It’s a new year.
The start of 2015 for many means a clean slate. It’s a new opportunity to set goals personally and/or professionally and make plans to take action. The most popular resolutions include losing weight, getting out of debt, spending more quality time with loved ones, etc. They are all admirable goals, but did you know that a third of people give up on their resolutions by the end of January?
Is one of your resolutions to take control of your finances finally this year? If so, use the following five steps to get started and on the path to getting your finances sorted once and for all. You don’t want to end up a part of the above failure statistics after all, do you?
1. Take an Inventory of Your Current Situation
It’s impossible to figure out how to make changes, if you don’t know where you’re starting from. Take some time this week to gather up all of your statements or log in credentials and make a one page spreadsheet of all of your assets, liabilities, interest rates, payments, etc.
By doing so, you should be able to see what you’re paying and to whom. In the sense of liabilities, are you paying too much in interest? Should you try to reallocate your budget in order to attack debt more aggressively with the ultimate goal of keeping more money in your pocket?
When it comes to your investments, do you know what you’re paying in fees? How does that compare to your rate of return. If these details aren’t easily evident (which they usually aren’t), try using our free tool to find out where your accounts rank from a fee, risk and return standpoint in as little as five minutes.
2. Set Goals on Your Own or with an Advisor
Now that you know where you’re starting from, it’s time to revisit your goals or set some new ones if you don’t have any written down. Spend some time thinking about your short, intermediate and long-term goals.
Do you need to focus on building up cash reserves, paying down debt or allocating funds towards a home remodel or something else? Have you determined your ideal retirement date and if so, are you on track?
If you’re currently working with an advisor, these are some of the areas of focus that you should be working towards together. Are all of your investments allocated to your retirement goal or are a portion for another short or intermediate term goal? Revisit your investment objectives and risk tolerance to ensure they’re inline with the goals that you’ve set for yourself.
3. Measure Your Progress
Goals are great, but they don’t do any good if you aren’t measuring your progress towards them. It’s easy to say that you want to retire at 62, but are you doing the things necessary to make this a reality?
The markets are ever-changing and are currently at record highs. Are you properly diversified? If you’re getting closer to retirement, have you started to decrease your risk on the money you plan on using first and take some of it “off the table?”
Consider revisiting your short and intermediate term financial goals on a more frequent basis (monthly or quarterly). Your longer term goals can be addressed semi-annually or annually. Have a plan and revisit it to measure your progress and make changes over time.
4. Keep Your Advisor Accountable
It’s your advisor’s job to keep you accountable to your goals and financial plan. But, sometimes it’s necessary for you to keep them accountable as well.
Are your investments performing as well as they should be? Has your advisor been able to help you limit fees or potential tax consequences? Are they regularly checking in or proactive in scheduling meetings to keep tabs on your goals and accounts? If not, you should consider asking them why not.
5. Review and Repeat
Getting your financial affairs in order is only the first step. Like anything else in life you’re responsible for managing, you need to revisit your financial plan and goals from time to time.
Consider getting started by taking an inventory as stated above. Then set some short, intermediate and long-term S.M.A.R.T goals (specific, measurable, achievable, results-focused, and time- bound) on your own or with your advisor.
Measure your progress and keep your advisor accountable to doing so as well – otherwise, what are you paying them for? Make sure that you implement some system or schedule to review things regularly and make changes as needed. You can do this!
Is 2015 the year that you’re going to get a better handle on your personal finances? What are you waiting for?