With Christmas behind us, now is a good time to think about New Year’s resolutions. Here are six financial resolutions that can help you enjoy a prosperous 2018.
1. Improve your financial literacy. Start the New Year right by getting smart about personal finance. If you haven’t read it already, I highly recommend Dave Ramsey’s bestseller Total Money Makeover. Although I have reservations about some of Ramsey’s investment assumptions, I think his ideas on personal financial management are outstanding.
I also highly recommend A Random Walk Down Wall Street by Burton Malkiel. Malkiel’s classic is a great introduction to investing generally and to the peculiar differences between various types of investments. He will also give you some insight into how to build a portfolio that is appropriate for your individual situation.
2. Pay off your credit card debt. According to a recent study conducted by the personal finance website NerdWallet, the average household carries $15,654 in credit card debt—an 8 percent increase over last year. Households with credit card debt pay an average of $904 each year in interest.
If you carry a credit card balance, there are a number of strategies you can follow that will help you pay down your balance quickly and efficiently. The Debt Snowball is one such strategy. You can learn more about this strategy at FinancialMentor.com. Look for the Debt Snowball link under their Credit Card & Debt Payoff Calculators.
3. Cut the fluff. Most of us spend money on things that don’t mean very much to us. These purchases are usually small and seem inconsequential in the moment. However, if unchecked, these small expenditures can add up and crowd out things that matter a great deal. For example, a survey by Acorns, a popular app among young investors, found that Millennials spend more on coffee each year than they do on retirement savings. If your coffee habit is getting in the way of your retirement savings, you probably have room to cut some fluff from your spending habits.
4. Build a rainy day fund. As the old saying goes, “Life is what happens while you are making other plans.” An emergency reserve gives you the financial means to be able to deal with the changes and challenges that are an inevitable part of life.
An emergency reserve should be equal to at least 3 months of core spending, but a 6-month reserve is even better. Core spending includes living expenses that cannot be avoided—things like rent or mortgage payments, food, utilities, transportation and health insurance.
5. Maximize your retirement savings. If you work for a company that offers a 401k plan with a company match, make sure you contribute at least enough to get the full match. If your company does not offer a 401k plan, maximize the amount you contribute to your IRA. In 2018, the IRA contribution limit is $5,500 with an additional catch up contribution of $1,000 for those 50 years of age or older.
6. Focus on your physical fitness. Putting the effort into improving your physical fitness is one of the best investments you can make. Numerous studies have shown that regular exercise helps prevent heart disease, obesity, high blood pressure, diabetes and a host of other physical ailments. Serious health problems create huge financial burdens. A little prevention today can be a huge financial blessing in the future.
Steven C. Merrell MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey. He welcomes questions that you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA 93940 or email them to email@example.com.