It’s a new year, and that means new resolutions. Like many people, you may have made financial well-being one of your resolutions for 2019, but how do you go about achieving it? In this article, I’ve included five easy-to-implement steps to help increase your financial health and meet 2020 with confidence.
1. Set Up a Budget
A well-designed budget shows what’s possible and provides the structure to make the possible a reality. It can help you understand how much you’re making versus how much you’re spending.
Did you end up short one month? A budget can help you pinpoint where you went wrong, adjust accordingly, and create a plan to achieve your goals.
2. Build an Emergency Fund
When life goes wrong, an emergency fund can help you meet the crisis with confidence. You’ll have the money in the bank to help you stay afloat while you work through whatever life threw at you.
I generally recommend that people save four to six months’ worth of living expenses. Your situation may be different, of course. If you’re self-employed and have variable income, for example, you may want to save more.
Don’t put the money in an investment account. You want to be able to access the cash as soon as you need it, and you want to protect it from the vagaries of the stock market. Consider a high-yield bank account or a money market account.
3. Tackle Your Debt
It’s true that debt can be leveraged smartly, and some debt, like a home mortgage, is practically unavoidable. However, debt can also sap your ability to save and can keep you up at night, worrying how you will pay the bills.
Make a plan to reduce or eliminate your debt so that you can increase your ability to live a balanced life. One popular method is to pay down the highest-interest debt first; alternatively, you might start with the smallest balance. Whatever your method, the sense of accomplishment in paying off each succeeding bill can keep you going until you’re done with them all.
4. Review Gaps in Your Insurance
So you have a budget, have built an emergency fund, and are watching your savings increase as your debt burden goes down. What’s next? A good option is to make sure you’ve protected what you built. A car accident, a slip-and-fall on your property, a natural disaster—you can’t really prepare for these events, but you can make sure you and your family are protected should they occur.
Make a list of your insurance needs, such as homeowners, renters, and automobile. You may want to consider an umbrella policy, and if you’re a business owner, you should consider how to protect your livelihood as well.
5. Diversify Your Investments
Watching the stock market do its ups and downs can be nerve-wracking. There is something you can do, however, to give yourself a bit more peace of mind: Diversify.
A properly diversified investment portfolio can help insulate you from market downturns. It can also help give you the necessary emotional resolve to ride out economic volatility. With a diversified portfolio, the various assets of your portfolio will react differently to the same volatility.
In short, you haven’t put all your eggs in the same basket. You’ve minimized your short-term investment risk while giving yourself a better opportunity to achieve your long-term goals.
I’ve tried to present easy-to-implement resolutions in this article; however, financial and investment planning can still be complex. A financial planner can help you craft the financial, tax, investment, insurance, and estate strategies to help you achieve your unique goals. And who is the right advisor? That depends on your needs, but I believe everyone is best served by a fiduciary advisor who doesn’t earn commissions and always puts your best interests first.