At the start of a new year, people often make resolutions about things they want to change going forward. Finance is one area in which resolutions are made – and often fail. It’s good to make a resolution to make positive financial changes, but without a sound plan, we set ourselves up for failure.
Here are three tips to help you develop your plan – simple steps that can set you on a path to a better financial future.
1. REVIEW YOUR TAXES
I recently met with a couple who sought a way to increase their income. I asked if they anticipated receiving an income tax refund when they file their taxes; they did. In fact, they normally receive about a $7,000 refund. They claim zero on their payroll tax forms and have the maximum tax withheld.
My question is, why would you allow the government to keep your money all year and not receive any interest for it?
If you normally anticipate an income tax refund, review and update your payroll tax forms with your employer. If you don’t need the extra income, simply deposit the additional money in your savings account or emergency fund. At least you will earn a small amount of interest on your money. If you need additional income, this may be a way to increase it.
2. LOOK AT ALL YOUR EXPENDITURES
Expenses have a way of creeping up on us. We join the gym, sign up for a streaming service, or subscribe to something we don’t use. The expense is often under $20 per month, so we ignore those recurring fees and don’t consider how they add up.
If you don’t have a budget or a system to track your income and expenses, I encourage you to start one. You should set aside time at least once a year to see if you have allowed your spending to take control of your life. Are you spending your money in a way that aligns with your values? Are you spending your money on necessities and things that add value to your life, or on spur-of-the-moment impulse purchases?
Instead of allowing your spending to control you, choose instead to control your spending. My husband often reminds me of the Kevin Elko quote: “There are two pains in life: the pain of discipline, and the pain of regret.” I encourage you to choose financial discipline so you don’t have to live with financial regret.
3. UPDATE OR BEGIN A RETIREMENT OR SAVINGS PLAN
If you have a retirement savings plan, schedule an annual review with your investment professional. Take the time to look at how much money you are putting into your account and how it is being invested. Does your employer offer to match your contributions? If so, take advantage of it. If you don’t, it is like throwing away money. I believe it is important to diversify your investments, so I don’t generally advise people to contribute more to their employer’s retirement plan than their employer is willing to match. If you are, consider diverting that money to another type of investment or savings plan.
If you are self-employed, it is imperative that you begin your own retirement savings plan. No one else is going to do it for you; your older self will be glad you did not relegate her to living solely off Social Security.
If you don’t have an emergency fund, now is the time to start one. A review of your taxes and expenditures can help you find money to set aside. Even a few dollars a week is better than saving nothing.
The past couple of years has taught us to expect the unexpected. Take time now to make a plan, one that includes flexibility is realistic, and is something you can live with for the foreseeable future. It can make all the difference.