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Making New Year’s resolutions is a great way to plan to be better in the new year. Unfortunately, sticking with those resolutions isn’t as easy as setting them. Whatever is on your list for the upcoming year, whether it is to get in shape, spend more time with family and friends, or save more and spend less, setting definable and realistic goals is a key to success.

With the start of a new year just days away, here are some financial New Year’s goals and strategies to help improve your financial wellbeing in 2020.

Create and Stick to a Budget

A good start in setting up your financial New Year’s goals is to create a budget. A detailed budget can help you visualize and understand where you are spending your money. Are you saving enough? Are you living beyond your means? Once you set up your budget, you will have a better understanding of the lifestyle you can afford and if you need to cut back in some areas. A budget will help you determine how much money you need to cover basic expenses and how much is left for saving and discretionary spending. Now that you have your budget, stick with it. This may mean making sacrifices in the short-term to keep on track for your long-term financial goals.

Monitor Your Spending

Establishing a budget is a great start and following through on that budget is key to financial success. Tracking your spending will help you stick to your budget and monitor whether your money is going toward your priorities. Prioritizing your spending will help you differentiate between the expenses you need, i.e. mortgage, groceries, electricity, etc. and items you merely want. As you track your expenditures, look for ways to cut back where possible. Can some of your expenses be reduced or cut out altogether? Buying that morning coffee and eating out for lunch several days per week can get expensive, especially when those costs are added up over several years.  Also, look at the subscription services you currently pay for and decide if you are using them enough to justify the costs. Subscription services are all the rage now, and many of us have signed up for monthly services only to use them for a few weeks and forget about them despite still paying for them every month.

Start/Contribute to an Emergency Fund

Having an Emergency Fund of three to six months of expenses is a great way to protect yourself in the event you are hit with a financial hardship. Whether it is a job loss or a major unplanned expense like a car or home repair or a medical emergency, your Emergency Fund acts as a safety net to help prevent you from going into debt or having to use other assets earmarked for other financial goals. It’s probably not realistic to put away three to six months of expenses in a short time but put aside what you can and build on that. If you’ve already started an Emergency Fund, great job! Keep at it!

Increase your Retirement Savings

To help ensure a successful retirement, it is prudent to save early and often. Saving at least 10% to 15% of your income for retirement will put you on the right track. Retirement accounts such as 401(k)s and IRAs are great tools to put aside tax deferred funds to grow.  The earlier you start, the better. For example, if you started saving at 25 and saved $6,000 per year for 40 years, assuming a 7% annual return, you would have nearly $1.2 million at age 65. If you waited until you were 35 and saved $6,000 for 30 years, assuming a 7% annual return, you would have less than $600,000 at age 65. This is a perfect example of the power of compounding interest. If you started saving a little later in life or haven’t started yet, it’s never too late. At the very least, if you are saving into a 401(k) and your employer matches your contributions, you should always try to contribute enough to get the match.

Establish Short-Term and Long-Term Financial Goals

Whether you are a first-time homebuyer, looking to purchase a vacation home, planning for retirement, or want to help your children or grandchildren pay for college, establishing short-term and long-term goals is a great way to plan out how you will ultimately fund those expenses.  By setting a definable and attainable goal, you will be able to work out exactly how much money you need to put away every month in order to reach that goal.

Manage/Payoff Debt

There is often a negative connotation surrounding the term “debt.” Debt isn’t fundamentally good or bad, and as long as it is used correctly, it can be a useful tool. For many of us, debt is necessary to make large purchases like a home. Mortgages and student loans are often referred to as “good debt,” because property tends to increase in value and college tends to increase an individual’s earning potential.

Credit card debt is considered by many to be “bad debt” because of the high interest rates, the ability to make low payments on the balance owed, and because credit cards aren’t usually used to buy appreciating assets. On average, credit cards can charge an annual percentage rate between 15%-20% or higher. Because of the generally high interest rate charged for credit card debt, it is advisable to limit credit card use and try to pay off balances in full every month to avoid interest charges. If you can’t pay off the balance in full every month, you might be spending too much money on a lifestyle you can’t afford.

If you are holding a monthly balance on your credit cards, develop a plan to pay off that debt. Paying more than the minimum payment amount every month will help you pay off the debt faster. Needing to use a credit card for an unplanned bill or for emergencies still isn’t the ideal way to meet a financial need. As mentioned above, building an Emergency Fund can help prevent you from using a credit card should an unforeseen expense arise. Remember, using a credit card is essentially borrowing money to pay for something, and the credit card company is charging you to loan you that money.

Pay Attention to your Credit Score

Your credit score is your gateway to obtain financing, especially for big ticket items like a home or a new vehicle. Most of us can’t afford to pay cash for our next home, so taking out a mortgage is the key for many to home ownership. Your credit score will not only have an impact on whether you are able to get financing for a home or vehicle, but it will also determine the interest rate you will pay the bank to borrow the money. The higher your credit score, the less risk a bank will see when you go to them for a loan. Many lenders use your FICO score to determine your credit worthiness. The FICO model uses your payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%) and new accounts (10%) to calculate your score.

The key here is to focus on the factors you can control. Your payment history is the main factor that impacts your credit score. Credit scoring models generally will look at the payment history of credit card bills, student loans, mortgage loans and vehicle loans, so be sure to pay your bills on time. The models also put high importance on your credit utilization rate, which is calculated by comparing your available credit to how much credit you have used. For example, let’s say you have a $1,000 credit limit and currently have a balance of $150. Your credit utilization rate is 15% (150/1,000 = .15).

With the rise of identity theft in recent years, monitoring your credit score is a good way to make sure your personal data has not been compromised. Periodically checking your score is a good way to confirm new accounts haven’t been opened in your name and to help ensure someone isn’t trying to steal your identity. There are several places to go to monitor your credit score. Some credit monitoring websites may charge a fee, but many credit card companies now offer free credit scores and monitoring to their customers.

Prepare/Update a Will and Trust

Having a will and trust are fundamental tools of estate planning. A will is a legal document that will coordinate the disposal of an individual’s property or estate after that person’s death. A trust is a legal agreement that goes into effect during the individual’s lifetime in which the individual transfers ownership of assets to the trust to be managed by a trustee for the benefit of a beneficiary. If you haven’t already created a will and trust, doing so can help ensure your estate will be distributed to heirs according to your wishes. There can also be estate tax benefits associated with creating a trust. If you already have a will and trust, it is recommended you review them every five to 10 years to ensure they still reflect your wishes.

We all make New Year’s resolutions each year. If you plan to make any financial resolutions for 2020, putting down clear and concise goals with a plan of action is a great way to help you stay focused and on track to meet those goals.

Authored by Dennis Culver, Insight Wealth Strategies
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Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.