Saturday, January 02, 2016

The Best Financial Advice for the New Year


Millions of consumers make New Year resolutions to lose weight, get a new job or improve their financial status. However, I believe improving your finances is one of the most important goals consumers need to achieve and it needs to become a daily habit.

A New Year is a time to reflect on the previous years and examine what you did right and what you did wrong. Then develop a plan to make changes in your life in specific areas such as finances, career or health.

In order to be successful at creating and sticking to financial goals you have to think about why you created the goal, what you hope to achieve from the goal and if the goal will improve your life.
There is lots of great advice available to help you improve your financial status from friends, family, co-workers, and experts and on the internet. I use the rule that if at least three sources state the same thing it is probably true or works.

When reviewing finances create plans that are reasonable, that you know you can accomplish and that will improve your life for the better. The sooner you start the better off you will be.

You have to change your mindset when you make the decision to review and improve your finances. It will not easy – it will require discipline, accountability and sacrifice, but it will be beneficial to you in the future. This will require changing your thoughts, actions, behaviors and attitudes regarding money. Once you change your mindset, the rest is easy. However, this is usually the hardest part and where most people fail and revert back to their old financial habits. Here is the best advice to help you improve your finances in 2016.

  1. Spend less. Track your spending for at least 14 days up to 30 days. Compare this with how much you earn, spend and owe. Make adjustments the following month and rate yourself on the improvements you made. Continue to do this until you are able to have at least 10% - 20% of your net income leftover each month. Think about how each purchase will affect your financial goals, your future, and your family. Categorize your spending. Online banking provides charts and graphs that categorize your spending so you can quickly see areas where you need to reduce spending.
  2. Set goals. Set short-term and long-term financial goals that you want and know you can achieve such as homeownership, retirement age, home repairs, starting a business, annual vacation, college tuition etc. Start by creating an action plan to achieve smaller short-term goals then focus on larger long-term goals. When you meet with a financial professional share your financial goals to ensure they become part of your overall financial plan. You have to stick to achieving your goals and don’t give up no matter what. 
  3. Analysis. Do an analysis on the products and services you purchase. Verify automatic renewal fees to ensure you still want or need the services. Cancel “gray or ghost charges” they you may have forgotten about, trial memberships, products that state call within X days to cancel, etc. Compare prices for service and ask about discounts and specials to find a less expensive plan for cell phone, cable, internet, utilities, credit cards, web hosting, email provider, insurance, childcare, etc.
  1. Emergency Fund. Save more. Many people go into debt because they have no savings and are forced to use a credit card to pay for unexpected expenses. You will need a safety net to help you if any unexpected expense arises or you become unemployed. Create an emergency savings account to cover your bills and monthly expenses for at least 9-12 months.
  2. Review retirement. Social security will not be enough to live on during retirement and you will need another source of income. Maximize contributions at least up to the percentage your employer matches. Rebalance your portfolio once a year to minimize losses and ensure you remain on target to reach your financial goals. You will need at least 20-30 times your salary in your account at age 65.
  3. Pay down debt. Pay for most items with cash. Use credit for emergencies. Keep credit card balances at 20% or less of the credit limit. Send more than the minimum monthly payment for loans and credit cards.
  4. Seek professional advice. Hire a lawyer, CPA, and financial advisor to help you set financial goals, effectively manage your finances, maximize your tax liability and lower your risk of audits and legal action.  
  5. Insure. Purchase life, health and disability insurance. Review policies each year and ensure you have adequate coverage. Update beneficiary information yearly or when a life event occurs (birth of a child, divorce, death, etc.)
  6. Withholdings. Review your withholding status. Adjust as needed based on life events (death, divorce, birth of a child, adoption, new job, reduced benefits, new business venture, etc.). Consult a CPA to find ways to reduce your tax liability.
  7. Credit History. Order a copy of your credit reports every 12 months to check for any errors or accounts you may not be aware of. Fix any errors and setup payment plans for past due accounts.
  8. Estate Planning. Setup an estate no matter what your income to ease the burden of handling your financial affairs when you die. Create a will and advanced medical directive. Create a trust to reduce estate taxes and clearly identify how, when, where and to whom you want your assets distributed.
  9. Military Status. Read letters received from service providers or creditors when you return from active duty. Terminate your power of attorney when you return. Review state and federal laws that protect military from predatory or unethical business practices by debt collectors. Get current or past due bills and dispute errors to maintain your credit history. Utilize military resources to help get your finances back on track.


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