For a lot of people, ringing in the new year means rethinking priorities. Perhaps you’ve already resolved to hit the gym a little harder or reconnect with old friends. Maybe you just want to get your kid’s regular routine in check.
Of course, the start of a new calendar is a great time to reexamine your financial habits as well. If you’re like a lot of parents, you’re too busy thinking about day-to-day money needs to do much long-term planning. Now’s the time of year you can step back and look at the bigger picture.
Here are some of the financial resolutions you can make now to ensure your household is on better footing once 2019 rolls around.
Create (and stick to) a budget
Sure, sure. We all know that budgeting is the cornerstone of sound family finances. But the fact is, few of us are very good at it. A 2013 Gallup poll, for instance, found that only a third of Americans maintain a detailed account of their income and expenditures.
At the end of the day, it doesn’t matter how you reconcile your expenses, whether it’s on a sheet of notebook paper or an app like Mint or You Need a Budget. The key is to stick with it.
The more detailed you are, the better. That means including everything from mortgage or rent payments to your morning latte and those trips to your workplace vending machine. If you can stay diligent throughout the year, you’ll find it easier to wean off those discretionary purchases you can really live without.
Build an emergency fund
An unexpected event, whether it’s the loss of a job or a brief hospital stay, shouldn’t put you and your family in financial ruin. That’s why experts say it’s a good idea to have a fund that can cover between three to six months’ worth of expenses, just in case.
Unfortunately, this is another area where most Americans are falling short of the mark. According to a survey by Bankrate.com, only four in 10 adults have savings they can tap should they experience an emergency. If your emergency fund is running low, or non-existent, now’s the time to start building it up again.
Pay down your credit cards
Getting out of debt is almost always a good thing, but it’s important to remember that not all credit is the same. Credit card balances tend to carry some of the highest interest rates once that alluring promotional rate disappears. That’s why expensive cards should be your No. 1 target when reducing debt.
Let’s say that throughout the year, you average a $5,000 balance on your revolving credit lines. If the bank charges 20 percent interest, that means you’re forking over $1,000 every year in interest alone. That’s money you’d be far better off diverting to a savings or investment account.
Increase your retirement savings
Few workers these days can count on a pension to supplement their Social Security checks when they retire. So most of us have to rely on tax-advantaged accounts like 401(k)s and IRAs to ensure a comfortable lifestyle in our later years.
One popular rule of thumb is to set aside roughly 10 percent of each paycheck toward your retirement accounts, beginning in your 20s. However, workers who start investing later in their career may have to pitch in 15 percent or more to stay on track.
For those 50 and older who are still behind, the IRS offers a catch-up provision that lets you put $24,500 a year toward your 401(k) — $6,000 more than younger investors can contribute.
Rebalance your portfolio
Having an appropriate asset mix should be one of the main goals for any long-term investor. (L10, p12 of pdf) But maintaining the right balance of risk and reward requires an occasional check-up on your account. The start of a new year is a great time to do it.
Let’s say you’re a good 20 years away from retirement and you want 70 percent of your dollars to go toward stocks and 30 percent toward bonds. If you fund your account through a payroll deduction, it’s pretty easy to keep that exact split — at least when the money goes in.
But what if the S&P 500 surges 18 percent in a single year, as it did in 2017, and bonds generate a return of less than 4 percent? Suddenly, the equity portion of your nest egg is higher than 70 percent. You may need to sell some of your shares and buy additional bonds to keep everything balanced. And since no one knows when the stock rally will end, this is also a great way to lock in your gains.
If your allocation is only off by a little, don’t bother tinkering. But when one asset class deviates from your target mix by more than five percentage points, it’s probably time for an adjustment.
Reevaluate insurance coverage
High-net-worth individuals may not have worry about their family’s financial health if they pass away unexpectedly or experience an injury that keeps them out of work. But anyone else with dependents should have life and disability coverage that will keep their loved ones in good stead. A lot of workers have policies through their employer, although they may not be enough to meet your family’s needs.
The new year is a good time to make sure your coverage amounts are sufficient and that the beneficiaries named in your contract are still accurate. If you’ve recently experienced a major event, such as a marriage, divorce, or the death of a family member, you might want to update the names on your contract.
Get your will in order
A drawn-out legal battle — one whose outcome may or may not reflect your wishes — is probably the last thing you’d want in the event of your unexpected passing.
Reviewing your will every year or two is the best way to avoid that outcome. Maybe you’ve recently had another child and need to include her in the documents. Or perhaps you’ve thought better than to have Uncle Lou become your son’s legal guardian if you and your spouse are involved in a serious accident.
If you never got around to creating a will, now’s the time to get started. For more complex situations, working with a qualified estate planning attorney is probably worth the cost that you’ll incur. But in families where the directives are pretty clear-cut, you may be fine sticking with a do-it-yourself tool like Quicken WillMaker Plus or Rocket Lawyer. They even allow you to create a living trust, usually a good idea if you want some of your assets to go toward children who aren’t ready for money-management duties just yet.
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