The ball has dropped, and a new year has begun. Many view January as a time to make a fresh start and bid farewell to bad habits. In thinking about your New Year’s resolutions, have you considered whether you’re making financially healthy decisions?
Now is a great time to check on your investments, revisit your budget, and improve your overall financial wellness. Read on for six tips to boost your financial savvy for the year ahead.
1. Get Organized
First, make sure your financial files — be they digital or hard copy — are in order. If you don’t log in to all your accounts regularly, make sure you’re still able to sign in and access your statements. If you receive paper copies, shred what you no longer need after you file current documents.
Also, take this opportunity to check your credit score. A measure of how likely you are to pay back a loan on time, this number can have a big impact on your financial life. Your credit score can affect how much interest you pay on a loan, the limit on a new credit card, your required security deposit for a new apartment, and more.
2. Draft Your Budget
With your documents in order, start making a budget. Rising inflation might have caused financial strain this past year, as price increases impacted everything from rent to gas to groceries. And when your cost of living is going up, a budget is especially critical.
If you already have one, take time to reevaluate. Do you have new or increased expenses? Are you expecting a raise?
According to the FINRA Investor Education Foundation’s 2021 National Financial Capability Study (NFCS), roughly one in five respondents (19 percent) reported spending more than their income, and over half (56 percent) said they feel anxious about their finances. If that sounds familiar, creating an accurate budget might help.
Make sure your budget is realistic — a plan doesn’t do any good if you can’t stick to it — and includes savings. Among NFCS respondents, only 53 percent reported having a rainy day fund in case of an emergency. If money is tight, start with just a few dollars a week; it may not seem like much, but every little bit counts.
3. Update Your Goals — and Your Portfolio
After developing your budget, think about your savings goals. Is there room to boost your retirement saving?
What other financial milestones — building a kid’s college fund, securing a down payment for a house — are important to you right now? Think about your short-term goals as well to help prevent your long-term goals from feeling overwhelming.
Once you’ve clarified your goals, make sure your portfolio is optimized to accomplish them.
As you check the performance of your investments, you might find that your investment mix shifted throughout the year. If so, now could be a good time to rebalance.
4. Wait Out Market Volatility
The past year demonstrated the potential volatility of investing:
The stock market has seen dramatic swings, and inflation and interest rate hikes have stirred fears of a recession.
Seeing investment account losses can be stressful and might lead some investors to turn toward riskier behaviors.According to the NFCS, interest in higher-risk investments such as options or cryptocurrency has increased, particularly among younger investors.
The potential for high returns might make high-risk investments sound appealing, but you should never invest in something without understanding how it works and the risk involved. And a volatile market isn’t necessarily the time to make major changes; it’s usually wiser to stay the course with a well-balanced and diversified portfolio.
5. Examine Your Fees
Even products that seem straightforward can be misunderstood if you aren’t careful. One factor that’s often overlooked: fees.
Thanks largely to the emergence of online trading platforms, fees are often less than they used to be, and many brokerages offer commission-free trading. But investing still usually comes with some costs.
6. Protect Your Money
There’s a lot to consider when investing, and your finances are too important to leave to chance. Consulting a reputable source — such as a registered financial professional who understands your investment goals — can help you make the most of your money.