“Every tomorrow is an outcome of what I do today, and the beauty of it all is that today is happening all the time.” — Craig D. Lounsbrough
As we approach the end of 2018, it’s a good time to look back and reflect on your journey toward your financial goals. Looking at your current situation can help you develop a concrete plan and action steps needed to get your 2019 finances off to a good start.
The first step is always realizing where you’re starting from. If you haven’t already calculated your net worth, it’s time. It’s also incredibly helpful to see all of your spending and savings in one place. If you are already using an app like Mint or Quicken, or even an Excel spreadsheet, great. If not, there are a ton of personal finance applications out there—check out the reviews on Investor Junkie or The Wire Cutter to find one that’s appealing to you. There are lots of free as well as paid tools.
Once you know where you stand, it’s time to think about your goals. Where would you like to be in 5 years, 10 years, or when you’re ready to stop working full-time? Once you’re clear on that, you can create a plan that will let you get there from where you are now. A simple formula for people who don’t like or find it hard to budget: 50% of your take home goes to fixed expenses like rent and utility payments, 20% to discretionary expenses, and 30% to saving, paying off debt and investing. Whether or not you choose to use Emperor’s automated dividend investing service, investing your money is crucial to building your long-term wealth.
Did you know that almost 50% of Americans can’t handle a $400 emergency without going into debt? Don’t be one of them. If you don’t already have an emergency fund, now is the time to start. If you are getting a tax refund, take half of it and start your ‘expect the unexpected’ fund. Consider stashing it in an online savings account to get the best interest rate. It is not wise to invest this money as investing is a long term activity and you could need this money in the short term.
By now, you’ve got a good idea of where your money is going every month. If you have any lingering credit card debt, this is the month to start paying it down. Start with the card that has the highest interest rate. Put the most you can afford towards that one and pay the minimum on the rest. Once you get rid of the highest interest debt, move on to the next card, and repeat the process until you’re debt-free.
You’re making real progress at building up your savings and paying down debt. This is a good time to take stock of your overall situation. Are you spending money on what’s meaningful to you? Review your subscriptions and get rid of any that you don’t really use or enjoy. Ever gotten hit with a big late fee? Prevent that from happening by setting up automatic bill payments with your bank. And if your bank charges high fees to maintain your account, consider moving—check out Bankrate.com. You can also set up recurring deposits to your savings account with most financial institutions. This is a great way to force yourself to save money, even if it’s just $50 per month.
It’s not too early to start thinking about holiday spending plans. Between gifts and/or travel, it’s common for people to go into debt. A Nerdwallet study of consumer holiday spending found that 56% rack up credit card debt, and many of them planned to go into debt again—including people who are still paying off previous years’ holiday bills.
Decide now how much you’re willing to spend, and start saving. You can also decide how you want to handle the holidays—like setting a limit on presents, just buying gifts for the kids, or taking a ‘secret Santa’ approach instead of buying presents for everyone. You’ll save money and have less clutter. When you do buy, take advantage of discount codes and coupons.
Insurance is intended to reduce your financial risk. But many people have policies that aren’t a good fit—they’re either over- or under-insured. For example, you could be paying for auto insurance you don’t need, like collision coverage for a car that’s older and has depreciated in value. Disability insurance is especially important if you’re employed—you need to protect your income in case you can’t work for some period of time. If you’re relatively young and healthy, consider a high deductible health insurance plan with a Health Savings Account.
You’ve made a lot of progress! Use this month to review your goals, whether you’re on track to meeting them, and what you need to do next. Take a little of the money you made or saved this year and do something personally meaningful with it—make a memory with friends or family, donate to a favorite charity, or travel.
You might not remember all of these steps when the time comes, so set up calendar reminders to keep you on track in 2019. By making even a few of these changes, you’ll be in better shape financially going forward.
Martha Brown Menard, PhD, is a research scientist, financial coach, and dividend income investor. She takes a smart beta approach to building her own portfolio, and likes seeing her income stream grow.