Will 2015 be your year? That is the question we all face. We want it to be the year we achieve the goals we set for ourselves and to be able to start 2016 in a strong place financially. But it doesn’t just happen because you want it. You have to do the work and make smart decisions that put you ahead at the end of year.
In honor of 2015 and my hope to help make it a strong financial year for you, let’s examine 15 smart financial moves to make this year.
This is where it all begins and some always want to skip this step. But before you can get ahead, you have to know where you stand right now. It’s time open up the books and figure out your net worth.
Net worth is simply your assets (cash, investments, real estate or things of value you own) minus your liabilities (mortgage, car loans, student loans and consumer debt). Most of us will see a negative number due to a mortgage. Don’t panic and hide. Dig deeper.
It’s important to differentiate the types of debt to first, so you can see clearly where you need to make changes. To make sure you remain on track to both payoff debts like mortgage and student loans in a timely fashion while also still being able to have the life you want.
While I hope many of you already have one established, if not, then now is the time to start one. I recommend having an emergency fund that can cover 6-12 months of expenses. It may seem like a lot, but as many experienced during the Great Recession, time and money go quickly.
Many try to follow a budget in their head. This rarely works. More often than not, you spend more money then you intended. Budgets are not restrictive. They give you the freedom to spend your money on what you want or to be mindful. They are as complicated as you make them and there are plenty of online tools that can help simplify the process too. It’s time to flip the switch and develop a budget mindset.
Tip: Start by simply tracking your spending. It will be an eye-opening experience as many people do not realize how they spend their money. Now that you do, you can make decisions on how you want to use your money.
Debt, particularly consumer debt, robs us of our freedom to choose how we spend our time and money. Take a careful look at the debt you have and how you got into debt. Was it because you played keep up or spent mindlessly? It’s important to understand why you spent more than you could afford to avoid repeating the cycle. Now build a plan to eliminate your debt for good.
I find people without goals tend to spend more mindlessly because they have no reason to tell themselves no. Goals give your money purpose, so figure out what you want to do with your money. Make sure your goals are authentic, meaning they make you happy and weren’t set to please others. Use your goals to guide your money decisions by asking yourself, “Will this bring me closer or further away from goals” when you find something you want but don’t need.
Tip: Share you goals with your family, so you are working together towards a common goal.
Do you know how much money you need to achieve your goals? Many don’t set solid, reasonable amounts. They guess-estimate or worse – have no idea. Don’t make that mistake. Calculate the amount of money you need to achieve every goal you have so that you can save appropriately. You don’t want to think you can retire, buy a home or whatnot to only discover you can’t.
My guess is after you calculated the amount of money you needed to create your ideal life, you might have experienced a bit of sticker shock and wondered how you could possibly save enough money. And it’s unlikely you can save enough to fund those dreams. You will also need to invest those savings to create the wealth you need in a timely manner.
This scares some people, but investments are not as intimidating as you may think. Take the time to educate yourself. Don’t fall prey to hype and remember what might be a great investment for someone else, doesn’t automatically make it right for you. If you still feel uncertain, don’t be afraid to seek professional help either.
Many people have at least a 401k plan and may have other investments likes IRAs. Be sure to periodically review your investments to rebalance as needed.
This goes beyond your auto and homeowner insurance, but your personal protection insurance that isn’t required but needed to protect your family. Review your life, disability and long-term care insurance needs. Many people avoid insurance because they don’t like to think about their mortality or what if scenarios. I don’t necessarily like to think about those things either, but I have seen the aftermath of not being properly protected and it is not pretty. Insurance gives me the peace of mind of knowing that my family will be okay financially if something should happen to me.
Much like insurance, people tend to put off creating a will or estate plan. If you have kids, this is an absolute must, as guardian designation is part of your will. If there is no will, the state will determine who will care for your children on your behalf. Additionally, you worked hard for your assets and want to make sure they benefit who you choose.
This is an easy to-do that many of us overlook. We fill out those forms once and forget about them. The reality is our lives are constantly changing and who we selected as our beneficiary 10 years ago may not be the person you want to receive the money today. Review these forms every year and make updates as needed. Please note that beneficiary designations override your will or estate plan.
With all the security hacks at large retailers and constant threat of identity theft, this is an absolute must. Review the information as many times you will find innocent errors, unrelated to a stolen identity. This gives you a chance to correct mistakes, so when and if you need to apply for a loan, they will be able to see the most accurate picture of how you use credit.
You are entitled to one free credit report every 12 months from each of the three major consumer reporting agencies – Equifax, Experian, and TransUnion. You can request your free report at AnnualCreditReport.com.
While giving is certainly optional, I am firm believer that sharing enriches our lives. Our lives may not be perfect, but we also have so much to be grateful for, which we sometimes forget. Giving helps us appreciate what we have, rather than feel entitled to it and more. Figure out now who you want to share your money with this year and how much you plan to set aside for giving.
Tip: Giving is more than money too. Volunteering and donating goods count too and are excellent ways to involve your children too.
In other words, make sure you are firmly in the driver’s seat of your finances. Review your bills and see if there are ways to lower your costs. Call companies and see if you can get a lower rate. The worst they can say is “no” and comparison shop before calling to see if you can find better prices elsewhere. Knowing your willingness to leave for a better price, increases the likelihood they will match the price. Most importantly, make sure you are spending money on things that make your heart happy and you use.
Most of us have some waste in our spending, but there comes a point where you’ve really taken all the fat out of our budget. Now it’s time to look for ways to earn more. This doesn’t necessarily mean getting a second job, although it could. A side hustle could eventually out-earn your primary job so don’t overlook this option.
Another consideration is to find ways to increase your skills so you can earn promotions with higher salaries or do more networking so you are positioned to learn about new jobs quickly and be referred. Don’t forget about earning passive income by maximizing your investment growth potential.
Money has been taboo in our homes for far too long. Resolve to make 2015 the year that money is no longer shrouded in secret in your home. You communicate with your spouse about money openly — no more money secrets! Help your kids build a healthy relationship with money and show them how to use their money wisely.
Last, but certainly not least, continue reading The Heavy Purse. You’ll always find great tips on talking to kids about money and much, much more. Connect with us on Twitter, Pinterest, Facebook, Feedly and Bloglovin.
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SHANNON RYAN, CFP®
My wife and I are really focused on #13 and #14 this year. Its really something we started focusing a lot starting last year. But still tons of room for improvement.
Cheers!