Make Some Financial Resolutions for the New Year

in Financial Planning by

This is the time when many people make resolutions for the upcoming year. Determining to lose weight, eat healthier or exercise more are some of the most common New Year’s resolutions. But last year, financially-related New Year’s resolutions also consistently made it into the top.

As 2018 approaches, you may be vowing to do better around your physical and financial health. If you fall into the latter camp, here are five ideas to get you started:

Manage Your Debt Efficiently

Excessive and irresponsible use of debt is one of the biggest hindrances to financial success for many people. Every dollar that goes toward paying down debt is a dollar that can’t be used for more productive financial goals like saving for retirement or college.

Start by prioritizing so you can focus on paying down debts with the highest interest rates first. For most people, this is credit card debt. If you carry balances on more than one card, focus on paying off one card at a time before moving on to the next one. When you’ve paid off all your credit card debt, move on to other consumer debts like car loans.

Your goal shouldn’t necessarily be to eliminate debt, but rather to manage your debt efficiently. When used responsibly, debt can be an effective financial tool — deductible home mortgage and home equity line of credit interest is a good example. You might consider restructuring some debt; for example, locking in fixed-rate debt for the long term before interest rates move higher.

[See a complete picture of your net worth at any time]

Control Your Spending

This goes along with managing your debt. Paying down debt won’t accomplish much if you don’t get a handle on spending — you’ll just find yourself right back where you were in a year or two.

Controlling spending is often a matter of learning the art of delayed gratification. Instead of using a credit card to buy things you want right now, wait until you’ve saved enough money and then buy them. Many people find that they enjoy their purchases more when they buy them this way because they don’t have the cloud of debt payments hanging over their head.

Build a “Rainy Day” Savings Fund

Many financial experts recommend accumulating between three and six month’s worth of living expenses in a liquid savings account you can tap for financial emergencies, like an unexpected car repair, major medical expense or job loss. A bank savings or money market account is usually a good vehicle since the money can typically be withdrawn penalty-free and without tax consequences.

When you have cash set aside for financial emergencies like these, you won’t have to use a credit card to pay for them. This, in turn, will help you as you concentrate on New Year’s resolution number 1 above.

Increase Your Retirement Savings

The latest statistics regarding retirement savings in the U.S. are pretty bleak. According to the National Institute on Retirement Security, the median retirement account balance for all working-age households in the U.S. is just $3,000. Also, nine out of 10 U.S. households do not meet conservative retirement savings targets for their age and income.

You can buck these statistical trends by resolving to max out your retirement savings accounts this year. In 2018, you can contribute up to $18,500 to a 401(k), 403(b) or 457 retirement plan, or $24,500 if you’re 50 years of age or over. In addition, you can contribute up to $5,500 to an IRA, or $6,500 if you’re 50 years of age or over.

[See where you stand relative to your retirement goals]

Evaluate Your Asset Allocation and Rebalance Your Portfolio

Over time, the mix of asset classes in your investment portfolio can shift as the markets fluctuate. This will affect your asset allocation — or the percentage of your portfolio that consists of stocks, bonds and cash instruments. When this happens, it may be necessary to rebalance your portfolio.

You can do this by selling some asset classes, such as stocks, and buying others, such as fixed-income instruments. For example, with the stock market performing well over the past year, your portfolio might be over-weighted in equities. If so, you might consider selling some stocks and using the money to buy bonds in order to bring your portfolio back into balance to meet your long-term investing goals.

[See how your investments are performing – and how they can do better]

Our Take

With the new year approaching quickly, now is a good time to plan your 2018 financial resolutions so you can hit the ground running on January 1.

Be sure to consult with a financial advisor for more details on these and other financial planning strategies.

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Gregory DePalma, CFP®

Gregory DePalma, CFP®

Gregory DePalma is a Senior Financial Advisor at Personal Capital. He provides holistic financial planning services for individuals and families. Prior to Personal Capital he was a stockbroker at Scottrade and served as a Financial Advisor specializing in student aid and education funding. He received his bachelor’s degree from the University of California, Davis with a double major in Economics and Sociology. Gregory is a CFP® professional.
Gregory DePalma, CFP®

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