The beginning of a new year often prompts people to reflect on their lives and set resolutions for self-improvement. Among these resolutions, financial goals are frequently at the top of the resolutions list. From doing an assessment of your financial health to considering a prenup, there is a financial resolution for everyone. Let’s delve into the top 8 financial New Year’s resolutions that you can choose from to pave the way for a prosperous and stress-free 2024.
#1: A full analysis of your financial health
Financial health is akin to physical health, requiring regular check-ups and conscious efforts to maintain. Assessing your financial health involves a thorough review of your income, expenses, debts, investments, and savings. This critical step serves as the foundation for setting realistic and achievable financial goals. If you haven’t yet done so, set yourself a money date and take time to check-in.
Reviewing Income and Expenses
Begin by scrutinizing your income sources. This includes your salary, bonuses, side hustles, rental income, and any other monetary inflows. You may even want to look at last year’s tax returns to see your total for the previous year. It’s essential to have a clear picture of your total monthly and annual income.
Next, (brace yourself) dive into your spending habits. This one hurts, we know. Start by categorizing your expenses into fixed (e.g., rent, utilities) and variable (e.g., groceries, entertainment). This analysis helps identify areas where you can potentially cut back and allocate more funds toward savings or debt repayment.
Then, you can calculate your disposable income by subtracting your total expenses from your total income. The figure you calculate represents the money you have left after covering all essential and non-essential costs. Understanding your disposable income is a way to understand what you can do with that (hint, hint: investing, saving, paying off debt, etc.).
Evaluating Debts and Savings
Scrutinize your outstanding debts, including credit card balances, loans, and mortgages. Identify the interest rates and minimum monthly payments for each debt. This information is super important for calculating an effective debt repayment strategy (more on this later). This can also help you in evaluating options for reducing any high-interest debts.
Then, examine your current savings and investment accounts and assess whether they align with your financial goals. For existing savings, evaluate the interest rates and explore opportunities to optimize returns. Your first financial priority is setting up your ‘FU Fund’ or ‘emergency fund,’ which ideally is a minimum of 3-6 months of your essential expenses.
Here’s a top tip – avoid the mainstream advice to have your savings in a regular savings account; opt instead for a high-yield or high-interest savings account. This one money move will ensure you stop losing money thanks to inflation, and instead have your money working for you.
#2: Setting a budget for 2024
Probably the most common financial resolution for the new year among individuals is setting a budget– this is understandable as having a budget is a fundamental step towards achieving financial stability and reaching your monetary goals.
Creating a Realistic Budget
This involves a detailed analysis of your anticipated income and planned expenditures for the upcoming year. Begin by listing all expected income sources for 2024, which may include your salary, any bonuses, passive income, etc. Then, outline your fixed expenses, such as rent, utilities, and insurance, ensuring they align with your current lifestyle and financial goals.
Are your utilities extremely high? What about insurance? If so, you may want to consider switching those up in the new year. Once you have your income and fixed expenses laid out, you can then write out the variable expenses, such as groceries, entertainment, and leisure. This is where the realistic budgeting comes in, and you can dial up or dial down on the variable expenses. This process provides a tangible framework for your financial journey throughout the year.
If this feels overwhelming, try the 50/30/20 approach, where the aim is to allocate 50% of your income to essential expenses like rent and utilities, 30% to the things that bring you joy, and 20% to your savings and investments, so you know you’re taking care of future you. This is known as value-based spending, which involves eliminating all the extra expenses like unused subscriptions, unintentional dining, or take-out and instead focusing on what actually adds to your life.
If your current allocation is way off this 50/30/20, no stress. Step 1 is awareness; then step 2 is deciding what changes you can make to bring it more in line with this. Keep going; you’re doing amazing!
Budget Tracking
To make sure you adhere to your budget throughout the year, consider tracking daily expenses. This may mean jotting down everything you spend in an app, writing it out on paper, or purchasing a real budgeting app to assist. Implementing this strategy involves recording every expenditure, no matter how small, to gain insights into spending patterns. This meticulous tracking not only increases awareness of discretionary spending but also allows for adjustments to stay within budget constraints.
#3: Emergency fund planning
As we briefly touched upon above, one of the cornerstones of financial preparedness is the establishment of an emergency fund. Life is unpredictable, and unexpected expenses can arise at any moment. Enter: the emergency fund. By having a financial safety net, you can navigate unexpected life events, such as medical emergencies, car repairs, or sudden job loss, without jeopardizing your overall financial health. An emergency fund provides peace of mind, ensuring that you have the necessary funds to cover immediate needs and preventing the need to rely on high-interest debt in times of crisis.
Building an emergency fund requires a strategic approach. Start by setting a realistic savings goal, such as three to six months’ worth of living expenses. Allocate a portion of your income specifically for the emergency fund to ensure consistent contributions. Consider sending automatic transfers to the emergency fund to make saving a seamless part of your financial routine. Additionally, explore opportunities to increase your fund over time, such as putting bonuses towards it. By gradually building and maintaining a robust emergency fund, you create a financial buffer that provides both security and flexibility in the face of life’s uncertainties.
#4: Debt management
Who doesn’t have a little bit of debt these days? Effectively managing debt is key to achieving financial well-being. Start by scrutinizing your existing debts, including credit card balances, loans, and other financial obligations. Notice what your interest rates are and if they’re variable or fixed. Prioritize paying off those debts with the highest interest rates to minimize long-term costs.
Next, you might consider debt consolidation, which can be a powerful tool in regaining control over your financial situation. This involves combining multiple debts, such as credit card balances or personal loans, into a single consolidated loan with a lower interest rate. This not only simplifies the repayment process but can also result in lower overall interest payments. Carefully research and compare refinancing options to determine the most suitable approach for your circumstances.
#5: Investment planning
Investing doesn’t mean you have to be a millionaire or even a financial expert. You can start investing with just $1, and you can do it all from your bank app if you wanted to! Investment planning is important for achieving long-term financial goals and building wealth. One key principle in investment strategy is the diversification of assets. Diversifying your investments involves spreading your money across different types of assets, such as stocks, bonds, and real estate, to mitigate risk. By avoiding over-reliance on a single investment type, you can potentially enhance returns and safeguard your portfolio against the volatility of specific markets. For this, we love the use of index and exchange-traded funds.
It is also important to understand your risk tolerance when making your investment plan. Risk tolerance refers to your ability and willingness to endure fluctuations in the rise and fall of your funds in an investment. For example, if you invest in a single company stock, you may see it rise by $10,000 one day and fall by $50,000 the next. On the other hand, by investing in something “safer,” you will likely not see as much fluctuation day to day. That is why it’s crucial to align your investment choices with your comfort level for risk.
#6: Retirement planning
Whether you are 22 or 45, you can start your retirement plan now. It’s never too early or too late. Plus, as life expectancy increases, the importance of having adequate resources for a comfortable retirement becomes even more pronounced. Even though you can start saving for retirement at any time, starting early is always better, as it allows for the power of compounding interest to work in your favor.
By contributing to retirement savings accounts consistently, such as 401(k)s or IRAs, you not only build a substantial nest egg but also take advantage of potential employer matches and tax benefits.
But, what retirement funds work best for you? Understanding which retirement account options are available is a great first step in planning. Traditional 401(k)s and IRAs offer tax-deferred growth, meaning you contribute pre-tax dollars, reducing your current taxable income.
Roth versions of these accounts, on the other hand, involve contributing post-tax dollars but offer tax-free withdrawals during retirement.
Additionally, consider exploring other retirement vehicles, such as annuities or employer-sponsored pension plans, to diversify your retirement portfolio. Selecting the right combination of retirement accounts based on your financial situation and goals is a strategic step in securing a financially comfortable and fulfilling retirement.
#7: Tax planning
What is more exciting than talking about taxes? Kidding, of course! However boring tax planning is, it’s an integral piece of your financial puzzle. Rich people often are experts in understanding tax implications (or paying someone to be) because taxes can significantly impact your overall wealth. This means considering the tax implications of the different investment strategies you are employing (401ks vs. Roth IRAs vs. ETFs, etc.) By strategically planning your financial moves with tax consequences in mind, you can potentially minimize your tax burden and maximize your after-tax returns.
#8: Getting a Prenup
Last but certainly not least is getting a prenup. A prenup is a financially savvy person’s best friend. It’s a way to secure your financial future in any scenario, and it’s an act of self-love to you and your future self. You wouldn’t drive a car without car insurance, right? Why would you get married without a prenup, then? It’s the same logic. You aren’t planning for the worst when you sign up for insurance (i.e., getting into a car accident), but you do it to protect yourself in the what-if scenarios.
A prenup can protect your assets, businesses, income, gifts, and future inheritances and also protect you from absorbing your partner’s debt one day. If you don’t have anything yet, but plan to grow your wealth in the future, a prenup can ensure even future wealth is protected, even if it doesn’t exist now. By creating a prenup, you are essentially creating an insurance policy for your money (disclaimer: a prenup isn’t actually insurance, but you catch our drift).
A note from the author: I used to think prenups were just for the super-rich and famous, but thanks to companies like Hello Prenup, they’re dismantling the gatekeeping that used to exist and making accessing a prenup so much easier and more streamlined. A great wealthy witch move!
Laura Tynan is the founder of The Witch of Wall Street, a personal finance and investing community, where women are shown how to manage, multiply and manifest money, using simple strategies. Laura holds a BSc Hons in Finance, is a Chartered Accountant, and is certified in EFT Tapping, Breathwork, and RRT. She has been recognized by the Financial Times as a Top 20 Future Female Leader and by Yahoo! Finance as a Global Champion of Women in Business. She is a multi-award-winning speaker who has spoken at, and been featured in, Forbes. Laura hosts The Witch of Wall Street podcast and is the author of the personal finance and investing book for women, by the same name, which is available now on Amazon.
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