Many of us make New Year’s resolutions to save money, create a budget, get organized, or pay off debt. Yet when it comes to New Year’s resolutions in general, it is estimated that only 25% of people stick to them. How can you create a set of New Year’s financial resolutions, and most importantly, stick with them? Cherrie Boyer, Financial Planner with Wamhoff Financial Planning & Accounting Services shares her tips.
Why financial resolutions and goals are important:
- The ability to save money is the cornerstone of building wealth and saving for retirement. In order to save money, you need to spend less than you earn.
- The earlier you start saving, the better off you’ll be. It is estimated that a person in his or her 30’s will need approximately $1 million to $1.25 million for retirement in order to replace a $50,000 annual income.
- Recent studies have shown that many Baby Boomers, now aged 48-66, will fall short in their retirement savings and will not have enough to carry them through.
- Assuming the current rate of inflation, the cost of living will double in the next 19 years meaning that an American retiring today will see the purchasing power of their retirement savings drop by half during their expected lifespan
- There are many ways to save money even on the tightest of budgets. Remember, in the long run, every little bit makes a difference.
Step 1: Examine your spending – particularly, your overspending
- Keep a journal with you, or take notes on your mobile phone, to document everything you spend each day.
- Look for common trends or triggers that help you identify when and why you spend, or overspend. If it’ s a stress trigger, look for other ways to relieve that stress that don’t cost money.
- Identify expenses you can live without. Do you need all of those cable channels? Can you do your nails at home? Any expense you can eliminate means money in your pocket in retirement.
Step 2: Decide what to do with the extra money
- Pay off debt. As you plan for retirement, you want to work towards having as little debt as possible. If you’re younger, you want to eliminate high interest or unnecessary debt to strengthen your financial picture.
- Have an emergency fund. Plan to have at least 3-6 months of living expenses in an accessible savings account should you or a spouse lose a job, or have to go on unexpected, unpaid leave from your job.
- Save for retirement. Contribute to your 401k or IRA plan until it hurts! If your employer offers a match, be sure to at least contribute to that level, but consider maxing out to a level you can live with.
- Consult a professional. Regardless of how much you have to save, a financial planner will be able to help you create a plan based on a realistic picture of where you are, what you will need in retirement, and how to help get you there.