Achieve Financial Fitness: Your New Year's Money Resolution
By Mark Yatros
Did you set a New Year’s resolution to hit the gym and increase your physical fitness? I’m passionate about fitness, so I applaud you. But what about your financial fitness?
The start of a new year is the perfect time to take control of your finances. A little planning and effort now can lead to less stress, more savings, and a stronger financial future. Here’s how to start your journey to financial fitness.
Step 1: Evaluate where you are now
Before setting goals, it’s essential to know where you stand. Start by taking stock of everything you own and owe.
List your assets
Write down the total value of all your accounts, including savings, retirement plans, investments, and any valuable property like your home and car. This will help you calculate your net worth, which is a critical measure of your financial health. Knowing your net worth allows you to see your progress over time and identify areas that need improvement.
Understand your debts
Create a detailed list of your debts, including credit cards, student loans, car loans, and mortgages. Pay special attention to interest rates and minimum payments. Prioritize high-interest debt because it can grow quickly and undermine your financial goals. Consider strategies like the snowball method (paying off smaller debts first) or the avalanche method (tackling high-interest debts first) for repayment.
Get organized
Compile this information in one place using a spreadsheet or financial app. While the other Allegiant team members and I don’t recommend a specific app, we have clients who use Monarch Money, Rocket Money, and Dave Ramsey's EveryDollar Budgeting. For a solid overview of the best budgeting apps, check out this article from Nerdwallet.
Step 2: Review your expenses
Knowing where your money is going is key to making better financial decisions.
Track your spending
Look at your bank and credit card statements for the past three months. Categorize your expenses into categories such as housing, food, transportation, entertainment, and subscriptions. Tracking your spending reveals where your money is going and helps you spot areas for improvement.
Find budget “leaks”
Look for recurring charges, like subscription services you no longer use or memberships you forgot to cancel. Even small leaks can add up over time. Cutting out these unnecessary expenses allows you to redirect that money toward savings or debt repayment.
Create a budget
Creating a budget is an essential part of getting fiscally fit. There are several ways to craft a budget (also known as priority spending). One method to consider is the 50/30/20 rule:
50% of your income for needs
30% for wants
20% for savings and debt repayment
You can adjust the percentages based on your financial situation and your goals. A good budget is realistic and flexible enough to accommodate life’s changes.
For more information on budgeting, check out our blog, “5 Simple Steps to Creating Your Budget.”
Step 3: Assess your savings
Building your savings is a cornerstone of financial fitness.
Check your emergency fund
Having an emergency fund with 3 to 6 months’ worth of living expenses is a financial safety net that can prevent you from relying on high-interest credit cards during a crisis. If you don’t have one, start by saving $1,000 as a short-term goal, then build from there.
Review retirement and other savings
Add up all your retirement accounts, investment portfolios, and other savings. Are you saving at least 15 to 20% of your income for retirement? If you’re falling short, consider increasing your contributions, especially to employer-sponsored plans that offer matching.
Evaluate your savings rate by age
While everyone’s financial journey is unique, there are general savings benchmarks: aim to have 1x your salary saved by age 30, 3x by age 40, and 6x by age 50. If you’re behind, don’t panic because small, consistent steps like automating savings can help you catch up. If you haven’t already, setting up automatic savings transfers from every paycheck can make it easier to reach your goals.
Step 4: Set financial goals
Goals give your money a purpose and keep you motivated.
Define your priorities
Consider what you want to achieve this year, such as paying off credit card debt, saving for a down payment, or contributing more to your retirement account. Choose meaningful goals that align with your values.
Make your goals SMART
Use the SMART framework:
Specific
Measurable
Achievable
Relevant
Time-bound
For example, instead of saying, “I want to save more,” reframe it as, “Save $5,000 for a vacation by December 31.” Clear and actionable goals are easier to achieve.
My colleagues and I at Allegiant Wealth Strategies are happy to help you set SMART financial goals. To make an appointment, please click here or call (269) 218-2100.
Break big goals into small steps
Break down larger goals into smaller, manageable milestones. For instance, saving $10,000 in a year means setting aside $835 per month. Celebrate these smaller wins along the way to stay motivated.
Step 5: Adjust for your age and life stage
Your financial priorities and strategies will evolve as you age.
In your 20s and 30s
Focus on building an emergency fund, eliminating high-interest debt, and contributing to retirement accounts. The earlier you start investing, the more you benefit from compound growth. If you have children, consider starting a college savings plan.
In your 40s
Reassess your retirement savings and aim to have 3x your annual salary saved. This is also an excellent time to focus on paying down your mortgage and other long-term debts. If you have kids, explore options like a 529 savings plan for their education.
In your 50s and beyond
Maximize your retirement contributions, especially if you’re behind. Take advantage of catch-up contributions for 401(k)s and IRAs. Review your retirement plan and make adjustments if needed. If you’re nearing retirement, estimate your post-retirement expenses to ensure your savings align with your future lifestyle.
My colleagues and I understand what an important time this is for your financial planning. We’d be happy to meet with you for a free consultation to see how we can help. To make an appointment, please click here or call (269) 218-2100.
Step 6: Build a Plan for Ongoing Progress
Consistency is the key to long-term financial fitness.
Automate your finances
Automate bill payments, savings transfers, and even investment contributions. Automation ensures you stay on track without relying on your willpower.
Review regularly
Set a recurring date – monthly or quarterly – to review your finances. Check your budget, track your savings progress, and adjust your goals as your life or financial situation changes.
Celebrate milestones
Have you paid off a credit card or reached your emergency fund target? Take a moment to celebrate your wins. Rewarding yourself, even with something small, reinforces positive habits and keeps you motivated.
Make 2024 your year of financial fitness
Getting your finances in shape might seem overwhelming, but just like physical fitness, it’s about starting small and staying consistent. By following these steps, you can take control of your financial future.
My colleagues and I at Allegiant Wealth Strategies are happy to meet with you for a free consultation. To make an appointment, please click here or call (269) 218-2100.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
Allegiant Wealth Strategies offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.