For most of us, 2020 is a year most of us are only too happy to be done with. It’s been 12 long months of disease, disasters and strife, but 2021 is hopefully a clean slate.
If there’s one thing we’ve learned from the past year, though, it’s that there’s a lot of value in being prepared. With that in mind, here are some New Year’s Resolutions you can make that will help you achieve financial success in the months ahead.
Calculate Your Net Worth
Your first financial New Year’s Resolution should be to calculate your net worth.
While this seems like the kind of task you need a certified professional accountant for, it’s actually pretty simple. Just add up the total of all your assets, including checking and saving accounts, retirement accounts and estimated property values, then subtract any outstanding debts that you have, including student loans, mortgages and credit card debt. It's worth pointing out that the My Money feature of our online banking service will calculate your net worth automatically when you connect your accounts from different financial institutions.
You might be disappointed that the total isn’t very high, but the truth is as long as the number is positive, you’re doing well. If the number is negative, you’re living beyond your means and you need to make paying off your debts and creating a balanced budget your most important financial goals.
The real value in calculating your net worth lies in showing you all your assets and liabilities. It’s one of the best ways for you to understand your current financial situation, and it’s also a useful benchmark you can use to gauge your financial growth in the future.
Update Your Financial Goals
Once you have an idea of your net worth and know where you stand, you can figure out where you’d like to go. The beginning of the year is a great time to consider what you’d like to do in the upcoming 12 months, as well as reassess any financial goals you have that will take longer than a year to achieve.
Creating financial goals can be a fun experience, especially if you’ve never done it before. Just think about all the things you’d like to do and write them down.
Next, separate out your goals by how long achieving them will take. Short-term goals can usually be accomplished in one year, while medium-term goals should take around five years to accomplish. Any goal that will take longer than five years to achieve is a long-term goal.
Once you’re done, make sure all your goals are S.M.A.R.T.—Specific, Measurable, Attainable, Realistic and Time-Bound. Then prioritize your goals and work on the most important ones first.
Update Your Budget
Another excellent financial New Year’s Resolution is to review your budget. While it’s a good idea to review your budget at the end of each month, when you review your budget at the beginning of the new year you can take a long-term view of where you’d like to be at this time next year.
You can also make sure to include a category for financial goals in your budget, and as you’re doing that you can look through your budget and make sure that you adjust your categories reflect the amounts you’re actually spending—or the amounts you want to spend--each month.
Pay Down Your Debts
If you have debt, one of your financial goals should be paying it down as quickly as possible. Make a plan to pay down more your existing debt, whether it’s finding more money in your budget to throw at the debt or even using a debt consolidation loan that may save you money with a lower interest rate, as well as replace your multiple debt payments with one convenient payment.
Build up Your Emergency Fund
If you already have the three to six months of salary financial experts recommend in your emergency savings account, take a second and congratulate yourself. On the other hand, if you’re like the 70% of Americans who have less than $1,000 in savings, you really should make a New Year’s resolution to build up your savings.
If you’re not saving at least 10% of each paycheck, you can start there. If you’re already saving 10%, try to increase that amount to 15%. You can make the process easier by setting up direct deposit to automatically divert a certain amount of your paychecks into your savings account.
Review Your Insurance
Do you know what your deductible is if you get into a car accident? What about if you have a medical emergency? If the answer to either of these questions is “No,” you should make a New Year’s resolution to review your insurance policies.
Take a look at each policy to see what it covers and how much you’ll have to pay before your insurance kicks in. If you have any trouble figuring out details, be sure to contact your insurance company to get some clarification. If you’re getting any insurance through your workplace, you can also contact your HR department for help figuring out what insurance you have and what it covers.
Knowing what your insurance does and doesn’t cover can be extremely helpful. At the very least, you’ll know the minimum amount that should be in your emergency fund if a crisis occurs.
At best, though, you’ll know whether the insurance you have is adequate or not, and you can use that information to get better insurance coverage for you and your family. You can also use that information to help you shop around and get the best possible deal on insurance.
Prepare for the Future With First Alliance Credit Union
These New Year’s resolutions only take a few minutes to do. Once you complete them, though, you’ll find yourself on solid financial ground for the year ahead.
You can also put yourself on solid financial ground when you become a member of First Alliance Credit Union today. You can use our direct deposit forms to save a portion of each paycheck in a traditional savings account, download the free budgeting tool in our resource center to help you create a budget and even invest your money in a certificate of deposit (CD) or an IRA.
Want more information? Listen to our Good Money Moves podcast! You can find episodes dedicated to many of the topics covered in the blog, including setting financial goals, budgets and how to pay down debt.