Financial Resolutions for the New Year
It’s a new year, and many people take this opportunity to establish new goals. While New Year’s resolutions often don’t stick, financial planning is too important to put aside “until later.” If your goal is to really improve your financial situation in 2020, start early and stay focused. Proper wealth management requires you to gain control of your finances so that you can build your wealth and prepare for life events.
To help you stick to your New Year’s resolution of getting your finances on track, schedule an appointment now to talk with a financial advisor. At Oliver Wealth Management, an initial conversation is free and there are no strings attached. But getting something on the calendar will encourage you take that first step.
Adopt a Budget
Budgeting may be a dirty word in your household, but when done right, there is no better tool for taking control of your finances. With a proper budget, you can get a handle on your income, expenses and savings by estimating and tracking your cashflow.
There are many free budget templates and apps available that let you prepare a budget without reinventing the wheel, but talking with a financial advisor can help you create a budget that actually works for you – your goals, your income, your concerns. (Read our recent blog post: Hire an Advisor or DIY?)
A lot of people are surprised at how much they fritter away with off-the-cuff purchases. Budgets are a way to express your values by guiding your money to the things you consider important in your life. Tracking provides essential feedback to let you know whether you are meeting your goals, and if not, what your can do about it.
Cut Your Debt
Too much debt can give you ulcers, gray hair and unnecessary stress. However it takes its toll, you can improve your finances by cutting your debt to a reasonable level and use the interest savings elsewhere.
For many, the worst debt arises from student loans. The federal government offers many ways to reduce your government student loan debt, including consolidation loans. Talk with a financial advisor about ways to increase the amount you repay each month and make sure the extra money is used to pay down principal.
Another way to cut debt is to restrict the use of credit cards. You can consolidate multiple credit card balances by transferring them to a credit card featuring a 0 percent APR on balance transfers. During the paydown phase, you can use your debit card or cash for purchases.
It’s important to try to set aside some extra cash each month for your short-term and long-term savings. If you aren’t able to do this, consult your budget (and your advisor) for ways to reduce spending. See if you can reduce the money you spend on things like your phone, cable, Internet, power and so forth. Shop for generic items in your grocery and drug stores, and don’t buy food items that you are likely to throw out later. Brew your own coffee instead of shelling out $5 a day for a flavored latte. Pack your own lunch.
If possible, a financial advisor may be able to help you refinance your mortgage to lower your monthly payments, or establish retirement funds that can help you with your taxes. There are hundreds of ways, big and small, to reduce your spending. All it takes is the discipline to do so. Proper wealth management can have some big benefits.
Millions of Americans have taken side gigs to bolster their income. To start with, the current tax rules allow certain businesses and self-employed individuals to deduct 20 percent of the business income.
The Internet has made it much easier to work at home. Perhaps you have writing, bookkeeping or graphic skills you can use in a freelance business. The gig economy has created whole new industries, typified by Airbnb and Uber. The proliferation of remote education programs can allow you to get the training or degree that will make you more valuable in the job marketplace. All of these factors provide you opportunities to increase your income.
Improve Your Credit
You can save money on your credit card and loans by improving your credit score. The higher your score, the more likely you will qualify for a lower APR. In addition, boosting your score may give you access to more rewarding credit cards. The FICO scoring system has scores from 300 to 850. Generally, scores above 700 are good. You can increase your score in several ways:
- Dispute errors on your credit reports: The three major credit bureaus (Experian, Equifax, and TransUnion) compile your credit-related activity and assign you scores. Sometimes, errors creep into the bureaus’ credit reports that hurt your score. You can fix this problem by ordering free copies of your credit reports from AnnualCreditReport.com and disputing any errors through written communications with the credit bureaus. If you are correct, the bureau will expunge the errors, which should increase your score.
- Pay bills on time: Responsible use of credit will help you boost your score. That means paying your credit card bills (actually, all your bills) on time, and paying the full amount due for the month. The credit bureaus will drop your score if you are delinquent or if your bill goes into collection. If your account has to be written off or if you declare bankruptcy, the damage to your score can linger for at least seven years.
- Reduce your credit usage: The credit bureaus calculate your Credit Utilization Ratio (CUR), which is the amount of credit you use divided by the amount of credit available. Try to shave this ratio to 20 percent or less. High CURs cause the bureaus to assume you are in financial distress.
- Keep your old accounts open: The longer the average age of your credit accounts, the better for your credit score.
- Limit new credit: When you apply for credit, your score will be slightly dinged. However, the impact is worse if you make multiple applications in a short period.
Save for Retirement
Saving for retirement is crucial. And proper wealth management can help you do this quicker.
A financial advisor can help you with tasks like:
- Creating an emergency fund and saving enough money to pay for three to six months’ expenses.
- Putting aside a significant part of your annual income into your retirement account(s).
- Establishing the right accounts for you. An IRA or 401(k) allow you to save money and reduce your current taxes. Your money grows tax-deferred until you withdraw it after you retire. You can avoid the 10 percent early withdrawal penalty by waiting until age 59-½ before distributing your account. There are also a few exceptions to the penalty.
Work With an Advisor
Perhaps the most important financial resolution you can make is to work closely with your financial advisor to plan your budget, investments and savings. A financial advisor can help develop plans that match your circumstances and your attitude toward risk. You can also work with your advisor to help reduce your income and estate taxes.
Don’t wait until next year to sit down with your financial advisor – the sooner you start, the more beneficial to your financial future.
Contact Oliver Wealth Management to see how we can help. Proper wealth management is the key.