Some Americans are making their financial health a priority in the new year with resolutions to increase savings, reduce debt, and cut unnecessary spending. According to a survey conducted by Fidelity Investments, the top motivation for considering finance related resolutions is to work toward living a debt free life, to get control of everyday expenses, and to save for a comfortable retirement. Of those who have financial resolutions, over half resolved to increase savings. Surprisingly, those surveyed said that committing to a budget is more important than committing to an exercise plan. The overall goal of many of the respondents was to be in a better financial position and continue to improve their financial situation throughout the year.
According to a report completed by the University of Scranton’s Journal of Clinical Psychology, nearly half of all Americans make resolutions for the new year but less than 10% actually achieve the goals. Despite the success rate, New Year’s resolutions offer a fresh start to accomplish financial goals. Here are a few financial changes or improvements worth considering for 2020.
Calculate Your Net Worth
A fresh new year could be a good time to determine what your financial worth is. Calculating your net worth can be a vital step in assessing financial well-being and determining financial goals. Taking a close look at liabilities and assets helps to present a clear picture of what your money habits have been. This is an excellent opportunity to examine where changes need to be made. It can be a good idea to recalculate your net worth so you can get ahead of any mistakes you made in the year prior. Finance-focused websites like Investopedia offer tools that can be used to calculate assets, liabilities, and net worth. The resolutions that need to be made may become clearer after making the calculation.
Evaluate and Reset Your Retirement Savings
If you can contribute towards retirement through 403(b), 401(k), or 457 plans sponsored by an employer, you can work toward maxing out retirement contributions. If you determine that you need to ramp up the retirement savings, consider instructing your employer to increase your contribution. If you will be 50 years of age or older by December 31, you may be able to save even more to catch up. To determine how much you can reasonably save each period, incorporate the amount of your retirement savings into your regular monthly budget. Even if you are covered under an employer sponsored plan, you can contribute to a Roth IRA or Traditional IRA.
Pay Down Debt
It only takes a few minutes to set a new savings goal for the New Year. This should include how much you plan to add to your children’s education fund, amounts to add to a retirement nest egg, or efforts to pay down the balance on home loans. You should also consider resetting how much you will pay on any other debts and personal loans. If you have high balances on your credit cards, decide how much you would like to pay off during the upcoming year. For the best results, switch to paying cash and avoid using the cards while you are actively paying down the balances. If you have any high-interest credit card balances, pay those off first.
Consider Rebalancing Your Portfolio
The last year was not much different from previous years; some business sectors over-performed and some under-performed. There is a good chance that the sectors with the highest gains may not enjoy a second year of outstanding performance. When you rebalance your portfolio, you update your asset allocation and take the necessary steps to lock in gains from sectors that have presented the best returns. Make it a plan to purchase shares in the sectors that may have lagged last year but show promise this year.
Review Disability and Life Insurance Needs
As you move through life, your disability and life insurance needs evolve. Consider how much coverage you need and compare it to what you currently have. Contemplate whether you need to increase or decrease life insurance and whether your financial needs would be better met through a whole life or term policy. Also, review any disability insurance policies to determine if you have the coverage you believe you will need.
Having financial resolutions for the new year is superb but be cautious about setting unrealistic goals. Take this time as an opportunity to restate your financial goals simply and clearly for the upcoming new year. It may be wise to create a checklist to help you to keep track of your progress. This will also allow you to see where modifications need to be made as the year progresses. Meet with a financial advisor to plan for success and help you reach your goals.
Sources:
https://www.fa-mag.com/news/financial-resolutions-are-a-top-priority-for-americans-in-2020-53128.html
https://www.investopedia.com/articles/pf/06/newyear.asp
https://www.schwab.com/resource-center/insights/content/new-years-financial-resolutions-get-your-finances-in-shape
