The beginning of the new year is a great time to reflect on your current financial situation and set your financial goals for the year ahead. To help you improve your financial wellness and take hold of your finances in 2019, I’ve created a list of my top eight financial wellness tips to help you reach your financial goals this year:
- Review your Spending Plan: Now is the time to review your personal budget to confirm that you are living within your means and saving enough money to achieve your long-term goals. To help cut costs, review your bills and verify that you are being fairly charged for services and these services are valuable to you. Discontinue or renegotiate any services that are not necessary or do not meet your criteria of being fair and valuable. To help cut down other costs, you can also eat more meals at home, bring your lunch to work and cut down on your use of taxis, Lyft and Uber services by walking or using public transportation if it is available in your city.
- Create an Estate Plan: In order to get your estate in order, you will need to establish estate documents such as a Last Will and Testament, a Medical Power of Attorney (POA), and a Durable POA for Health Care. It is recommended that you organize all of these documents at once to help family members if something should unexpectedly happen to you. What’s more, if you do it at once it will likely save you money.
- Increase Your Retirement Savings Contributions: If you haven’t already, consider boosting your contributions to your company 401(k) to 15-20 percent of your paycheck. The goal is to save about 20 percent of your income for your retirement years because they will arrive here faster than you expect! If you are unable to invest 15-20 percent of your paycheck, consider boosting your contributions by 1 percent and continue to increase your contributions in smaller increments until you are investing 15-20 percent of your paycheck.
- Complete a Life Insurance and Disability Insurance Review: It is important to set yourself up so that you will have the coverage in place that you need. Insurance is the least expensive when you are younger, so it is the better to purchase life and disability insurance (separate from an employer plan) when you are young. That isn’t to say you can’t purchase it later in life, it just may cost more. Once you’ve purchased the insurance, I recommend using a laddered approach with 80 percent of the life insurance a combination of term policies with fixed and variable premium rates that phase out over time but expire at your desired retirement age. The remaining 20 percent should be either universal or term insurance that goes much later in life. Once you’ve created these plans, it is best to review these policies at least every five years.
- Create an Emergency Fund: If you do not have an emergency fund, now is the time to start building it. The emergency fund should be invested in only cash or short duration bond funds that receive a small amount of interest. The goal of an emergency fund is to have available funds for when you are dealing with unemployment or you have an unforeseen cost arise. Typically, I suggest emergency funds should total at least 6-12 months of after-tax spending in case of unemployment or disability. It can take three years to save this amount of money but starting now will help you in the long run.
- Create a Folder with Receipts: By saving your receipts in a folder in your home, it will help you track your spending habits and help with itemizing tax deductions when it comes time to file your taxes. If you prefer digital over paper, I also recommend using a financial aggregation service provided by your financial advisor that keeps all your financial information from various accounts in one database and keeps your data private.
- Freeze Your Credit: If you need help minimizing your credit card use, consider contacting a credit bureau to freeze your credit. You can even freeze your credit via smart phone apps. You can always deactivate the freeze when you truly need to apply credit for a big purchase. Not only will this help with your credit card spending, it will help protect you from identity theft. If you prefer not to freeze your credit but want to reduce credit card spending, put your credit cards in your actual freezer – wrap the cards in a plastic bag and then submerge that plastic bag in another plastic bag filled with water. If you do not carry your credit cards around with you, you are less likely to use them. If you want to buy something big, you will have to wait for the cards to thaw to read the numbers - which will give you time to evaluate if you really need the purchase and reduce the impulse purchase if it is something you may not need.
- Work with a Financial Advisor: Whether you have a new savings goal you want to achieve this year or simply need advice on your current financial situation, consider working with a CERTIFIED FINANCIAL PLANNER™ professional to help improve your financial wellness. A CFP® professional is there to help you better understand your finances. They can help you craft a financial plan to make sure you are on course to achieve your financial goals in 2019 and answer any questions you might have about life insurance, estate planning or creating an emergency fund!
By implementing the above eight financial wellness tips into your life in 2019, you can take control of your finances and achieve both your short- and long-term goals.