financial habit for the New Year #7: get help staying accountable to yourself and your goals.
Managing finances is hard enough as it is, there’s no reason to do it alone. Finding a money buddy or financial accountability partner is a great way to stay on track and keep things moving forward. Just as a workout buddy can help you stay on track with trips to the gym, financial buddy’s work together to understand each other’s goals and offer support when needed.
If you’re uncomfortable discussing your financial situation with a friend or family member, consider contacting a financial counselor for free. A financial counselor can help you evaluate your financial position and work with you to put together an actionable plan to achieve your goals. A financial counselor is an excellent option for people who don’t know where to start or are otherwise in a challenging and stressful financial position. These days it’s not necessary to go it alone. Real help is just a phone call away.
Next step: If you want to see if a financial counselor is a better fit for you, OnPoint partners with GreenPath Financial Wellness to provide individualized counseling and guidance to help you reach your financial goals. Whether that’s building a realistic budget or paying down debt, financial counselors can help you create new financial habits. Take the first step towards reaching your new year financial goals by calling 866.294.2936.
