New year, new you, new home. The calendar change always invites all sorts of resolutions, some of them attainable, many of them impractical and stress-inducing. But changes needn’t be big or difficult to be life-altering. Here are some financial–related New Year’s resolutions you can make for 2016 that will pay big dividends with minimal effort.
- Create a Budget.
You may ask why you didn’t create a budget first.
Well, you could have, but you would not have factored in your retirement plan or your refinance savings. This way, you will have more accurate numbers to work with.
Steps to Get There:
- Find budgeting software that works for you. If you work in Excel, Microsoft has many free budgeting templates for download. Otherwise, there are online programs such as Mint and programs like Quicken that access your banking and credit card information and categorize your spending for you. You may have to try a few methods over the coming weeks and see what works for you. No matter which method you choose, make sure it’s something you’ll use that won’t be overwhelming.
- Look over the last 60 to 90 days’ of bank statements. Looking over your spending history will remind you of all your expenses. Determine your fixed monthly expenses first. That’s the easy part. Then figure out what discretionary money you are spending. This is more difficult. Budgeting software can help you categorize everything.
- Compare all your expenses to your income. Are you expenses greater than your take-home pay? If so, you’ll need to cut your spending. Quite simply, spending more than you make is unsustainable long-term.
See which items are luxuries or flat out unnecessary items. If you find that you spend money wastefully at times, that means there’s room in your budget for greater purposes. Decide to cut one major item out of your spending. Remember, take baby steps. Choose one thing you can live without and cut it from your daily routine.
Replenish your Emergency Fund
Steps to Get There:
- Start by opening a savings account just for the emergency fund.
- Remember you need 4 to 6 months of house payments that need to be in your emergency fund account. Consider starting with $10 but being committed to meeting your goal by the end of the year.
Get new homeowners’ insurance quotes
Steps to Get There:
- Call your insurance agent to review your current policy. You probably don’t think about this too often because your insurance automatically renews every year. But as it happens, you may now be eligible for some discounts that weren’t available when you first applied — and your existing insurance company isn’t obligated to check in every year and see if you now qualify. Call your agent and see if you can knock down your yearly installment; if they won’t budge, then start shopping around for a better rate.
Looking back can be forward-thinking for 2016, at least when it comes to your homeowners insurance. That’s because major repairs or improvements that you made to your home last year can get you a discount or a lower quote on this year’s coverage.
Maybe you have replaced your roof, updated electrical can reduce the risk of fire, and if you’ve updated plumbing, you’re less likely to have problems with leaks or pipes bursting. Doing all of that can save you money on your insurance.
Refinancing your mortgage
To decrease your payment or lock in a low fixed rate also might be a smart move in 2016. Refinancing an adjustable-rate loan can make sense even if you end up with a higher payment. That’s because a fixed rate will protect you from interest rate risk.
Steps to Get There:
- Give the Doug Haldeman Mortgage Team a call to review your current mortgage 314.472.3684
You’ve heard the numbers. If you start saving $500 dollars per month at age 18, you’ll be a gazillionaire by the time you’re 50. Well, you’re not 18, and you don’t have $500 dollars a month. So just start wherever you are.
Steps to Get There:
- Find $25 per month I can cut out of my budget. Coffee, expensive cable plans, and eating out are prime targets for austerity.
- Find a retirement plan provider. It doesn’t matter whether your employer offers one or not, although if they do, it’s as simple as calling your HR director. If your employer does not offer one, you can open a retirement account on your own. An employer-sponsored plan is called a 401(k), but an IRA, which stands for individual retirement account, is a plan you set up independent from your employer. Many great companies offer IRAs. Representatives at any good investment company will walk you through the setup process. Don’t worry about which specific investments to put your money in. To start, just pick a fund that’s already set up to get more conservative as you age. Investment companies usually call these plans something like “Retirement 2035” or “Retirement 2040.” (And always talk to a professional before investing.)
- Transfer $25 or the minimum required amount into my IRA. After the initial transfer, you’ll contribute $25 each month. Yep, only $25 to start. You can do that. The amount is not important. What’s important is building the habit.
- Set up contributions to be automatic. You’re more likely to forget or neglect to contribute if you have to do it manually each month. Most IRAs allow you to set up an auto-withdrawal plan. As 2016 rolls on, you can start contributing more. Work your way up to $100, $200, $300 per month or more. But right now, just worry about getting started!
Fact: Someone age 35 with zero in retirement who starts saving $400 per month into a moderately aggressive retirement account will have $754,100 at age 70.
Start paying off debt.
Just a warning: this is the least fun goal with the slowest visible results. But don’t let it stop you.
With this plan, you pay off the smallest debt first, no matter what its interest rate. The reasoning is that you see results right away, and it motivates you to keep moving on to bigger debts.
Steps to Get There:
- Identify a small debt you’d like to pay off. A $500 credit card or a car loan with a small balance will work best.
- Get an envelope to put the money you are saving from the expenses you have eliminated.
- Get cash in lieu of spending the money on the unnecessary item. Put that cash in the envelope.
- Make a plan to deposit that cash each month so you can make payments on the debt account.
Fact: According to the Federal Reserve, the average U.S. adult carries $2,720 in credit card debt. That debt has an average interest rate of 14.95%, says Creditcards.com. That’s $406 the average person wastes each year in interest. If that money were invested at an 8% return, that $406 per year would turn into $49,181 after 30 years.
The key to financial goals is to realize that it’s a long, slow process. If you can accept that up front, you’ll do well. Perhaps in 2016 you shouldn’t resolve to complete anything, but to start.
