Achieving Financial Wellness in the New Year

Nearly 1 in every 4 Americans kick off the new year by making a new year’s resolution. Living a healthier lifestyle, by way of diet and exercise, has clinched the top resolution spot for decades. But riding strong in the middle of the resolution pack is the commitment to achieve financial wellness before year end. 

Financial wellness can mean different things to different people. Ultimately, financial wellness is a sense of security felt from making sound financial decisions that impact your past, current, and future finances. 

Think of it in the context of your mental wellness. You may see a therapist to deal with past trauma, seek tools to deal with day-to-day stressors, and partake in activities that keep you aligned with future wellness goals. The same tactics can be applied to financial wellness. Achieving financial wellness isn’t just about focusing on one area of your finances with one tool, it’s about looking at your finances holistically and setting goals that will help you feel secure moving forward.

Setting Financial Goals 

Hit the ground running by first determining what your financial goals are or what you’d like the outcome to be. Here are a few typical financial goals you may want to consider:

• Establish a savings plan
• Pay off student loans
• Create an emergency fund
• Increase contributions to your retirement plan
• Set up a college savings plan
• Pay off credit card debt
• Improve your credit score
• Create a personal budget 
• Expand your business
• Set up an estate plan

No matter which goal you focus on, it’s important to break down the larger goal into micro goals. 

Let’s take paying off student loan debt as an example. The thought of paying off a sizable debt in a short period can feel overwhelming, which leads many students to put this financial goal on the back burner. Instead of looking at it from a broad perspective, set smaller more realistic goals that will allow you to make incremental progress over the year. 

The broader goal may be to pay off a $65,000 loan over a 10 year span, but the micro goals may be: 

• Increase monthly payment by $100 or more 
• Investigate and apply for loan forgiveness programs 
• Consolidate multiple loans at a lower interest rate 
• Set up automatic payments through your lender
• Contribute 10% of yearly tax return to the loan balance

By first establishing what financial goals are relevant and important to you and then creating micro goals, you’ll feel more confident in your direction and less overwhelmed with what comes next. 

Financial planning tips for the new year

Everyone’s financial goals are different, but there are some measures that you can apply regardless of the goal. Whether you want to pay off student loans faster or increase your retirement contributions, these tips will help you better understand your spending habits and leave less room for error.

1. Assess your monthly budget 

Or if you don’t have one, start a monthly budget. Before you make any big financial decisions you’ll first want to understand where your money goes each month. How much do you allocate for groceries? What is your car payment or transportation spend? What percent of your income goes to mortgage or rent payment? How much do you spend on entertainment or splurges?

Apps, like Mint, easily allow you to track your spend at a high-level, while also giving you more granular information in the form of categories. Once you have clear insight into where you’re spending your monthly income, you can make more informed decisions on where to scale back or where to give attention. 

2. Bulk up your savings

Starting or regularly adding to a savings account is never a bad idea. Experts recommend you set aside about 6 months worth of expenses into a savings account as a precautionary measure. Setting aside approximately 20% of your annual income towards savings has become the rule of thumb, according to the 50/30/20 model. 

One easy way to ensure you’re contributing monthly to your savings is by setting up a recurring monthly transfer from one account to another. Decide on a fixed amount and speak with your bank to get started with automatic deposits. 

3. Clean up your credit

There is over $756 billion in credit card debt as of 2020 with 95% of Americans possessing a credit card. According to VantageScore, the massive amount of debt and credit spend has caused Americans to score an average of 697, or fair, as their credit score. 

All this to say, you’re not alone. If you are among the millions of Americans wallowing in credit card debt or feel your credit score could use some serious improvement, consider ways of cleaning up your credit:

• Pull your most recent credit report
• Increase your monthly credit card payment
• Resolve any collection efforts
• Use your credit cards less
• Apply cash back to your outstanding balance
• Challenge any potential credit errors 

4. Lean on an expert

Achieving financial wellness isn’t a simple task. If you intend to reach your financial goals by the time December 31 rolls around, you may need to call in an expert. An experienced financial advisor can help develop a strong financial plan unique to you and your goals. They’ll work with you to get a better understanding of your current financial situation and opportunities that can enhance your financial future. 

Seeking a Financial Advisor? Request a Case Review 

Don’t wait for the new year to improve your financial wellness. Commit to making subtle or strong economic changes so that you can feel secure in your financial situation. Prudent Investors is an independent financial advisor that provides advice and services that are focused on what is best for you. Whether you’re looking for investment management or financial planning services, we’re here to help.