Many Americans make New Year’s resolutions
every year. And many of those resolutions relate to money.
If you are in that group and want to see your
resolution stick well into 2021, it helps to be specific and intentional.
Instead of saying “I’ll be better with my finances this year,” think more
narrowly about your actual money habits and what it will take to change
them.
Like with so many resolutions, such as getting
fit or improving your relationships, changing your habits day-to-day is the
real work that can lead to the outcomes you seek.
Here are five key money habits you can and
should change if you want to see results in the coming year when it comes to
success with money.
Make or
update your budget: Many Americans lost their jobs or
temporarily had to stop working during 2020 because of the COVID-19 pandemic.
Meanwhile, households have seen dramatic
changes in their financial spending patterns over the past year, too, driving
less and eating out less but spending more on groceries, for instance.
To ensure that you enter 2021 on the best
financial footing possible it’s important to update your budget to reflect
everything that has changed in the past year.
We don’t know how long the pandemic will
affect our daily spending choices, so it’s better to plan now and adjust later
as things open up and the economy improves.
Build
up savings: On the heels of a crazy 2020, now more
than ever is it important to build (or rebuild) an emergency account for when times get tough.
Ideally, your emergency savings should be
enough to support a minimum of three to six months of your major, fixed
expenses, such as car payments, rent and food.
Stuff that’s discretionary, such as streaming
video or financing hobbies, are easy to pause. Regular meals and a roof over
your head are not optional.
If you have pets, assume they will need
medical attention. If your car has a lot of miles, assume it will need work
done at some point.
Set
money goals: The beginning of the year is the perfect
time to sit down as a family and map out exactly what you want to accomplish
during the new year.
Maybe it’s a home improvement project, a
much-needed vacation or college tuition is ahead. Identifying specific
financial goals are the first step to mapping out how to achieve them.
Organize important documents: When is the last time you reviewed all of your important financial documents to ensure that everything is up-to-date? Have you developed a will and estate plan?
Have you paid all insurance premiums? Are your beneficiaries up-to-date? If not, this is a good time to make all necessary changes.
It isn’t enough to simply have a will or
estate plan. You must ensure that you and your family can easily find them and
understand their importance.
An easy way to do this is to create a binder with everything in it — your will and insurance policies and contact information for your financial adviser, attorney and insurance agent. Make sure your family knows where they can find it in case of an emergency.
Rethink
your financial plan: If you have a financial planner,
this is a good time to check in with him or her, especially if you haven’t
spoken within the past six months.
If you don’t have a financial planner, this is
a good time to find one. Much has changed.
For instance, the required minimum
distribution starting age has moved up to 72, and inherited IRAs are now
treated differently by the IRS, just to name two. You may need to ensure those
changes are reflected in your long-term financial plan.
If you need a financial plan, make sure to
work with a certified financial planner to develop one.
It’s not enough to choose investments and pick
a retirement age. A well-constructed, written plan will help you make decisions
across the board, such as when to buy or sell a home, how to pay for schooling,
long-term health needs and ways to manage taxes now and in retirement.
Most important, be sure to work with a fiduciary, someone who is bound by law to set your interests ahead of their own when it comes to your investments and your overall planning process. If you are not sure if your adviser is a fiduciary, just ask.
Christie Whitney is a Certified Financial Planner at Rebalance360. Follow her on LinkedIn or Twitter @Rebalance360.
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