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Simple Steps to Improve Your Finances in the New Year

A lot of people talk about the New Year as a chance to start over, a chance to create new habits or improve something in their lives. People make resolutions to change.  They will work out more. They will eat healthier. They will drink less. They will save more money. All of these are great aspirations but unfortunately they are rarely kept. US News estimates that 80% of New Year’s resolutions fail by February. There are many reasons given as to why this happens but I think it boils down to a few basic ones: time, motivation (or lack there of) and accountability. How you overcome these obstacles is going to vary depending on the goal you are trying to achieve. Being a financial blog it’s probably most fitting that I focus on that aspect of your resolutions.  So what simple steps can you take to improve your finances in 2017 and make sure these improvements stick?

  • Systematize your savings: This is the simplest way to improve your finances without having to do too much work. Any bank or brokerage firm can set up automated savings. Set it up to pull from your checking account on the same day that your paycheck is deposited. That way the money is never there for you to spend.  Your spending habits should adapt to the new “take home” amount. This systematization can also be accomplished within your 401k. To make this even more effective you can gradually increase the savings amount throughout the year. By increasing the savings amount by a small amount every month, or every quarter, you won’t feel the pain of the increase but by the end of the year you will be saving an amount you never thought possible.
  • Educated yourself: Read a book, listen to a financial podcast, stay up to date with what’s going on in the markets or attend a seminar. Improving your financial acumen will motivate you to do more. As I’ve discussed before a lack of knowledge can make us fearful of making poor financial decisions and lead to us neglecting our finances.  The only way to overcome this is to educate yourself.
  • Set aside specific time: This is probably the most important, but also the most difficult to do. Improving other aspect of your life requires a certain time commitment.  In order to be healthier, you have to work out more, etc.  The same holds true for your finances.  You must set aside specific time to review and adjust your financial plan or investments. Too often I see people create an investment portfolio or set up a savings plan and then think they are done. As with most other things in life, improving your finances requires more than the initial groundwork.  It requires follow-up and review.
  • Articulate your goals: The resolution of improving your finances or saving more is great but it doesn’t address the why behind it. In order to motivate change there needs to be a why behind that resolution.  Why do you want to save more? Why do you want to improve your finances?  Articulating these whys helps to create an additional motivation behind the resolutions.  You are not just motivating yourself to save.  You are motivating yourself to retire early or buy that house.  These emotional connections to your resolutions help to improve motivation and make you more accountable because not achieving them has greater consequences.
  • Hire professional help: Now, I understand that this last one could be self-serving but if you don’t think you can do some or all of the things above then it may be easier for you to simply outsource this part of your life. You understand your own limitations of time and knowledge but if improving your finances is important than let someone (or something) else do it for you.  This could be as simple as using a robo-advisor to set up a basic savings and investment plan or hiring an advisor to put together a full financial plan that they hold you accountable to.  In either case, some sort of outside counsel can provide you with needed improvement in your finances you are looking for without the time commitment.

Improving your finances isn’t rocket science. These simple changes can be accomplished by almost anyone and can be applied at all levels of wealth and income. If you are already taking the above steps, then taking your finances and investment to the next level will have to be the topic of another post but by accomplishing these simple “starter” steps it will allow you to look back on the year and not be in the 80% majority.

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