About the author: Lamar Watson, CFP®, is a Fee-Only Financial Advisor in the Washington, D.C. area that works with clients virtually across the country. Lamar's work with his clients starts with a focus on budgeting, insurance, optimizing employee benefits, investing, and retirement planning. Dream Financial Planning is a Fiduciary Financial Planning firm specifically designed to help individuals in their 30s and 40s take control of their finances and fulfill their dreams. Feel free to schedule a complimentary consultation to learn how we use the DREAM Financial Planning Process ™ to help our clients achieve their goals.
In addition to reflecting back on the prior year, you may be particularly motivated to consider making financial resolutions for the future. This checklist covers fundamental considerations, including:
- Personal issues
- Cash flow issues
- Asset and debt issues
- Tax issues
- Insurance issues
- Legal issues
1. Draft a Monthly Budget
Even though this may seem like a common goal, many people find it hard to complete this task each month and stick to it. A monthly budget is the beginning of gaining better control of your finances, and the more detailed it is, the better. When creating your budget, make sure that every penny is accounted for, including savings, investments, clothing, food, entertainment, etc. It will not only help you realize how much you spend each month, but it will also help direct your focus to areas where you can improve and goals you can set for the extra money you may have when sticking to your budget.
2. Take Control of Your Debt
Debt can be one of the primary factors that can hold you back from financial success. Make a reasonable plan to reduce your debt and stick to it. You can start by determining a reasonable amount of debt that you would like to reduce for the year, making sure that the goal is attainable. Next, determine how much you will need to pay each month in order to reduce your debt by the goal amount. Finally, you will need to look at your budget and find a way to fit in this amount each month, even if it means cutting back on other areas of the budget. It is also important to make sure that you do not add any more debt throughout the year.
3. Make an Emergency Fund a Priority
Medical costs, major vehicle repairs, job layoffs, or house maintenance can quickly derail a budget. Make sure that you have a fund set up specifically to handle these unforeseen expenses, so you don't have to alter your monthly budget to accommodate. A good rule of thumb for an emergency fund is to start with a month’s income plus $1,000. Once this goal is achieved, you should keep saving until you have about six months of expenses. Set aside an amount each month in your budget to add to your emergency fund. If you need to use it for an emergency during the year, you will need to regrow it.
4. Prioritize Retirement Savings
Saving for retirement is something often put on the back burner until it is too late. The sooner you begin saving for retirement, the more time it will have to grow, and the better return you will have on your investment. Work with your financial advisor to determine what retirement savings vehicles may be best for you.
5. Create a Long-Term Financial Plan
Goals can be more difficult to set if you are having difficulty envisioning the rewards that will come with financial stability. Consider any long-term financial goals you may have, such as buying a house or retirement. Draft out a plan that includes savings, investing, and other ways to build the wealth you need to achieve these goals. You can start with smaller goals, so they seem less daunting. Having a plan in place will help you stay on track and guide your financial decisions.
Make this the year you take control of your finances and get on the right track to achieving your future goals. Consider the five financial goals listed above to help you get started.
With uncertainty surrounding the economic stability of our country, it's okay to have fears and anxieties surrounding your savings and investments. The most productive course of action from here is to reach out to Dream Financial Planning (or whoever your trusted advisor might be) and discuss your options. It's easy to have knee-jerk reactions when it feels like the bottom is falling out, but it is imperative to make decisions using research-backed data and a level head. If you'd like a Complimentary Review and risk assessment of your investment portfolio, feel free to send me an e-mail.
In the June Newsletter, I provide a market update and a PDF guide with tips to help you handle inflation. I also shared a CNN article where I shared my thoughts on Crypto and NFTs, 5 savings mistakes people make when building their financial life. If you find any of this information helpful, feel free to sign up to receive future e-mail updates. If you find any of this information helpful, feel free to sign up to receive future newsletters via e-mail.
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