I get a lot of questions about financial resolutions this time of year and while “saving more” is the most popular, resolving to save more may not be very effective if “more” still falls short of being “enough” or if you aren’t investing your retirement savings properly. I recommend you consider adding these five resolutions to your list.
Resolution #1: Create or Review Your Spending Plan
I utilize the phrase ‘spending plan’ rather than ‘budget.’ Your plan should include how much income—after taxes—you bring home, your regular monthly expenses, savings for emergencies, college and other goals. Your plan should be to have zero income left at the end of the month and not negative. Review the plan to get a better understanding of where you are spending money and pinpoint ONE place that you could decrease spending to allow you to save more towards one of your goals. It does not have to be much, even $10 a month more put towards savings will help to achieve a goal.
Resolution #2: Review Your Tax Return
Do you owe or get a refund for taxes each year? If you receive a refund, consider adjusting the taxes from your paycheck so you keep more during the year to help you with your savings goals. The key here is to save this money or pay down debt with it.
If you owe money each year and don’t want to, you should consider increasing your tax withholdings from your paycheck or possibly increasing your pretax retirement savings. Review your spending plan to determine if you can decrease spending somewhere in your plan so your decreased income does not decrease your savings goals.
Resolution #3: Get a Financial Physical in the New Year
As we get older it is recommended that you get a check-up or physical from your doctor every year or two to help catch any potential health problems early. Consider doing this with your finances and your financial goals as well. A professional financial advisor can help make sure you are on the right track.
If you maintain your own finances and feel you don’t need a professional’s help, a financial review may just confirm that you are doing a good job, but it may also show you some areas you can improve. To find a financial advisor, ask friends, family, or coworkers for recommendations or search for a Certified Financial Planner professional® at www.letsmakeaplan.org. Working with a CFP ensures that the advisor will act in your best interest when evaluating your financial plan, as they are held to the highest ethical and educational standards in the financial services industry.
Resolution #4: Increase Your Retirement Plan Savings by Just 1%
If you contribute to a company retirement plan or 401(k), increase your contribution by just 1%. It’s unlikely you will notice the change in your paycheck but if you do this each year over the next 5-10 years, you will increase the likelihood of being able to retire comfortably. Some plans have an automatic increase option so once initiated, the increase happens automatically (so you can set it and forget it). Studies have shown that plan participants with auto-increase options are significantly more likely to keep the increase in place than those who have to manually increase the contribution each year.
Resolution #5: Take Control of Your Finances by Learning More About Finances
It is unfortunate that many of us do not learn more about personal finances in school. Money (in many cases) can be a difficult conversation to have with children. You may feel that, as an adult, you have had to learn through trial and error. Resolve in the New Year to read at least one book about personal finances to educate yourself about money, and if you have children, resolve to start the conversation with them about basic saving principles. It’s never too early to start their financial education.
Daniel P. Lash, CFP®, AIF® is a partner at VLP Financial Advisors and the 2016 President of the National Capital Area Chapter of the Financial Planning Association (FPA). He believes that strategic planning is the key to creating, protecting, and growing wealth. Visit VLP Financial Advisors online at: www.vlpfa.com.
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Dan Lash is a Registered Representative of and offers securities and Advisory Services through Cetera Advisor Networks LLC, member FINRA/SIPC. Cetera is under separate ownership from any other named entity.