New Years is just around the corner and most people begin thinking about their new yearâ€™s resolutions. We are going to try to lose some weight, quit smoking or perhaps dink less or go on a vacation. These are all great things to consider, however maybe we can add something more to this list. Maybe we can add getting our finances in order, perhaps saving for emergencies, that new car we have been thinking about, the kidâ€™s college fund and oh yes retirement which is many years away for some.
Kick Start Your Finances – Realistic Goals
Like all New Yearâ€™s resolutions, if they are not realistic, they probably will not happen. It is important to set realistic goals to help make sure that we can achieve them. Setting those goals should be based on our current financial situation and not some fictional wish list. The first step to setting these goals for the coming year should be based on a financial plan that summarizes your current assets, debts, cash flow and income streams. Once you have that information, you can begin deciding what your priorities are and what goals you want to set for the coming year.
Pay Yourself First â€“ Savings vs. Debt
Many banks and financial institutions talk about paying yourself first. What they really mean by that is to put money into a savings plan with them. Whether it is a RRSP in Canada or a 401k in the US, the banks want you investing with them. You can also pay yourself first by paying off your debt so that you are paying less interest expense and ultimately when the debt is fully paid off, you have more cash to pay other things and save for the future.
Think Long Term â€“ Retirement, College Funds, Mortgage
While you want to pay your debt off as quickly as possible, it is also smart to start thinking about the long term regardless of what age you may be. If you are young, setting a small amount aside for retirement every week can add up in a hurry and make you financially independent at retirement age. Same applies if you have young children. We want them to go to college and it takes a lot of money these days to put a child through college. Saving when they are young makes this also a lot easier as well.
Spending Less to Achieve Your Goals
You may find that initially at least you will have to spend less to achieve your goals in terms of saving money for college funds, debts and retirement. But taking this step has huge benefits as you get older and close to retirement. It also means that you live within your income level and avoids debt increasing. This is important at any age even if you are retired today. Once you pay down your debt you will have more money at your disposal to pay for other things including your financial goals and other things that are part of your financial plan such as upgrading the house.
Peace of Mind
Are you one of those people who lies awake at night thinking about their finances? Once you have a plan there is nothing to think about. Focusing on implementing the plan provides a great deal of peace of mind and can eliminate those sleepless nights. A friend of mine who was retiring from a well paid government job with a large pension did not know if he was going to have enough money in retirement. He worried a lot about this because he did not have a financial plan. He did not have a budget. They lived from pay check to pay check and often did not know how he was going to meet all of his obligations. The answer is pretty simple:
- Develop a budget
- Develop a financial plan
- Pay down your debt as quickly as possible
- Set aside money for retirement
- Set aside money for emergencies
- Save for special projects such as new cars and home renovations
- Live within your means
New years is coming quickly. Have you made your new yearâ€™s resolutions? Even if you read this after New Yearâ€™s has long passed, now is the time to put this plan into action and obtain that peace of mind that everyone wants to have.