It’s February: Time to Reboot Your Finances
It’s time to get back on track with your 2019 money goals
The New Year came and went in the blink of an eye, as did a lot of resolutions. Whether your new workout routine tapered from four days a week to one, or your intent to save for that dream vacation has completely stalled, it’s not too late to hit the reset button on achieving your goals.
With U.S. News reporting 80 percent of New Year's resolutions fail by February, here are three tips for keeping your spending and savings goals on track:
Recreate a budget that’s right for you: A budget is the most critical tool in your financial arsenal, but it’s dynamic and subject to changes in your professional and personal life. Look back at the previous year and take inventory of where your money is going. You may be surprised to see how much you’re spending on things that don’t really matter to you — and how easy it is to ditch them.
Most banks and credit cards make this process easy by categorizing your spending for you, allowing you to simply review and make necessary changes. Begin by tracking your spending over the next 30 to 60 days and comparing that with your spending in 2018. A good rule of thumb is to allocate 60 percent of your budget to essentials, 20 percent for fully discretionary spending (i.e. dining out, entertainment, shopping, etc.) and 20 percent for saving or investments. Making and sticking to a budget isn’t always easy, but it will help keep all your other financial resolutions intact. Keep in mind, a budget shouldn’t be restrictive – factor in what makes you happy so that you can enjoy today while still planning for tomorrow.
Rethink your savings strategy: Thinking about your financial goals for the year – be it buying a new car, growing your nest egg or cutting down debt – will help you prioritize and activate your savings plan. Your savings is heavily dependent on how you manage your spending, but there are ways to make saving easier month-to-month. For example, try using a debit card for everyday expenses to cut back on excessive credit card spending. You know yourself best, so make sure you’re setting realistic goals and expectations that you can stick to.
And remember, putting away money for an emergency fund or a long-term goal like early retirement, albeit easy to overlook, is critical for your overall financial wellness. The concept of “forced savings” is powerful and doesn’t require much action on your part. This can include having a portion of your paycheck deposited into a savings account at a different bank (making the funds harder to access), taking advantage of your 401(k) employer match and increasing contributions to IRAs and 529 plans each year.
Resolve how to tackle debt: Taking control of your debt can seem like a daunting task, but you don’t always have to make drastic changes like cutting all discretionary spending to pay it down. As you revisit your plan to tackle debt this year, it’s important to recognize that debt reduction is both mathematical and psychological. For example, you’ll often come across the advice to first pay off debts with the highest interest rate versus the lowest balance – that way you’re cutting down as much interest as possible and don’t end up owing more.
Some individuals, however, prioritize getting rid of an entire debt at once – usually the lowest balance – leaving them with a mental victory feeling like more progress has been made. Other tactics include consolidating high interest debt into something with a lower rate and automatically applying a portion of your monthly budget (fully discretionary category) as well as a percentage of any lump sum payments (bonus, tax refund, etc.) to extra debt payments. At the end of the day, steadily paying off debt is better than doing nothing, and only you can determine which course best suits your overall budget and goals.
With more than a month of 2019 already behind us, now is the time to re-examine your yearly goals and take stock of your financial fitness. If you need guidance on where to begin, consult a financial advisor for help – having an unbiased third-party to offer advice and expertise can be invaluable in aligning and prioritizing your financial goals. Make sure you identify what’s most important to you – both long- and short-term – so you can put more toward the things you really enjoy in life.
About Laurence Schiffman, Wealth Management Advisor: Laurence Schiffman, CFP®, CLU® is with Schiffman & Associates Wealth Management. He and his team help clients achieve financial security in a tax-efficient and cost–effective manner. He is a CERTIFIED FINANCIAL PLANNERTM and holds a Chartered Life Underwriter ® designation. His phone number is 720-963-6894 and his email is firstname.lastname@example.org
Disclosure: Laurence Schiffman uses Schiffman & Associates Wealth Management as a marketing name for doing business as a representative of Northwestern Mutual. Schiffman & Associates Wealth Management is not a registered investment advisor, broker-dealer, insurance agency or federal savings bank. Northwestern Mutual is the marketing name for the Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) and its subsidiaries. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.