If there’s ever been a time to evaluate your Financial Resolutions, it’s after the roller-coaster ride of 2020! Now is the time to get out your pencil and paper, your excel spreadsheet, or whatever tool works best for you and start to draft out a plan. This simple guide of 7 Financial Resolutions will provide you a high level view of what’s important for setting a strong foundation to build your financial house.
You may be a young family creating your first financial plan or you could be newly retired. These areas are general in nature and apply to virtually anyone that doesn’t have a Plan.
My suggestion is to go through these 7 areas and write down your thoughts, your questions, and your answers in any format that works for you. You can always refine the final product later. If you need help, turn to a trusted family member, friend, or your Pastor for guidance. Of course, you can call us as well. First consultation is no-charge!
Onward with the 7 financial resolutions to get you started in 2021…
- Search for your overall purpose in life.
Financial goals are important but many times are set aside and forgotten. I find that is the case if you don’t know why you are pursuing that financial goal. You have a greater chance of success financially if you have some overriding life goals as your motivation.. What is your core purpose? Why do you have certain spending habits? Is there a burning charity within your soul? Those are all good questions to ponder before you get into financial goals.Consider donating a regular financial gift toward your favorite church or charity. Or, you may choose to volunteer your time, or a combination of time and money. Giving is a great first financial resolution toward developing your purpose in life.
At or near retirement? Consider this short Successful Aging no-charge e-workbook that I created a few years ago. It will give you some ideas about developing a well-rounded retirement and a well-rounded YOU.
- Understand Your AMS
Most people hate this step. I do too! But if you don’t understand your income and know where that money is going, you are likely to spin into a cyclone of debt. The first step is to understand your Available Money for Spending, or AMS. AMS is your gross income minus your Necessary Expenses. Examples of Necessary Expenses may be, but not limited to:- Charitable giving
- Taxes
- Deductions
- Debt obligations
- QDRO, Alimony, or Child Support
- Retirement savings
Once you know your AMS, you can start to build your spending plan with confidence. The basic formula is Income – Necessary Expenses = Available Money to Spend
Track your expenses every month. You might be surprised how much you spend on various items. If necessary, find ways to eliminate or reduce some discretionary expenses. That will increase your AMS for other areas.
- Pay off non-mortgage debt.
Debt is like an anchor around your neck, preventing you from pursuing your goals. You know the feeling. You want and need a vacation but high debt is preventing you from doing so. That is a bad situation to be in.The best way to pay off debt is to eliminate all credit card expenditures until the debt is paid off. It’s extremely difficult to pay off debt if you keep spending on the credit card! If you can’t put it away, cut it up!
There are two schools of thought on paying off debt. One is to pay the highest interest rate debt first. This makes the most sense if you want to minimize the interest you are paying during the debt pay-off period. The second approach is the debt snowball, heralded by the behavioral financial experts. In this method you pay off the smallest debt first and then move on to the next smallest debt, aggregating the payment amounts as you payoff each debt. Hence, a snowball affect.
Reward yourself at each milestone! That becomes an incentive to payoff the next debt.
Please note that while you are in debt pay-off mode, your AMS will be smaller as you allocate dollars to paying down debt. That means less Available Money to Spend. This is temporary! Remember that once the debt is paid off, those aggregate debt payments now become part of your NEW Available Money to Spend. AMS is a truly great thing!
- Establish an emergency fund.
Nearly 30% of Americans don’t have an emergency fund according to bankrate.com. If you are in this category, it is imperative that you start building up your emergency fund. Everyone has emergencies, especially those that don’t plan for emergencies! Make this savings bucket a part of your Necessary Expenses, and put the money into a separate account.Experts disagree on how much you should have in an emergency fund. The range is generally 3 months to 12 months. 6 months is optimal. 12 months may be better if you are in a volatile job situation. 24 months may be required if you are in retirement and can’t afford to perform a withdrawal during a down market (sequence of returns risk), but that is a subject to be explored separately.
- Plan the Long-Game.
Set up or review your insurance policies, will, trust, Power of Attorney, Medical Power of Attorney, and Living Will. Update your beneficiaries on ALL accounts and policies. If you have questions on what these estate planning documents are, don’t be overwhelmed! Call us for guidance.This financial resolution often gets left behind. Don’t let that happen.
- Dig a Little Deeper.
If you would like to understand more about your overall Financial Health and how these financial resolutions fit in, please check out our no-charge Financial Health e-workbook. It is full of 25 different metrics or “stats” that you can track on your own to stay abreast of your financial situation. Some basic math and performing calculations are required, but the learning experience will be well worth it!For example, we’ll show you the “stat” of keeping your monthly home-related expenses below 28% of your pretax income and your total monthly debt payments (including credit card, mortgage, auto, and student loans) below 35% of your pretax income. These two principles (and 23 more) will help keep you on sound financial footing.
- Consider a Broad-Based Financial Plan.
If you can complete the first 6 financial resolutions, you are well on your way! But consider going all in. Get professional help to develop a personalized, written financial plan that will not only cover all the above areas, but also give you many projections that you simply can’t do on your own. Use a professional fiduciary advisor who has access to professional tools and resources to perform the complex analysis for you. Learn your current situation in detail and what strategies are available to meet your financial goals.You can actually get started on your own! Our financial planning process gives you access to a software Planning tool so that you can start entering in basic profile information at no-charge. From there we can help you build your Plan, for a fee. To get started with your no-charge, no-obligation Profile, go here: Build my Profile.
Once you build your profile, we will contact you about how to proceed with professional analysis, advise, and the related fees to create a personalized broad-based financial plan for you.
Financial Resolutions
The seven financial resolutions are simply guidelines and your personal situation may require something different or specific priorities. Is it overwhelming? Yes, it can be for some people. But with focus and attention, perhaps in small steps, it can be done!
We are here to assist you, encourage you and point you in the right direction!
About Kastler Financial Planning
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We perform these services either as hourly, a one-time fee-only project, as on-going financial planning, or Assets Under Management (AUM), depending on your needs. Whether you live in our backyard or across the country, we aim for a pleasant client experience through our secure, all-digital Financial Planning Process.
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