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How to Get Financially Fit in the New Year

The following column from Phoebe Venable, CapWealth President & COO, appeared in The Tennessean on January 1, 2016.

(Photo: Getty Images / iStockphoto)
(Photo: Getty Images / iStockphoto)

If you want to get your fiscal house in order, a great first step could be a first-of-the-year resolution.

According to the annual New Year Financial Resolutions Study from Fidelity Investments, released in December, people who made financial resolutions at the beginning of 2015 feel much more positively about the coming year than those who didn’t make resolutions. They believed they’d be better off financially in 2016 (51 percent vs. 38 percent), more debt-free (45 percent vs. 33 percent), more financially secure (43 percent vs. 38 percent), more likely to increase their retirement savings (43 percent vs. 22 percent), and that they’d lessen long-term health care costs by improving their physical health (70 percent vs. 57 percent).

Now that I’ve convinced you that making financial resolutions is a good idea, I’ve also got some ideas on what resolutions to make.

1. Save a specific amount of money each month. “Save more” is vague; $1 a month satisfies this halfhearted dictate. Set a goal for how much you want to save over the course of the year and divide it by 12. That’s your number.

2. Make your savings automatic. Have a percentage of your paycheck directly deposited into a separate account, such as a retirement account [a 401(k) or 520 College Savings Plan, for example] or an emergency fund (see below). Where you put it depends on your specific needs and goals. The separate account ensures it’s not easily accessible for spending, like a checking account, and with direct or automatic deposit, soon you won’t even miss the money.

3. Pay off debt. Again, have a specific dollar-amount goal and resolve to pay off part of it each month. Make your number challenging and be disciplined about it, but don’t be unrealistic, either. If your debt is unmanageable and your credit score is at risk, try to negotiate better terms or work with a credit agency to formulate a plan. You could also consider reaching out to a credit counseling expert for some debt relief advice tailored towards your unique financial situation. You might also find help in downloadable form as there are apps out there, like Portify, that you can get memberships for which, with every payment, will help to act as your credit builder – it’s so simple and convenient that it’s a solution that you could try out for yourself right now if you wanted to. Another word to the wise: The recent Fed hike in interest rates is going to make debt more expensive. Get serious about paying it off.

4. Spend less. You guessed it – once more, be specific about how much you want to cut from your weekly or monthly spending. You and your family can give up something nonessential, such as eating out or going to the movies. But you may be able to realize savings that are “hidden” from view, such as refinancing your mortgage if your rate is higher than current rates (which are rising again) or getting insurance quotes from other providers.

5. Start/replenish your emergency fund. It’s your insulation or buffer against unforeseen financial hits, such as HVAC unit replacements, broken-down refrigerators and lost jobs. Try to build it up to three to six months’ worth of living expenses. If you have fallen victim to a faulty HVAC unit, you might want to Read more about the available repair services in your local area so that you can call a professional out as soon as the unit begins to show signs of disrepair – the sooner you act, the better.

6. Review your insurance coverage. Major life events – like the birth of a baby, marriage or divorce – necessitate a review of your insurance plans and beneficiaries. If you experienced such an event in 2015, look your policies over and ensure you have appropriate, adequate coverage. The more dependents you have, the more life insurance you’ll need should something happen to you. At least twice your salary is a good place to start. If you’re recently married or divorced, you’ll probably want to change the beneficiaries of your insurance and retirement plans.

7. Create a budget. Over the course of your financial life, this could be the most important resolution you’ll ever make. Every important effort – particularly if it involves multiple people, such as a family – needs a plan of execution. This is yours for finances. Analyze your living expenses, decide what’s critical and what’s not, determine other needs such as retirement and emergency fund savings, and draft a reasonable budget. Use an online resource such as Mint.com or Youneedabudget.com to help you track and manage your budget. Involve your entire family so everyone has skin in the game.

8. Stick to it. I said before that creating a budget was the most important resolution. But that one hinges on this one. Those figures you see (or don’t see) in your account – that’s real money. And like it or not, real money paves the way to peace of mind and the attainment of dreams.

9. Stay optimistic. Consider it a work in progress and don’t be afraid to amend it as you go. The more downhearted you get, the likelier you’ll be to fold altogether. So keep your chin up, congratulate yourself on successes, learn from mistakes and keep at it.

10. Invest in yourself. Educate yourself about financing and investing. Invest in good books on the subject and maybe even a financial adviser. The payoff could be astronomical.

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth, LLC. Her column on women, families and building wealth appears every other Saturday in The Tennessean. To read Phoebe’s previous column, click here.

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