If you’re like most of us, you probably have at least one New Year’s resolution to change your life for the better. Yet, more often than not, you may end up falling off the resolution bandwagon by the end of January.
Indeed, any type of change can be hard. However, with a little bit of foresight and planning, you can make positive changes to your finances. Read on to learn how you can create – and stick to – a financial wellness action plan for 2018.
First Things First
In order to create a comprehensive financial wellness action plan, you may want to break things down into smaller chunks. For example, try consolidating into these four categories:
- Retirement Accounts
These four buckets are key to creating long-term financial wealth. By analyzing each one separately, this will help you create a more comprehensive overall financial wellness action plan. So, let’s break down each one of these categories.
Taking a look at your finances can be overwhelming, especially if you don’t have a budget in place. So, if you don’t have a budget, now’s a good time to create one.
When you do have a budget, sit down and go through your line items with a fine tooth comb. While you’re at it, ask yourself the following questions:
- Where did you spend the bulk of your income this year?
- Where did you go over budget?
- Why did you go over budget in that category? For example, did you consistently overspend or did unexpected things pop up?
After taking a good hard look at your budget, it’s time to make appropriate adjustments as you move into the new year. For instance, where can you possibly cut your spending? Where are you unwilling to make changes to your budget? For example, perhaps you won’t cut out a monthly dinner date because this is important to you and your S.O. For all intents and purposes, these must-have expenditures become your “currency.” To this end, make sure that you factor your “currency” into your budget. Why? Because if you deprive yourself, this may affect your overall mental health and deter you from sticking to your plan.
On the flipside, it’s still important to find areas where you can cut your costs. As a starting point, try to cut your spending by 10%. This amount is usually attainable and won’t severely affect your lifestyle. If you’re able to cut your budget by more than 10%, this is even better for your long-term financial wealth.
Regardless of how much you decide to chop out of your budget, try not to bite off more than you can chew. The goal here is to stick with your plan and smaller changes are easier to handle than major shifts.
After you’ve created a workable budget for the New Year, it’s time to dig into your savings.
For starters, make sure you have an emergency fund and are working toward saving 3-6 months worth of living expenses.
Besides an emergency fund – set up to pay for unexpected expenses – you should also try automating to boost your regular savings. A Chime account, for example, helps you save more money by automatically rounding up purchases made on your Chime debit card. These round up amounts are deposited right into your Savings account. Before you know it, you’ll have boosted your savings without even thinking about it.
This category is no fun for any of us. Maybe that’s because approximately 35% of the American population is living with delinquent debt in collections, according to Experian. And, according to a recent report released by the Federal Reserve in November 2017, consumer credit increased at an annual rate of 6.75%. This means that we are just getting further and further into debt.
If you happen to be one of the millions of Americans in debt, then you certainly should make a plan to pay down your debt.
Start by getting hold of a free credit report to see much you owe and to which creditors. From there, I suggest using a basic spreadsheet to track your debts and figure out your plan of attack. There are many ways to approach paying off your debt, including the debt snowball and debt avalanche methods.
Here is where the fun begins! To figure out how much you’ll need in retirement, try this calculator. Although this is a great jumping off point, don’t get discouraged if you have a long way to go to reach your future goals. You’ve got to start somewhere.
In fact, a good place to jump-start your retirement fund is at your job. If your employer offers a 401(k) plan, it’s recommended that you contribute as much as possible. The max contribution for 2017 is $18,000 and that rises to $18,500 in 2018. Better yet, your employer may offer a match and this means free money for you!
Let’s say you’re offered a 100% match up to 3% of your contributions to the company plan. This means that you get an extra 3% added to your retirement account. This free money, along with the magic of compounding interest, will help you reach your retirement goals faster. This is what we call more bang for your buck!
Implement Your Financial Wellness Action Plan
Now that you have taken apart every aspect of your finances, it’s time to implement the changes. I prefer a weekly check-in, although you can determine how often you need to examine your financial plan. The most important thing is to find a system that works best for you.
Here’s to a healthier and wealthier financial New Year!