Planning your finances for the year isn’t the most exciting thing to think about, but taking some time in January to set up your financial plan for 2018 can help you make huge strides towards financial security now and in the future. Get started on your financial planning by taking these 6 steps:
1. Set Goals For The Year
Start 2018 by setting some financial goals. By goals we mean clear, measurable, and realistic financial targets for 2018 that are achievable and trackable. Set one primary goal for the year, such as saving 50% of the deposit you need to purchase a new home. Then break this down into smaller achievable parts, for example how much will you need to save each week to hit your primary goal. Tracking each of the smaller parts will help you hit your primary goal and make it much easier to reach your overall financial goals in 2018.
2. Review Your Retirement Plan
Retirement may seem like a lifetime away but it’s never too soon to start planning for your retirement and its good practice to review your progress each year. One of the biggest mistakes people make is not taking advantage of the full amount of 401(k) matching offered by their employer. Not paying in enough to receive the full match is basically like passing up on a free contribution into your retirement funds. If you’re not currently saving towards retirement start today with as much as you can afford to pay in. If you’re already saving check to see if you’re fully taking advantage of all your options including both 401(k) and IRAs.
3. Review Your Life Insurance Coverage
The start of the New Year is the perfect time to look over your existing life insurance coverage. It’s not unusual for your coverage needs to change as your life evolves so it’s important to take the opportunity to check that you current policy still fits your needs.
Some of the most common reasons people need to change their coverage include getting married, getting divorced, buying a home, and having children. To check that you have adequate coverage you simply need to conduct a quick needs analysis. To do this you need to add together the amount of your financial obligations such as your mortgage balance, outstanding debts, income replacement, college education expenses, daycare costs, etc. This is your minimum coverage amount figure. You’ll then need to work out the minimum time you need coverage for, to do this look at your financial obligations to see how long your longest obligation lasts for, for example a 25 year mortgage. Our online life insurance calculator will make this process quick and easy!
One other important factor to consider is whether the correct beneficiary is named on any existing coverage; this is a simple issue that can easily be overlooked during exciting life changes.
4. Evaluate Your Debt
Debt can weigh heavily on every part of your life. Make 2018 the year when you take control of debt by making sure that you have the best financing option in place. Two areas where interest can quickly grow are student loans and credit cards. Over 70% of graduates leave college with debt, so if you're struggling with repaying your loans you're not alone.
The first step to managing your debt is to make a list of all of your loans, including credit cards, with information on their interest rates. You should prioritize paying off the loans with the highest interest rates first. You could also look into refinancing any debt with high interest rates such as student loans.
5. Create A Monthly Budget
Without an established monthly budget it can be difficult to keep track of your spending habits, especially if you don't have a separate savings account. Creating a monthly budget can help you manage your money and reach your savings goals for the year.
To set your budget for the upcoming year you should start by making a list of how you spend your earnings each month. The 50/20/30 rule is a good place to start. Begin by splitting the expenses into two categories: needs and wants.
Needs are anything that is vital to your life such as rent payments, utility bills, and food. Wants are items you want but don’t need such as entertainment expenses. Your needs should exceed no more than 50 percent of your after tax income and your wants should cost less than 30 percent of your after tax income. This will leave you a minimum of 20 percent to put into your savings.
If you’re not currently hitting these targets, don’t worry; they’re just a guide to help you work towards a solid budget. Look for areas where you can reduce expenses to get as close as possible to these numbers and find the percentages that work for your life!
6. Use Tools That Will Help You Manage Your Finanaces
There are a number of apps available to help you kick-start your finances in 2018. One of the best and most comprehensive options is the Mint App from Intuit. It lets you keep track of your finances including bank accounts, savings accounts, credit cards, and bills all in one place. If you’re looking for Apps to help with savings Acorns and Stash are a great place to start!