The materials in this article are provided for informational purposes only and do not constitute financial advice
Did you ring in the New Year with a renewed focus on finances? If so, you’re not alone. According to a recent Fidelity survey, 37% of Americans are committing to money goals in 2016, up from 31% in 2015. Saving more, spending less and paying off debt top this year’s list of financial resolutions.
If you’re serious about accomplishing your resolutions, it’s important to have a concrete action plan. By assessing your finances, setting goals, and identifying clear steps to help you get there, you’ll maximize your chances of making those financial resolutions a reality. Here are some steps to help you get there:
Know where you stand.
The first and most important step toward financial advancement is to get the full picture. That means reviewing your income and expenses as well as taking inventory of your assets and debts. Find out if you’re spending more than you’re bringing in.
Understand where you’ve been.
Next, understand where your money’s been going. An awareness of spending patterns will help you make smarter financial decisions throughout the year. Specifically, look at how you’ve been spending to understand if it matches your priorities. You might be surprised to learn how much you’ve expended on things that don’t bring much satisfaction, like unnecessary fees or subscriptions that you’re not even using.
If you stumbled with your finances last year, that’s ok. The important thing is to pinpoint what took you off-course and resolve to get back on track.
Know where you’re going.
Once you reassess your finances, set some realistic and measurable goals for the year ahead, with an emphasis on “realistic”. For instance, getting out of debt is a broad undertaking, but planning to reduce it by 20 percent over the next 12 months while not taking on any additional debt is a quantifiable goal that might also be achievable.
Create an action plan.
Once you’ve established your goals, break them down into smaller, actionable steps. The road to financial freedom begins with small changes that add up over time, and often the hardest part is taking the first step. Before you know it, those small steps will turn into habits that bring you major satisfaction as you start to see results.
Here are a few ideas for steps you can take to help you achieve your top financial goals in 2016:
1. Cut spending.
Did you get extra money over the holidays? Ask yourself if you really need to buy that Star Wars remote controlled droid, an accident-prone hoverboard, or spy drone with Wi-Fi capabilities. Try cutting variable expenses, such as coffee, alcohol, gym memberships and cable. Shaving down your $3 caffeinated beverage from five to two cups per week can save you up to $468 per year.
2. Start saving regularly.
Roughly 56% of Americans do not have a rainy day fund, according to the Financial Industry Regulatory Authority’s National Financial Capability Study. People that don’t have an emergency supply are tempting fate and setting themselves up for financial disaster. Experts recommend setting aside enough money in an interest-bearing savings account to cover six months’ worth of expenses in case of job loss, medical emergency, or other significant life changes. By creating an automatic savings plan, where you “set it and forget it”, you’re not only simplifying your life but laying the foundation for future wealth.
3. Reduce debt.
Reducing debt is almost always a good financial move particularly high-interest loans and credit card debt. Instead of giving yourself a general goal of paying off debt, resolve to pay off a certain amount each month or set a goal to repay a specified sum by the end of the year. Use the money you’ve set aside for reduced spending and regular savings to pay down student loans and credit card debt.
Start developing your action plan today so that you can begin to reap the rewards in 2016 and beyond.