New Year, new beginnings and new resolutions! It’s that time of the year when we make resolutions to bridge the gap between what we are and what we want to be. But do you know only 8% of people manage to achieve their New Year’s resolutions? While we tend to fail in our lofty and unrealistic goals, we try to stick to ‘SMART’ financial resolutions, which could get our monetary situation on the right track.
As we get ready to roll out the red carpet for 2020, consider these resolutions for better financial health.
Time for Financial Review:
The New Year is a good time to review your financial scorecard of the past year, evaluate your retirement goals, and create a budget, as well as look for ways to increase your net worth, grow your investments and build wealth.
Assess Your Net Worth: Calculating your net worth is one of the starting points to get your financial life in order. Estimating your assets and liabilities gives you a clear picture of your spending and savings, thereby helping you make the necessary changes to achieve your financial goals. So, if you have not been doing that already, make sure to determine your net worth annually and rectify mistakes that could pile up your debts.
Beat Debt: If debt has been impeding your wealth-building efforts, it’s time to tackle it head on. Figure out your total debts and the associated interest rates, and create strategies to chip away at it. Some people prefer the debt snowball method (involving the payment of smallest debts first), while others like debt avalanche (prioritizing the payment of biggest debts). If debt is getting in the way of your long-term goals, try paying at least twice the minimum required amount, utilizing your tax refund, or balance transfers forcredit card debt. Also, ensure that you monitor your credit score regularly, which lets you know where you stand, and helps you understand the key areas to work on and spot any errors in your credit file.
Prevent Lifestyle Creep, Save More:
Controlling and most importantly, cutting down on how much you spend, will help you save. Don’t allow yourself to become a victim of lifestyle inflation i.e. inflating your lifestyle to match your income. This practice robs you of the opportunity to grow and compound your wealth.
Set Your Savings Rate Target: Remember your savings rate is one of the best metrics to help you build wealth and meet your financial goals. Ideally, a 15-20% savings of your income seems appropriate if you start working in your early twenties and intend to work for another 30 years or so. However, if your goals are highly ambitious or you wish to retire early and lead a lavish lifestyle, you should aim for a more aggressive savings rate of 30-40%. Always keep the savings rate target in the percent form because your goal is to save a percentage of what you earn. Insuch a case, if your income rises, your savings increase automatically.
Know Your Savings Vehicles: Enrolling in an automatic savings plan (ASP) can come to good use as a certain percentage of your income will be withdrawn from your checking account every month and would be deposited in your investment account. A good chunk of your paycheck should be allocated toward tax-advantaged retirement accounts like 401(k)s, Roth IRAs, or traditional IRAs. Contribute to your employer’s 401(k) or 403(b) and use the advantage of the employer match to obtain maximum benefits.
Optimize Your Portfolio:
After you commit to your savings plan, the next task is to invest prudently. Make sure that your investment plans are in sync with your risk tolerance level and long-term goals.
Don’t Put All Your Eggs in One Basket: If your investments are concentrated in one particular asset class, your entire portfolio is at risk in case of a downturn in that market sector. In that case, injecting some variety into your investment mix is much-needed. Hence, it is smart to diversify across and within asset classes. It is obvious that the investment strategy of a millennial will differ from a retiree; however, one should aim for a well-diversified portfolio consisting of government securities, stocks, bonds, real estate, gold and the like to sustain volatile market conditions.
Keep a Regular Tab on Your Investments: Apart from diversifying your investment mix, make sure that you monitor and rebalance your portfolio periodically to maintain the right asset allocation to meet your financial goals. This should be done at least quarterly. Remember that a hands-on approach toward evaluating your investments proves way more beneficial than the set-it-and-forget-it strategy.
Reduce Investing Fees & Increase Tax Efficiency: Investment fees are the vampires of the investing world and can significantly reduce your returns. It is advisable toreevaluate investment choices and limit fees. If you are heavily invested in actively-managed mutual funds with a high expense ratio, consider shifting to passively-managed ETFs or index funds to trim fees. If you are already invested in low-cost funds but high advisory fees are limiting your returns, it’s time to change your financial advisors. Apart from management fees, taxes can also eat into your profits; hence, invest in tax-efficient instruments like corporate/municipal bonds, ETFs and REITs to maximize returns.
Prepare for the Unexpected and Have a Long-Term Vision:
Conducting an insurance requirement analysis and evaluating the existing coverage should definitely be on your to-dolist. Further, if you have not done anything financially to prepare for the post-death management of your assets, it’s time to protect your estate and secure the future of your loved ones.
Insurance Coverage: Insurance helps provide protection against unforeseen events. Hence it’s better to have insurance even when you don’t need it, rather than not having one at all. Looking at healthcare costs, one should opt for Mediclaim and other health insurances. If you have dependents, opt for an additional life insurance.
Estate Planning: Do you have a will in place and have you reviewed your beneficiary designations? If not, act upon it. While many may believe that a will is only for the super-wealthy, you must understand that a will or an estate plan is one of the most important documents that you will sign in your lifetime. If you have already drafted your estate plan, maybe its time to review that to ensure it suits the current circumstances.
So Get Set to Press the Reset Button
The most challenging thing about resolutions is to be able to stick to them. Remember: don’t set unworkable goals. Also, don’t bother to do everything at once. So, this New Year, take the opportunity to chalk out your financial resolutions, keep track of your progress and make necessary modifications, when needed.
A Simple Way to Build Wealth
No matter what your financial goals are, investing in quality stocks is an option worth considering. Stocks have produced better returns than other kinds of investments over the years and generated significant wealth for shareholders. If you're interested in stocks but you're nervous about picking the right ones, Zacks can help. Our research team makes it simple to find long-term buys with long-term wealth-building potential. Starting today, you can see our private selection of stocks priced under $10, Warren Buffett-style value picks, dividend stocks and more.
Click here for your sneak peak>>
Image: Bigstock
Ring In 2020 With These Resolutions for Financial Fitness
New Year, new beginnings and new resolutions! It’s that time of the year when we make resolutions to bridge the gap between what we are and what we want to be. But do you know only 8% of people manage to achieve their New Year’s resolutions? While we tend to fail in our lofty and unrealistic goals, we try to stick to ‘SMART’ financial resolutions, which could get our monetary situation on the right track.
As we get ready to roll out the red carpet for 2020, consider these resolutions for better financial health.
Time for Financial Review:
The New Year is a good time to review your financial scorecard of the past year, evaluate your retirement goals, and create a budget, as well as look for ways to increase your net worth, grow your investments and build wealth.
Assess Your Net Worth: Calculating your net worth is one of the starting points to get your financial life in order. Estimating your assets and liabilities gives you a clear picture of your spending and savings, thereby helping you make the necessary changes to achieve your financial goals. So, if you have not been doing that already, make sure to determine your net worth annually and rectify mistakes that could pile up your debts.
Beat Debt: If debt has been impeding your wealth-building efforts, it’s time to tackle it head on. Figure out your total debts and the associated interest rates, and create strategies to chip away at it. Some people prefer the debt snowball method (involving the payment of smallest debts first), while others like debt avalanche (prioritizing the payment of biggest debts). If debt is getting in the way of your long-term goals, try paying at least twice the minimum required amount, utilizing your tax refund, or balance transfers forcredit card debt. Also, ensure that you monitor your credit score regularly, which lets you know where you stand, and helps you understand the key areas to work on and spot any errors in your credit file.
Prevent Lifestyle Creep, Save More:
Controlling and most importantly, cutting down on how much you spend, will help you save. Don’t allow yourself to become a victim of lifestyle inflation i.e. inflating your lifestyle to match your income. This practice robs you of the opportunity to grow and compound your wealth.
Set Your Savings Rate Target: Remember your savings rate is one of the best metrics to help you build wealth and meet your financial goals. Ideally, a 15-20% savings of your income seems appropriate if you start working in your early twenties and intend to work for another 30 years or so. However, if your goals are highly ambitious or you wish to retire early and lead a lavish lifestyle, you should aim for a more aggressive savings rate of 30-40%. Always keep the savings rate target in the percent form because your goal is to save a percentage of what you earn. Insuch a case, if your income rises, your savings increase automatically.
Know Your Savings Vehicles: Enrolling in an automatic savings plan (ASP) can come to good use as a certain percentage of your income will be withdrawn from your checking account every month and would be deposited in your investment account. A good chunk of your paycheck should be allocated toward tax-advantaged retirement accounts like 401(k)s, Roth IRAs, or traditional IRAs. Contribute to your employer’s 401(k) or 403(b) and use the advantage of the employer match to obtain maximum benefits.
Optimize Your Portfolio:
After you commit to your savings plan, the next task is to invest prudently. Make sure that your investment plans are in sync with your risk tolerance level and long-term goals.
Don’t Put All Your Eggs in One Basket: If your investments are concentrated in one particular asset class, your entire portfolio is at risk in case of a downturn in that market sector. In that case, injecting some variety into your investment mix is much-needed. Hence, it is smart to diversify across and within asset classes. It is obvious that the investment strategy of a millennial will differ from a retiree; however, one should aim for a well-diversified portfolio consisting of government securities, stocks, bonds, real estate, gold and the like to sustain volatile market conditions.
Keep a Regular Tab on Your Investments: Apart from diversifying your investment mix, make sure that you monitor and rebalance your portfolio periodically to maintain the right asset allocation to meet your financial goals. This should be done at least quarterly. Remember that a hands-on approach toward evaluating your investments proves way more beneficial than the set-it-and-forget-it strategy.
Reduce Investing Fees & Increase Tax Efficiency: Investment fees are the vampires of the investing world and can significantly reduce your returns. It is advisable toreevaluate investment choices and limit fees. If you are heavily invested in actively-managed mutual funds with a high expense ratio, consider shifting to passively-managed ETFs or index funds to trim fees. If you are already invested in low-cost funds but high advisory fees are limiting your returns, it’s time to change your financial advisors. Apart from management fees, taxes can also eat into your profits; hence, invest in tax-efficient instruments like corporate/municipal bonds, ETFs and REITs to maximize returns.
Prepare for the Unexpected and Have a Long-Term Vision:
Conducting an insurance requirement analysis and evaluating the existing coverage should definitely be on your to-dolist. Further, if you have not done anything financially to prepare for the post-death management of your assets, it’s time to protect your estate and secure the future of your loved ones.
Insurance Coverage: Insurance helps provide protection against unforeseen events. Hence it’s better to have insurance even when you don’t need it, rather than not having one at all. Looking at healthcare costs, one should opt for Mediclaim and other health insurances. If you have dependents, opt for an additional life insurance.
Estate Planning: Do you have a will in place and have you reviewed your beneficiary designations? If not, act upon it. While many may believe that a will is only for the super-wealthy, you must understand that a will or an estate plan is one of the most important documents that you will sign in your lifetime. If you have already drafted your estate plan, maybe its time to review that to ensure it suits the current circumstances.
So Get Set to Press the Reset Button
The most challenging thing about resolutions is to be able to stick to them. Remember: don’t set unworkable goals. Also, don’t bother to do everything at once. So, this New Year, take the opportunity to chalk out your financial resolutions, keep track of your progress and make necessary modifications, when needed.
A Simple Way to Build Wealth
No matter what your financial goals are, investing in quality stocks is an option worth considering. Stocks have produced better returns than other kinds of investments over the years and generated significant wealth for shareholders. If you're interested in stocks but you're nervous about picking the right ones, Zacks can help. Our research team makes it simple to find long-term buys with long-term wealth-building potential. Starting today, you can see our private selection of stocks priced under $10, Warren Buffett-style value picks, dividend stocks and more.
Click here for your sneak peak>>