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Five Resolutions for the New Year

A new year signifies new beginnings and new opportunities, so don’t just promise yourself to exercise more and eat better, this is the year to strive to be financially healthy as well. Here are five resolutions to help you get your finances in shape too.

1. Start with retirement.
As one of your most important long-term goals, saving for retirement can have a bearing on the rest of your financial priorities. You can take advantage of several important tools when pursuing your retirement goals. Tax-advantaged retirement savings accounts such as 403(b)s and IRAs may allow you to make tax-deductible contributions, and you might be able to defer or even avoid taxes on your earnings within retirement accounts.

2. Monitor your spending habits.
Whatever your long-term goals, you will reach them more quickly if you adopt wise spending and saving habits. A set of well-defined spending goals can help ensure that your money goes where it will do the most good, while ensuring that you don’t spend more than you can afford and that you have something left over.

Do you have a good grasp of your daily spending habits? Your first task is to examine those habits, perhaps by using a budgeting software program. Once you know where your money is going, look for opportunities to cut back in areas where you overspend. There’s no need to make drastic changes-even modest cuts can make a real difference.

How much you cut back on your day-to-day spending may be less important than your becoming a more mindful spender. To that end, monitor your expenses. You can learn more about your spending habits, and you can have the chance to fine-tune your budget.

3. Eliminate bad debt.
Excessive debt-especially nondeductible, high-interest debt, like credit card debt-can impede your progress toward long-term goals. Fortunately, once you are living within a budget, you will be much less likely to accumulate credit card or other debt. You also can free up money each month, some of which can go toward paying down existing debt.

By using a systematic approach, you can be more effective at reducing debt. Figure out a schedule to pay down expensive consumer debt, targeting the most expensive debt and chipping away at it each month. Once you pay off one credit card, your interest costs will decline, letting you pay down the remaining debt at a faster rate.

4. Save for a rainy day.
It’s hard to keep your mind on long-term goals when you are worried about the impact a run of bad luck, such as poor health or a job loss, could have on your finances. An emergency fund can provide peace of mind, as well as a practical safeguard against setbacks that could derail your plans.

Many financial planners recommend you have three to six months’ worth of expenses reserved in cash or in a short-term savings vehicle that is liquid. You might get away with less if you and your partner both work and live well within your income-but only if you also have good health and disability insurance and have already set aside significant savings for your long-term goals.

Consider building up your emergency fund gradually by making monthly deposits, and perhaps making direct deposits into a brokerage account. You might be surprised at how relieved you feel, knowing you have a strategy in place for building a cash cushion.

5. Build a portfolio.
Getting started is absolutely crucial. A young worker investing for a retirement that is several decades away may be able to afford to take more risk in pursuit of growth than someone who hopes to retire within a few years. The younger worker, for example, might invest the bulk of his or her retirement savings in a more aggressive portfolio containing a higher equity component.

Likewise, a 30-year-old who plans to retire at age 55 might decide to take a relatively aggressive investment approach that seeks potentially higher growth. And the saver who plans to retire at age 67 and continue working part time might be more likely to adopt a more moderate mix of investments in his or her portfolio.

Review your portfolio every year or as necessary to make sure that shifts in the financial markets haven’t significantly altered your investment mix. In addition, give your portfolio a checkup after significant changes in your circumstances, such as marriage or divorce, the birth of a child, or a big salary increase, that might have an impact on your financial goals and your portfolio strategy.

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