Creating New Year’s resolutions is a great way to kick off the new year, but sometimes our goals can be so big, lofty, and vague that we don’t know where to begin, or feel too intimidated to even start. What does “improve financial health,” “eat better,” “travel more,” or “stop procrastinating” even look like? What does it entail?
If “improve financial health” is on your list, here’s one tip: The single most important thing you can do to improve your financial health is to track your income and expenses. Whether by paper-and-pen or Mint.com (or other apps), you need to take a clear-eyed, realistic look at your income and expenses. Are you underearning or overspending? Some of both?
Tracking and categorizing your expenses can be tedious and daunting, so we encourage you to approach it with the mindset that it’s just data — data that is necessary to evaluate whether you should make spending shifts and how to make them.
Remember, you can’t embark on a journey until you’ve located yourself on the map. You can’t make choices about how to change your spending until you have insight into the choices you’re making now.
But the payoff is huge: Clarifying your income and expenses will give you the information you need to evaluate trade-offs, make informed decisions, and feel confident. There’s no secret sauce, but it all adds up to better financial outcomes.
Make Small Course Corrections Now
Making small course corrections to spending and retirement contributions now will have far greater impact than large corrections you make later. Try resisting the temptation of immediate gratification by thinking of these changes as advocacy for yourself at ages 70, 80, or older.
If you have access to a 401(k) plan, you should absolutely contribute, at least enough to equal your employer’s matching contributions. But it’s never too soon to start supplementing your savings with a health savings account (HSA), a traditional IRA, or a Roth IRA. If you’re self-employed, consider supplementing with a SEP IRA. For women who are closer to retirement, consider obtaining long-term care insurance, especially if you have a family history that indicates you may experience health challenges later in life. Such policies can be costly, yes, but they can make a world of difference.
Work with a Financial Advisor in 2020
Work with a financial advisor to crunch the numbers to see if you are on track. Armed with your financial data and some well-considered assumptions, you can get a realistic idea of where you stand now and devise a plan to make the course corrections that work best for you. If you’re interested in discussing your financial picture with The Humphreys Group, reach out to us today.