New Year, New Budget: 5 Ways to Improve Your Financial Health

New Years_RESIZEDThe beginning of a new year is often a time to reflect on your goals and measure the progress that you have made towards achieving them over the past year. Personally, I like to use New Year’s as a time to refocus my finances. Allow me to share with you my financial checklist, an excellent tool that can be useful in allowing yourself to live as you wish throughout the coming year:

 

 

1. Establish an emergency fund.

Life is unpredictable and an emergency fund can prepare you for whatever may come your way. This should be your first step toward improving your financial health as it can prevent the need to take out a loan for unforeseen expenses. If you had to use your emergency fund during the previous year, you should plan to restore the fund back to normal.

2.  Identify your goals.

List your short and long-term financial goals so you know exactly what you are saving money for. These can include anything from an upcoming vacation to purchasing a home. Writing all of your goals out and reviewing your progress each year can make your purchases seem attainable rather than just a dream. It can also make it easier to cut back on unnecessary spending.

3.  Save for retirement.

Make sure  you are saving enough money to retire as you wish. Keep in mind that when you start saving is just as important as how much you save, so start early. If your employer matches a percentage of your contributions, make sure that you save at least that much, as they are essentially offering “free money”. (Who doesn’t like that?) Also, reassess the risk of your portfolio based on when you plan to retire. If you’re only beginning to save, you can afford to take more risk and invest more in stocks than bonds. As you get closer to retirement, you should become more averse to risk so that you can retire comfortably.

4. Repay your debt. 

Make sure to always pay at least the minimum amount due for any outstanding debt in order to avoid fees or penalties. If you have a large amount of debt, focus any principal payments that are above the minimum towards your higher interest debt, specifically credit cards. If the interest rate on your debt is low enough, you may be better off simply paying the minimum payments and putting that money into your retirement as the investment return may be higher than the cost of interest.

5. Review your current insurance policies.

Did you build an addition on your home in the past year? Is there a new driver in your home? Ask yourself if there were there any other types of new exposures that you should include on your insurance policies. Review your policies and talk with your independent agent each year to help prevent future losses and keep you on track toward your goals.

Are there any other steps you take each year to improve your financial health? Please share your suggestions in the comments below. A happy and prosperous New Year to all!

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